By Anuj Kagalwala, Tax Partner and Amit Hindocha, Senior Manager, PwC Services LLP
The family office concept is not widely known in Asia but is gaining in popularity among those with significant assets as its advantages become more widely known. Indeed, regarded as Asia's premier wealth management centre, Singapore is the jurisdiction of choice for many looking to establish their family office.
What is a family office? In its simplest form, it is a company privately owned by a family that manages the wealth of that family. The family office's role can extend to asset management, governance, succession planning and philanthropy.
Why Singapore? Political stability, a sound legal system, strong financial regulation and the presence of many experienced private banks and wealth managers, all contribute to make Singapore an attractive location. Singapore's high living standards, diversity, safe living environment and conducive tax regime add to the allure for those outside Singapore.
Choosing a location which could potentially be home (however remote the possibility) or even a place where the family could send their children to study is a factor. Singapore is able to create that extra connection which some financial centres may lack.
"In this world, nothing can be said to be certain except death and taxes," so wrote Benjamin Franklin in 1789. Nowadays, headlines regularly highlight the increase in wealth in Asia or the growing affluent middle classes. However, more often than not, wealth accumulation started with one individual or several family members decades ago. They were the entrepreneurs who spotted an opportunity, took the risks, made sacrifices and worked hard. The wealth that they have created for themselves and for their families represents the fruits of that labour.
And what now? Now, the businessmen and women who have dominated their businesses for so many years are old and thinking of retiring - and passing on the wealth that they created to the next generation of family members in an efficient manner.
There are several forms that a family office can take: from those that manage the affairs of a single family to those that assist several families. However, generally their aims are the same: to professionalise the management of the family's wealth in today's complex and ever-changing regulated financial markets; to efficiently segregate some of the existing family's wealth for future generations; as well as assist members of the family to engage in the charitable or philanthropic activities of their choice. More importantly, the family office is also a means by which the family can ensure the confidentiality and privacy of its finances.
Tax planning in a family office
The tax planning around the family office can be as simple or as complex as the wealthy family require. But primarily, the objective must be to preserve (if not increase) the family's accumulated wealth - and that means planning in a manner that manages taxes and costs so that the family's wealth can be efficiently structured for succession planning purposes.
ndeed, tax planning is an essential part of establishing the family office as it is important to structure the wealth properly so that tax liabilities do not reduce investment returns or otherwise detract from the primary aim of preserving and passing on the family's wealth to future generations.
Singapore offers a host of planning incentives with tax-free outcomes. There is an added sweetener in certain situations if you are able to tap on Singapore's treaty network to also minimise taxes on investment income and gains earned overseas. This can boost investment returns substantially. While there is a cost and complexity in establishing and running a family office, the benefits tend to outweigh the challenges.
There is a growing trend of international family offices setting up in Singapore, and those already here are expanding their roles and activities. We believe that this trend is just the beginning, and the growth in this space is likely to be exponential over the next decade or so. Those in Singapore are fortunate to have the choice of family office location made for them.
So what does this say for Benjamin Franklin's observation? Well for those family offices looking to establish themselves in Singapore, they are more likely to say: "In this world, nothing can be said to be certain, except death and no taxes!"