Automatic exclusion of investment vehicles that qualify for tax incentives under Sections 13O and 13U of the Income Tax Act from Section 10L will reduce the compliance burden for family offices.
Enhance regulations and incentives for environmental, social and governance (ESG) investments
There is growing interest among ultrawealthy families to look beyond conventional performance metrics in investing. According to the 2022 EY Single Family Office Study, 44% of respondents plan to exclude investments that do not align with the family’s ethics and values. Affluent families are also considering ESG factors and customer and stakeholder influence when investing their wealth. The next generation is notably behind this shift as it is keen to explore positive impacts alongside financial gains.
While current tax incentives are broad enough to cater to companies that prioritize ESG, more can be done. Enhanced government support, through clearer ESG regulations and incentives, will boost the growth of the ESG ecosystem. In turn, this will attract more ESG-compliant businesses and startups and increase ESG investments. As affluent families increasingly consider ESG factors in their investment strategies, having more defined ESG regulations and incentives becomes crucial for Singapore to stay relevant and competitive as a hub for SFOs.
Refine the list of designated investments under Sections 13O and 13U
The use of carbon credits is expected to increase with the growing global demand for voluntary carbon credits and they could form a meaningful component for investment portfolios. The current list of designated investments only includes emission derivatives and emission allowances and not carbon credits.
To facilitate Singapore’s growth as a carbon trading hub, high-quality carbon credits available for offset against carbon tax should be included in the list of designated investments for investment funds and SFO investment vehicles.
The next generation is also keen to explore burgeoning areas, such as digitalization, artificial intelligence, FinTech and the green economy. In particular, digital assets, such as tokens and cryptocurrencies, are becoming a significant asset class for global investors. Amid the changing attitudes on this asset class, the government can consider expanding the list of designated investments to include alternative assets, such as certain digital assets.
Provide flexibility in wealth structures
The Variable Capital Company (VCC) framework is a corporate structure for investment funds in Singapore. Since its introduction in 2020, it has seen an encouraging uptake among fund managers.
The use of the VCC framework can be extended to investment vehicles managed by SFOs. This affords SFOs greater flexibility in deciding how to organize their asset-holding structures to reap the benefits of using the framework, such as access to double-tax treaties and the ability to segregate assets and liabilities to avoid comingling of assets. This would be especially useful for multigenerational families.
Singapore has established a firm foundation as a destination for family offices. To be a leading global family office hub, the nation needs to continuously refine its policies to align with international standards and the evolving needs and interests of affluent families.
This article was first featured in The Business Times on 26 January 2024.
Our related articles
Summary
To enhance Singapore’s position as a family office hub, the government can consider several key actions. These include reducing compliance requirements and extending tax incentive schemes while enhancing regulations and incentives for environmental, social and governance investments. It is also important to refine the list of designated investments under Sections 13O and 13U of Singapore’s Income Tax Act and provide flexibility in wealth structures.