Family offices unfazed by Singapore’s wealth taxes as their numbers grow
Despite the slew of wealth taxes announced in the 2022 Singapore budget, family offices are unperturbed as the ultra wealthy continue to be drawn by other factors such as political and currency stability, high living standards, and accessibility to regional investment opportunities.
Ryan Lin, director of Singapore-based Bayfront Law which advises family offices, said the impact of the recent tax measures on properties, luxury cars, and top earners announced in February was “measured and “not significant”.
For instance, the rates for non-owner-occupied residential properties will increase to between 12% and 36 % from the current 10% to 20% depending on their annual value.
Owner-occupied homes will be taxed 6% to 32% for the portion of annual value in excess of $30,000, up from 4% to 16% currently.
Family offices are unlikely to be affected by the property tax hikes since most of them own one residential property for personal use, Lin said. They are also deterred from buying multiple properties because of the high additional buyer’s stamp duty, which can be as steep as 30% for foreigners and permanent residents depending on the number of properties purchased.
Instead, family offices will more likely use Singapore as a base from which to invest in overseas properties and leverage the tax incentives they enjoy, he said.
A portfolio manager at a single family office told AsianInvestor that family offices like his are not too worried about the new budget announcements because they were expecting incremental changes anyway.
He added that the impact also largely depends on how the offices are set up, for instance whether as a trust or under the local 13R or 13X schemes that offer tax exemptions on selected investment income.
The budget also announced an increase on luxury cars taxes with a new tier introduced for high-end cars at a rate of 220% on the portion of open market value exceeding $80,000. Examples of cars in this category are Porsche Cayenne, Lamborghini Urus, and other makes such as Ferrari, McLaren, Aston Martin, and Rolls-Royce.
This is unlikely to deter family offices either, Lin said. “Typically, they [family office owners] wouldn’t buy high-end cars. They are very practical and go for seven-seaters to shuttle themselves around.”
NET WEALTH TAX
The impact on family offices would have been severe if a net wealth tax had been part of the package, Lin said, referring to taxation on assets less the liabilities, an issue that was discussed publicly but not included in the final budget.
“If we go that route, no one will be willing to set up shop in Singapore,” he said. “It will cause capital flight.”
Net wealth tax is unpopular as it imposes taxation on net assets even when no real revenue or income is generated, said Kiow Wei Hao, partner of Hong Kong-based DL Holdings Group and CEO of its Singapore office, citing art pieces or a loss-making business as examples.
“The presence of wealth tax might deter incoming foreign investments,” he told AsianInvestor. But he added that families could structure and redistribute their wealth across several jurisdictions to minimise their tax burden.
His firm, which provided legal advice to more than 50 family offices, has also received strong interests from mainland China, Indonesia, and India though not as many from the US and Europe.
The Covid pandemic may have even contributed to the influx with the growing perception that the city has capable crisis management and an efficient healthcare system.
According to Singapore’s monetary authority, there are about 400 family offices as of 2020, with the rapid growth in recent years supported by initiatives such as tax exemptions, wealth management training, and organised networking for family offices to meet, share and participate in co-investment opportunities.
A Knight Frank study in 2021 projected the number of UHNW individuals in Singapore, estimated at 3,700, to grow by 30% between 2020 and 2025.
Education for children has become a common concern among wealthy families. Lin noticed that those seeking information were relatively young parents in their early forties.
“When we talk to them the first few things they ask is ‘can you tell me what the good schools are to send my kids,’” he said.
Living standards, healthcare, and security are also common concerns. “Because they are UHNW people, their concern about personal safety is different from the man in the street,” he said.
PROXIMITY TO EMERGING ASEAN
Singapore’s connectivity to fast-growing Asean economies such as Indonesia, Vietnam, Thailand, and the Philippines was another attraction for wealthy investors seeking to set up family offices, said Wong.
Indonesia stands out for its massive population, natural resources and political will to raise national living standards under President Joko Widodo. Vietnam with a young population of 100 million is another that offers good potential for investors.
Wong said: “If our investors want to go regional, Singapore is the nearer financial hub to these countries compared to Hong Kong.”
Kiow said while Singapore and Hong Kong were both attractive family office locations, the former was a “fantastic springboard into the growing market in Southeast Asia,” thanks to its geography, robust financial system, talent pool, and broad investment options.
Additional reporting by Natalie Koh.