As a growing number of Asian entrepreneurs, tycoons and affluent families prepare to hand over the reins of the business to the next generation, they are turning to family offices to facilitate succession planning and wealth transfer.
Today, a typical family office does more than just manage wealth; it also handles other issues such as tax and legal, succession and philanthropy. Many benefits can be derived from setting up a family office.
One of the most important benefits is that a family office can be highly customised and structured to encompass your vision of the future, investment philosophy, and plan to protect human and intelligence capital. In other words, it is bespoke and personal.
A family office, if structured correctly, can also protect the privacy of family members. A family office allows a family to have all the personal information, such as family compasses, family charters, deeds of donations, shareholder agreements, deeds of incorporations, etc. in one secure place, accessible by only a limited number of people. The family office can therefore serve as the guardian and gatekeeper of the privacy of the family.
Furthermore, wealthy families can take advantage of the family office to ensure the continuity and perpetuity of their wealth. As family wealth is spread over several family members of different generations with different needs, it is crucial to strike a balance between wealth preservation and growth on the one hand and the financial needs of family members on the other hand. One cannot expect the family members individually to keep that balance. Hence, a family office provides a centralised and formalised approach to decision-making.
Finally, a family office is created to establish better governance of family wealth. Family wealth is getting more and more complex, especially in international settings. The family wealth usually grows beyond the ability and capacity of the family to manage it. In most cases, investments became the sole activity and business of the family. As a business on its own, it should be run professionally by a dedicated team of experts.
Setting up a family office can be a complicated process when there are multiple beneficiaries, and the assets are held by different entities and spread across several geographies. Many wealthy families also have members living in different parts of the world, adding to complexities since tax and inheritance laws differ from country to country.
Hence, the ideal country to establish a family office must have established regulatory rules, governing authorities, tax incentives scheme and a stable political environment to preserve a family’s wealth across generations.
Over the past couple of years, Singapore has gained prominence as the preferred base for family offices. The city-state’s many strengths as a hub for family offices include a stable business and political environment, a strong rule of law, and a deep pool of financial, investment and wealth management talent. Below are some of the common reasons many ultra-wealthy families have chosen Singapore to set up their family offices.
HOW CAN ROCKSTEAD CAPITAL HELP
Our dedicated Rockstead Family Office team, consisting of experienced portfolio managers, analysts, and operational, compliance and legal specialists, has cumulated extensive experiences in helping HNWIs establish family offices utilising the VCC structure.
Rockstead Capital owns a VCC, which allows us to manage the assets and investments of our family office clients through multiple sub-funds. Each family office client simply needs to register a sub-fund under the Rockstead VCC umbrella, which is a straightforward process that will be handled by our experienced onboarding team.
For more information on Rockstead Capital family office services and product offerings, please contact any of our relationship managers or write to Familyoffice@rockstead.com.
Depending on each family’s requirements, the family office fund structure could range from simple investment holding structures to complex arrangements involving multiple trusts, sub-trusts for individual beneficiaries, private trust companies, multiple funds, and complex asset classes, among others. In this paper, we will discuss two common structures, the Single Family Office (SFO) and Multi-family Office (MFO).
SINGLE FAMILY OFFICE
There are estimated more than 700 Single Family Offices in Singapore and the number has grown in recent years. MAS did not have hard data on the scale of their operations because SFOs do not manage third-party monies and are therefore not registered with or licensed by MAS. However, industry research estimates that each SFO typically manages assets of more than US$100 million, so total assets under management by SFOs could be around US$20 billion.
Generally, the term “single family office” refers to an entity that manages assets for or on behalf of a family, and which is also wholly owned or controlled by the members of that same family.
The typical SFO structure includes an onshore or offshore Fund entity, which is managed by a Singapore-incorporated SFO company. The SFO company will provide investment management services to the Fund. It can also provide concierge and administrative services to the family.
Since the SFO company is responsible for managing funds on behalf of a single family and not external parties, it can potentially qualify for CMS (Capital Markets Services) licensing exemption under the rules of the Monetary Authority of Singapore (MAS). In the structure diagram shown below, where the SFO company is held directly by the Fund entity, such exemption is applicable.
The choice of Fund entity is wide-ranging, and families can choose between onshore (Singapore) and offshore vehicles. Commonly used vehicles in Singapore include a private limited company, a limited partnership and the VCC (or Variable Capital Company), which we will discuss more in the next section.
Some families may incorporate trust structures on their family office platform. The use of trust provides several advantages and can be structured in such a way that it is not considered to be owned by a high-net-worth individual and does not form part of the estate of the individual when he or she passes away. Hence, the primary purposes for setting up a trust include succession and estate planning, the asset protection against creditors in the event of a marital breakdown, wealth planning, maintaining the confidentiality of asset information, ensuring continuity of the family business, and tax minimisation. In addition, a trust facilitates the process of transferring an estate after the settlor passes away whilst avoiding lengthy and potentially costly probate.
Trusts in Singapore are generally administered by either an institutional trustee or a private trust company.
MULTI-FAMILIES OFFICE (VCC)
The VCC was introduced to increase the international competitiveness of the fund industry in Singapore by encouraging funds to incorporate and operate in the country through a more flexible corporate structure. The VCC Act came into effect on 14 January 2020.
The VCC has the characteristics of a Singapore company because it is a separate legal person, but unlike a typical company, the VCC offers greater privacy as its financial statements are not required to be made public. The VCC also provides flexibility in the issuance and redemption of share capital. The VCC can use its capital/net assets to redeem shares and distribute dividends out of capital.
The unique characteristics of the Singapore VCC structure offer multiple advantages to the multi-families office (MFO). The VCC can be established as an umbrella structure with multiple sub-funds and share classes. The umbrella VCC would have provisions for the segregation of assets and liabilities between sub-funds, such that the assets of one sub-fund may not be used to satisfy the liabilities of another sub-fund.
Sub-funds may have different investment mandates and assigned beneficiaries. Such structure allows greater flexibility in segregating and allocating assets, differentiating investment objectives, and interest distribution arrangements between multiple families.
However, a licensed Singapore fund manager, such as Rockstead Capital, is required to manage the VCC. This means that single family offices are currently not able to access the advantages offered by a VCC structure.
COMPARING FAMILY OFFICE SETUP WITH ROCKSTEAD CAPITAL
Our team of experienced portfolio managers, analysts, and operational, compliance and legal specialists is well positioned to help you navigate the complexity of creating a family office structure that encompasses your vision of the future, investment philosophy, and plan to protect human and intelligence capital.
Generally, our family office clients have the option to set up either a Single Family Office (SFO) or Multiple Family Office (MFO) under the VCC structure. Each option comes with associated benefits and limitations.
On the other hand, establishing an MFO under the Rockstead Capital VCC umbrella requires no incorporation of a company entity or a Fund. The client only needs to register a VCC sub-fund, which is a straightforward and quick process. Since Rockstead Capital has been awarded the 13U tax exemption, MFO clients can enjoy tax exemption on their investment returns without the need to apply for any tax exemption scheme. These advantages mean that establishing an MFO under the Rockstead Capital VCC requires a significantly shorter timeframe (estimated 45 days). Furthermore, the MFO allows acceptance of investment funds from external investors, which essentially means the family office can if they choose to, use the setup to operate an asset management business.
For more information on Rockstead Capital family office services and product offerings, please contact any of our relationship managers or write to Familyoffice@rockstead.com.
Singapore is recognised as a leading fund management hub in the world. Over the last decade, the government proactively took important steps to develop the country’s fund management sector and aggressively promote and enhance Singapore’s attractiveness in the global fund management industry.
In 2018, the Singapore Parliament passed the Variable Capital Companies Act 2018 (the “VCC Act”). The Act came into force in January 2020, when the Monetary Authority of Singapore announced the launch of the variable capital companies regulatory framework. The VCC Act provides for the incorporation and operational details of a new corporate vehicle that is suitable for investment funds.
The Singapore government created this new corporate structure to attract hedge funds and family offices that have their assets registered in low-tax jurisdictions such as the Cayman Islands. This was in response to the EU’s decision in February 2020 to add the Cayman Islands to its blacklist of non-cooperative tax jurisdictions.
The legislation is also designed to enhance Singapore’s position as a full-service international fund management centre and is expected to be a game-changer for Singapore’s asset and wealth management industry, cementing Singapore’s role in the region.
This article explains the key features of the VCC, the legal framework relating to the incorporation and establishment of a VCC, sets out the advantages of a VCC structure over other fund structures and provides an overview of the tax incentive scheme available under the VCC.
UNDERSTANDING VCC UMBRELLA & SUB-FUND
A VCC can be established as a standalone fund or an umbrella structure with multiple sub-funds and share classes. The umbrella VCC would have provisions for the segregation of assets and liabilities between sub-funds, such that the assets of one sub-fund may not be used to satisfy the liabilities of another sub-fund.
To address the key risk of cross-cell contagion within a VCC, any provisions (e.g. in the constitution or agreements entered into by VCCs) which are inconsistent with the segregation of assets and liabilities of sub-funds, would be void.
VCCs with multiple sub-funds must have the same fund manager for all the sub-funds under the umbrella fund. Furthermore, the winding up of the individual sub-funds does not automatically initiate the winding up of the entire umbrella fund.
A sub-fund of a VCC may invest in other sub-funds of the same VCC.
It is to be noted that the sub-fund is subject to the orders of the court as it would have been had the sub-fund been a separate legal person. The VCC may sue or be sued in respect of a particular sub-fund and may exercise the same rights of set-off in relation to that sub-fund as it may apply for a company incorporated under the Singapore Companies Act.
KEY FEATURES OF VCC FURTHER EXPLAINED
Fund Managers
A VCC must be managed by a fund manager regulated or licenced by the MAS unless exempted. This exemption is only applicable to those financial institutions exempt under specific provisions of the SFA (securities and futures act) only.
The exemption means that those fund managers currently exempt from licensing and registration due to being a real estate fund cannot use a VCC.
However, this does not invalidate VCC’s use by a real estate fund manager or a single-family office, if they find the use of VCC a compelling proposition, they can get themselves licensed and then launch a VCC.
Directorship
The VCC is to be governed by a Board of Directors which will hold primary responsibility for the governance of the VCC.
It must have a minimum of one director who is ordinarily a resident of Singapore. The sole director can also be a sole shareholder of the VCC.
A VCC must have at least one director who is also a director or qualified representative of the fund management company that will be managing the VCC.
A VCC cannot have a body corporate as its director, irrespective of the residency of the said body corporate.
Custodian
A VCC is required to safeguard its assets by entrusting a “custodian” unless exempted. The custodian must be an approved CIS trustee under the SFA. Such custodians must comply with the CIS Code, which will set out the operational obligations of custodians of the authorised scheme.
VCCs which comprise of restricted or exempt schemes that are PE/RE/VC funds may be exempted from requiring a custodian. To avail themselves of this exemption, the VCC must disclose the lack of a custodian to its investors, obtain investors’ acknowledgement of this custody arrangement, and ensure that the scheme is audited on an annual basis and that the auditor’s report is provided to investors.
Annual General Meetings
A VCC should host an annual general meeting every year within six months from the end of the financial year. The first financial year cannot be longer than 18 months (unless ACRA approves otherwise).
VCCs are not subjected to a mandatory requirement to hold an annual general meeting (AGM) and have the option to dispense with holding an annual general meeting by giving at least 60 days’ notice to its shareholders.
AML/CFT Requirements
To prevent the abuse of VCCs for money laundering and terrorist financing:
AML/CFT requirements on VCCs will be supervised by the MAS for AML/CFT compliance
VCCs are required to outsource the performance of AML/CFT duties to its fund manager, are held ultimately responsible for compliance with its AML/ CFT requirements
VCC’s directors are subjected to fit and proper checks, and the VCC is required to have at least one director who is also a director of its fund manager
TAX INCENTIVE SCHEME UNDER VCC
A person in Singapore who manages a fund, whether offshore or onshore, on a discretionary basis creates a taxable presence for the fund in Singapore. In the absence of a tax treaty or tax incentive, income and gains of the fund due to the activities of a Singapore fund manager are potentially taxable in Singapore. However, Singapore’s domestic legislation provides for tax exemption for such funds.
However, the tax exemption under section 13O referred to as “Singapore Resident Fund Scheme” or “SRF” and section 13U, referred to as “Enhanced-Tier Fund Scheme” or “ETF” of the Income Tax Act of Singapore will be extended to VCCs.
Singapore Resident Fund Scheme, 13O
The Singapore Resident Fund Scheme was introduced to encourage fund managers to base their fund vehicles in Singapore. The main advantage of using a Singapore fund over a tax haven-based fund is that the fund management company and investment team are based in the location of the fund itself (i.e. Singapore).
A Singapore resident fund managed by a Singapore-based fund manager will be exempt from tax on “specified income” derived from “designated investments” if the fund is an “approved company”. For a fund to qualify as an approved company, the fund vehicle must (amongst others) have the legal form of a company, have its control and management exercised in Singapore, and use a Singapore-based fund administrator. In addition to this, there is a business spending requirement of at least S$200,000 each financial year. There is no minimum fund size requirement.
The list of designated investments is broad, but a case-by-case analysis is needed. Some very clear exclusions are investments connected with Singapore real estate.
It is important to note that the fund cannot be fully owned by Singaporeans. If the investor is a non-qualifying investor (NQI) who beneficially owned more than the prescribed percentage stated in Section 13O, the investor shall be liable to pay a penalty to the Singapore tax authorities. The penalty is effectively equivalent to the corporate income tax payable on his share of the income and gains of the fund.
Enhanced-Tier Fund Scheme, 13U
Similar to the SRF Scheme, the ETF Scheme provides for tax exemption on “specified income” derived from “designated investments” from funds managed by a Singapore-based fund manager. Unlike the SRF Scheme, a fund does not have to be incorporated or resident in Singapore to apply for the ETF Scheme.
However, the conditions to apply for the ETF Scheme include a minimum fund size of S$50 million at the time of application, and the fund management company managing the fund to have at least three investment professionals. Additionally, there is a requirement for business spending of S$500,000 each financial year to be in Singapore. The ETF Scheme does not have restrictions on investors’ profiles and ownership percentages. The fund can reside either offshore or onshore.
A Singapore VCC is eligible for Enhanced-Tier Fund Scheme (if all conditions are fulfilled).
HOW CAN ROCKSTEAD CAPITAL HELP
Our dedicated Rockstead Family Office team, consisting of experienced portfolio managers, analysts, and operational, compliance and legal specialists, has cumulated extensive experiences in helping HNWIs establish family offices utilising the VCC structure.
Rockstead Capital owns a VCC, which allows us to manage the assets and investments of our family office clients through multiple sub-funds. Each family office client simply needs to register a sub-fund under the Rockstead VCC umbrella, which is a straightforward process that will be handled by our experienced onboarding team.
After establishing the sub-fund, we will continue to support you in:
Investment portfolio analysis, construction, and implementation
Portfolio, risk management and operations (e.g., fund administration, subscription/ redemption, etc.)
For more information on Rockstead Capital family office services and product offerings, please contact any of our relationship managers or write to Familyoffice@rockstead.com.
The Singapore Resident Fund Scheme was introduced to encourage fund managers to base their fund vehicles in Singapore. The main advantage of using a Singapore fund over a tax haven-based fund is that the fund management company and investment team are based in the location of the fund itself (i.e., Singapore).
Both the SFO and VCC incorporated in Singapore are eligible to apply for the 13O – Onshore Fund Tax Exemption Scheme (formerly 13R) or the 13U – Enhanced Tier Fund Tax Exemption Scheme (formerly 13X), provided certain conditions are met.
An SFO or VCC is eligible to apply for 13O tax exemption if it can meet the following requirements
At least S$200k local business spending per year
Minimum fund size of S$10 million at the point of application; and within 2 years period, the fund must increase its AUM to S$20 millions
Must employ at least 2 investment professionals
Cannot be 100% owned by Singaporean Fund must be incorporated in Singapore
An SFO or VCC is eligible to apply for 13U tax exemption if it can meet the following requirements
At least S$500k local business spending per year
Minimum fund size of S$50 million at the point of application
Must employ at least 2 investment professionals. At least 1 of the investment professionals employed must be a non-family member
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