Setting Up a Family Office in Singapore: Sections 13D, 13O and 13U Explained

What does a family-office structure include?

A typical structure may contain:

• A fund vehicle holding the family’s investments
• A Singapore single family office managing the fund
• Investment and administrative professionals
• Banks, brokers and custodians
• Accounting and fund-administration arrangements
• External legal, tax, regulatory and investment advisers
• A trust or other succession-planning vehicle where appropriate

The structure should be designed around the family’s assets, investment strategy, tax residence, succession plan and relevant countries.

Comparing Sections 13D, 13O and 13U

Section 13D: Offshore fund exemption

Section 13D is mainly intended for a qualifying non-Singapore-resident fund managed by a Singapore-based fund manager.

It may be relevant when a family already has an offshore fund vehicle and wants to conduct investment-management activities from Singapore without relocating the fund to Singapore.

Prior MAS incentive approval is generally not required. The fund must assess and document whether it satisfies all applicable conditions.

The fund must generally:

• Remain non-resident in Singapore
• Have no Singapore presence other than its Singapore fund manager
• Be managed by an appropriately licensed or exempt Singapore fund manager
• Derive qualifying income from designated investments
• Satisfy the applicable investor, ownership and continuing conditions

Section 13D does not follow the same S$20 million or S$50 million MAS application framework as Sections 13O and 13U. However, separate ongoing conditions still apply.

Section 13O: Singapore-resident fund

Section 13O is commonly considered where the family intends to establish a Singapore-resident fund.

The principal requirements currently include:

• At least S$20 million in assets under management
• At least two investment professionals
• Tiered business expenditure, including at least S$200,000 of local business spending
• Deployment of the lower of S$10 million or 10% of assets under management into qualifying Singapore-related investments
• Prior approval from MAS

The fund and family office must maintain genuine activities and economic substance in Singapore.

Section 13U: Enhanced-tier fund

Section 13U is generally considered for larger or more complex investment structures.

The principal requirements currently include:

• At least S$50 million in assets under management
• At least three investment professionals
• Tiered business expenditure, including at least S$200,000 of local business spending
• Deployment of the lower of S$10 million or 10% of assets under management into qualifying Singapore-related investments
• Prior approval from MAS

Section 13U offers more flexibility over the form and location of the fund vehicle, subject to the applicable conditions.

The complete requirements may change and depend on the structure. Families should confirm the prevailing rules before establishing entities or transferring investments.

What is the tax benefit?

A qualifying fund may receive a Singapore income-tax exemption on specified income derived from designated investments.

Depending on the prevailing rules, this may include qualifying income or gains from:

• Shares and securities
• Bonds and qualifying debt instruments
• Units in investment funds
• Certain derivatives and financial instruments
• Other designated investments

This is not a blanket exemption.

For example:

• Income from non-qualifying investments may remain taxable.
• Certain Singapore property-related income may not qualify.
• Physical assets such as artwork may fall outside the exemption.
• The family-office management company’s fees and profits remain subject to normal tax rules.
• Salaries and directors’ fees paid to individuals are not automatically exempt.
• Overseas countries may impose tax according to their own rules.

The availability of the exemption depends on the fund continuing to satisfy all relevant conditions.

Other potential tax benefits

Qualifying Section 13O and 13U funds may be eligible to recover part of the GST incurred on qualifying fund expenses using a fixed recovery rate.

IRAS currently states that this GST remission is available until 31 December 2029, subject to the fund satisfying the relevant conditions.

A qualifying family office may also consider the Philanthropy Tax Incentive Scheme. Based on current EDB guidance, this can provide a 100% deduction for qualifying overseas donations, capped at 40% of the donor’s statutory income.

Separate conditions apply to the donor, recipient and donation.

Important steps when setting up

1. Determine the family’s objectives

The family should decide:

• Which assets will be managed
• Which family members will benefit
• How investment decisions will be made
• Whether succession and philanthropy are included
• Whether the family requires a Singapore or offshore fund
• Which countries’ tax and legal rules are relevant

2. Review the assets and source of wealth

The family should prepare a complete record of its investments, businesses, properties and other assets.

Banks and professional advisers will require evidence explaining how the wealth was accumulated and where the investment funds originated.

Not every asset will qualify as a designated investment or be suitable for transfer into the fund.

3. Choose the incentive and structure

The family and its advisers should determine whether:

• Section 13D, 13O or 13U is most appropriate
• The fund should be located in Singapore or offshore
• A company, Variable Capital Company, partnership or trust should be used
• A separate trust or succession vehicle is required
• Existing investments should be transferred into the new structure

Transfers should not be completed before considering possible tax, stamp-duty, legal and regulatory consequences.

4. Establish the Singapore operations

The family office should have genuine operations in Singapore.

This may involve:

• Employing qualified investment professionals
• Maintaining premises and operating systems
• Entering into an investment-management agreement
• Incurring the required business expenditure
• Conducting substantive investment and governance activities
• Maintaining proper accounting and operational records

Employees should perform genuine functions rather than hold nominal appointments.

5. Confirm the regulatory position

A genuine single family office serving one family may have a different licensing position from a multi-family office serving unrelated families.

The precise position depends on its ownership, clients, activities and investment arrangements.

Fund management, financial advice and other regulated activities must be performed by appropriately licensed or exempt professionals.

6. Arrange banking and custody

Banks, brokers and custodians will conduct their own reviews covering:

• Beneficial ownership
• Source of wealth
• Source of funds
• Tax residence
• Existing businesses
• Expected investments and transactions
• Sanctions and customer due diligence

Incorporating a company or obtaining tax-incentive approval does not guarantee that a financial institution will accept the family.

7. Prepare the MAS application

Applications under Sections 13O and 13U should be supported by:

• The proposed structure
• Investment strategy
• Staffing arrangements
• Business-expenditure budget
• Capital-deployment plan
• Details of the family and its source of wealth
• Accounting and fund-administration arrangements

MAS approval is not guaranteed. Families should avoid irreversible asset transfers based only on an expected approval.

8. Establish accounting and compliance procedures

After establishment, the family office and fund should maintain:

• Investment transaction records
• Bank and custody reconciliations
• Investment valuations
• Financial statements and tax filings
• Payroll and expense records
• Local business-spending records
• Capital-deployment monitoring
• Assets-under-management calculations
• Supporting records for MAS declarations
• Appropriate internal controls and approval procedures

The applicable conditions should be monitored throughout the incentive period, not only during the initial application.

Common mistakes

Families should avoid:

• Treating the incentive as an automatic tax exemption
• Selecting an incentive before reviewing the existing assets
• Underestimating staffing and annual operating costs
• Using nominal employees without substantive Singapore functions
• Transferring assets before receiving legal and tax advice
• Assuming all investments qualify for exemption
• Ignoring bank source-of-wealth requirements
• Mixing personal expenses with fund expenses
• Failing to monitor spending and capital deployment
• Assuming that approval removes annual accounting and tax obligations

How LN can assist

LN Corporate Services can assist with:

• Incorporation of Singapore entities
• Corporate-secretarial administration
• Accounting and bookkeeping
• Fund-administration and management reporting
• Bank and custody reconciliations
• Payroll and operating-expense monitoring
• Financial-statement preparation
• Tax-compliance coordination
• Accounting procedures and internal controls

Where an audit is required, LN CO Assurance can discuss the relevant audit and assurance requirements, subject to independence and professional-ethics considerations.

Legal structuring, investment management, MAS applications, immigration, trusts and other regulated matters will be handled by appropriately qualified or licensed external professionals.

LN does not guarantee approval under Sections 13D, 13O or 13U, the opening of bank accounts or any particular tax outcome.

WhatsApp: +65 9298 8036

Email: Looi@lncorporateservices.com