Author: Lawyer Zhang Jingxinyue | PRC Practising Lawyer | Singapore Registered Foreign Lawyer
Note: Zhongxin Legal News has previously published articles explaining the advantages of Singapore family offices, structure design, establishment procedures, seven key issues to consider and the relationship between family offices and immigration. Readers have nevertheless continued to ask about the costs of establishing and maintaining a Singapore family office.
In practice, the cost of setting up and operating a family office depends mainly on its service scope, size and business complexity. It is important for family members to understand and accept the initial and continuing costs. If the family and the family office cannot agree on cost-related matters, family relationships may become strained and the office's operation may be affected. Because every family has different circumstances and needs, the costs also vary. This article provides a general overview of the basic costs for reference.
1. The main costs from establishment to operation
01 Minimum assets under management (AUM)
- For a family office applying for the 13O onshore tax-exemption scheme, formerly known as 13R, the Monetary Authority of Singapore requires the fund to have at least S$10 million in AUM at the time of application and to undertake to increase its AUM to S$20 million within two years.
- For a family office applying for the enhanced 13U tax-exemption scheme, formerly known as 13X, the fund must have at least S$50 million in AUM at the time of application.
02 Establishment costs
- Designing the legal structure of the family office;
- Incorporating the family-office company;
- Applying for a fund-licence exemption for a single family office or applying for a fund licence for a multi-family office;
- Applying for the 13O or 13U tax exemption.
These are the matters and expenses that must generally be addressed before the family office is established in Singapore. The project fee is agreed on a case-by-case basis according to the complexity of the structure and the client's requirements.
03 Operating and maintenance costs
- Internal operating expenses, including employee salaries and benefits, daily expenses, technology and telecommunications costs;
- External professional-service fees, including company secretarial, accounting, tax, legal, advisory, insurance and securities services;
- Direct family expenses, including housing, art or other collections, travel, administration, consumption and taxes;
- Investment-advisory fees, including management, custody, research and data services and consolidated reporting.
The 13O and 13U tax-exemption schemes impose mandatory requirements on a family office's annual operating and business expenditure. Permitted expenditure may include premises rent, staff salaries, fund-manager salaries or management fees, legal fees, company-secretarial fees and other professional expenses. In particular:
- Under the 13O structure, the required expenditure is S$200,000 where AUM is below S$50 million, S$500,000 where AUM is between S$50 million and S$100 million, and S$1 million where AUM exceeds S$100 million;
- Under the 13U structure, the required expenditure is S$500,000 where AUM is below S$50 million, S$500,000 where AUM is between S$50 million and S$100 million, and S$1 million where AUM exceeds S$100 million.
Comparison of the 13O and 13U tax-exemption schemes
| Item | 13O onshore tax-exemption scheme (formerly 13R) | 13U enhanced tax-exemption scheme (formerly 13X) |
|---|---|---|
| Minimum AUM | At least S$10 million at application, with an undertaking to increase AUM to S$20 million within two years. | At least S$50 million at application. |
| Investment professionals | A single family office (SFO) must employ at least two investment professionals. If this is not satisfied at application, there is a one-year grace period to hire the second professional. | An SFO must employ at least three investment professionals at application, at least one of whom must be a non-family member. |
| Note | “Investment professional” means a Singapore tax resident. “Non-family member” means an individual who is not a family member of the beneficial owner. | “Investment professional” means a Singapore tax resident. “Non-family member” means an individual who is not a family member of the beneficial owner. |
| Total annual business expenditure | At least S$200,000, subject to the tiered business-spending framework. | At least S$500,000, subject to the tiered business-spending framework. |
| Local investment | A fund managed by an SFO must, at any time, invest at least 10% of AUM or S$10 million, whichever is lower, in “local investments in Singapore”. These include shares listed on a Singapore-licensed exchange, qualifying debt securities, funds distributed by a Singapore-licensed or registered asset manager, and private-equity investments in unlisted Singapore companies with operations in Singapore, such as start-ups. | The same local-investment requirement applies to the SFO-managed fund. |
2. The cost-saving side of a Singapore family office
From another perspective, a Singapore family office may reduce costs in the following ways.
First, most of the staff may be family members. This can substantially reduce salary costs. The office generally needs people with management and work experience, but it does not necessarily need to pay high external-market salaries to operate.
Second, the Singapore government offers favourable offshore-operating arrangements for family-office immigration structures. Singapore's exchange-rate environment and lack of foreign-exchange controls may also be advantageous, and family-office income may be tax-exempt, reducing costs indirectly.
Third, Singapore's tax system is relatively straightforward. There is no tax on shareholder dividends, no value-added tax and no estate tax, and a new company may enjoy integrated tax incentives for its first three years. Establishing a family office may therefore allow the family to benefit from corporate tax exemptions and incentives.
Fourth, an applicant may achieve an immigration objective while establishing and operating the family office. The family can benefit from Singapore's corporate policies while family members obtain Singapore immigration status.
3. What services does the Zhongxin Legal News team provide?
- Designing a suitable and compliant legal structure for the family office;
- Assisting with tax planning and immigration or settlement matters;
- Establishing the family office's corporate entity;
- Assisting with bank-account opening and providing account-compliance guidance;
- Applying for an Employment Pass and Dependant's Pass or Long-Term Visit Pass for family members;
- Assisting with applications for tax incentives and liaising with the relevant government authorities;
- Applying for a financial licence or an exemption;
- Conducting transfer-pricing analysis for management services provided by the family office;
- After establishment, assisting the client with implementation in Singapore and providing or supervising legal, financial and tax compliance services.
- For further advice on establishing and operating a Singapore family office, please contact the professional advisory team of Zhongxin Legal News.
- Click the original link to read Citi Private Bank | A Guide to Establishing a Family Office.
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This article is for information only and does not constitute formal legal advice.
This article is general information and not legal advice. Specific matters require assessment by appropriately qualified professionals.