Wealth creation in Asia continues, even as the global economy is slowing down.
The Wealth Report 20191 by property consultancy Knight Frank noted the total Ultra High Net Worth Individuals (UHNWI) population in the world grew by 4% in 2018, down from 10% the previous year.
But within the slower growth is the continued concentration of wealth in Asia: eight of the top 10 fastest growing wealth populations are forecast to be in this region over the next five years. China and Singapore are on the list.
In 2018, Asia was host to 48,245 UHNWIs, each worth over US$30 million. Of the 48,245 UHNWIs, Japan topped the list with about 18,535. China was in second place, with close to 10,000 and Singapore, home to 3,600 of them, took third spot.
Overall, the UHNWI population in Asia is forecast to grow by 23% over a five-year period from 2019, making it one of the fastest growing wealth regions.
Given such exponential wealth creation in recent years in Asia, it is only natural the super-rich look to Singapore as the location of choice for their wealth management activities. As a global wealth management and private banking hub, Singapore boasts a strong eco-system to support wealth planning and structuring, including family office structures. A deep pool of talent such as asset managers, private bankers and legal and finance professionals like tax advisers are located in Singapore.
It enjoys political stability with well-established and transparent government policies. In a vote of confidence, the International Monetary Fund, in its Financial Sector Assessment Programme for Singapore in July 2019, reaffirmed the country’s financial sector oversight as “among the best globally2”.
Why Family Office?
Why are the wealthy keen to set up family offices which is an embedded concept in the US and Europe but still nascent in Asia where wealth accumulation is a newer phenomenon?
One of the key drivers is succession planning, given the vast amount of wealth to be passed on to the next generation. In the case of Asia, it is mostly transiting from the founders to the next generation or at most, to the third. Hence it is important to have proper and tax-efficient family office structures in place as the founding patriarch seeks to hand over the reins. Family offices will keep the family together and ensure interests are aligned – and preserve the family legacy and wealth.
As the inter-generational handover gets underway, the younger generation also wants to institutionalise the family office, by hiring financial professionals with experience and expertise to put in place disciplined investment mandates.
Another consideration for family offices is comprehensive tax planning - assets span multiple jurisdictions. Singapore has signed more than 80 tax treaties with other jurisdictions, giving family offices access to benefits under these agreements.
These tax benefits include:
- Possible tax exemption of specified income derived by the fund vehicles from designated investments;
- Withholding tax exemption on certain payments (such as interest) made to non-residents; and
- Goods and Services Tax (“GST”) remission – Qualifying funds are allowed to claim GST incurred on expenses at an annual fixed recovery rate, subject to conditions and certain exclusions.
Ms Thong Leng Yeng, Monetary Authority of Singapore (MAS) executive director for the financial centre development department, said that between 2016 and 2018, the number of family offices has quadrupled in Singapore. They comprise single family offices and satellite operations of existing family offices in the West.
The MAS, Ms Thong was quoted by The Business Times as saying, is working closely with the Economic Development Board to build a strong network of family offices in Singapore to allow “family offices to provide mutual support in each other’s operations as well as to partake in co-investment opportunities3”.
- Knight Frank – the Wealth Report 2019 Edition. Pages 12 and 13: Ultra High Net Worth Population contents and figures. Available at: https://www.knightfrank.com/wealthreport.
- IMF Financial Sector Assessment Programme for Singapore. Monetary Authority of Singapore website.
Available at: https://www.mas.gov.sg/news/media-releases/2019/imf-reaffirms-singapore-financial-sector-oversight-as-among-the-best-globally.
- Monetary Authority of Singapore, The Business Times, 31 August 2019. Available at: https://www.businesstimes.com.sg/investing-wealth/dbs-sees-growth-in-family-offices-in-singapore.