I INTRODUCTION

Singapore’s gross domestic product per capita based on purchasing power parity is the world’s third-highest.2 Singapore was established as a free port and today is the world’s busiest port. Changi Airport is a major air hub. Singapore has a balanced economy in manufacturing, services, trade and tourism. The country is the fourth-leading financial centre (according to the Global Financial Centres Index as well as the International Financial Centres Development Index). Singapore is also a member of the Trans-Pacific Partnership, which is the largest regional trade agreement to date, between 12 countries that are also members of the Asia-Pacific Economic Cooperation (APEC).

Singapore is said to have the world’s fastest growth in numbers of ultra-high net worth individuals (i.e., those who have at least US$30 million in assets).3

In the five years preceding 2014, industry assets under management have expanded at a 14 per cent compound annual growth rate. As at the end of 2014, total assets managed by Singapore-based asset managers grew by 30 per cent to S$2.359 trillion, with approximately 81 per cent of total assets under management (AUM) sourced from outside Singapore.4 Of the total AUM, approximately 54 per cent was sourced from the Asia-Pacific, 19 per cent from Europe and 18 per cent from North America, demonstrating Singapore’s role in serving regional and international investors. The Asia-Pacific region continued to be a key investment destination for Singapore-based asset managers, accounting for approximately 68 per cent of total AUM – about the same as in 2013. Within the Asia-Pacific, 41 per cent of AUM was invested in ASEAN. Singapore is also a regional hub for a growing pool of institutional investors: in 2014, La Caisse de dépôt et placement du Québec set up an office in Singapore, joining the Investment Company of the People’s Republic of China, Norges Bank Investment Management and the Swiss National Bank. In 2015, the Korean National Pension Service also set up an office in Singapore.5

To further grow the fund management industry and attract fund management activities in Singapore, certain existing tax incentives6 have been refined and extended for a further five years until 31 March 2009. Goods and services tax concessions have also been introduced, further incentivising and attracting funds to be managed from Singapore. In recognition of the importance of venture capital activity in supporting entrepreneurship, the Budget 2015 introduces a 5 per cent concessionary tax rate accorded to approved venture capital fund management companies managing Section 13H funds on their specified income.

Singapore continues to be ranked number one worldwide for the ease of doing business.7

Another contributing attribute to Singapore’s competitiveness is that it has entered into comprehensive avoidance of double taxation treaties with 80 countries, including most of the Asia-Pacific region, India, China and major European economies.

II TAX

i Personal income taxation

Unlike some countries, Singapore does not impose worldwide taxation. The basic principle is that income tax is payable on Singapore-source income, and on any foreign-source income received in Singapore. Essentially, source of income is the primary basis of taxation rather than residence or domicile.

There is no capital gains tax. Furthermore, individuals are exempt on any and all foreign-source income received in Singapore. Taken together, this means that all remittances by individuals of foreign-source income and capital are tax-free. There is also no estate duty (inheritance tax).

Income tax would apply to individuals who are employed (or operate an unincorporated business) in Singapore. Singapore-source returns on investments (e.g., rental income from local property) are taxable, but certain categories (e.g., bank interest, dividends) are exempt. Starting from Year of Assessment 2017, marginal individual income tax rates top out at 22 per cent. The effective rate on the first S$320,000 of an individual’s taxable income is 13.9 per cent, and the top rate of 22 per cent only applies to the top slice of taxable income over S$320,000.

ii Capital gains tax

There is no capital gains tax in Singapore.

iii Gifts and succession taxes

There is no inheritance tax or estate duty.8 There is no gift tax regime per se in Singapore. There is also no stamp duty on the transfer by assent of immoveable properties and shares to beneficiaries in accordance with a deceased person’s will or intestacy laws. There are, however, ad valorem stamp duties on the conveyance, assignment or transfer of company shares9 at 0.2 per cent and immoveable property in Singapore at up to 3 per cent.

Over and above ad valorem duties, as part of the government’s measures to curb property speculation and cool property prices, additional buyer’s stamp duties have been introduced as follows:

  • a For foreign nationals and entities buying any residential properties: 15 per cent.
  • b For Singapore permanent residents buying their first residential property: 5 per cent.
  • c For Singapore permanent residents buying their second and subsequent residential property: 10 per cent.
  • d For Singapore citizens buying their first residential property: nil.
  • e Singapore citizens buying their second residential property: 7 per cent.
  • f Singapore citizens buying their third and subsequent residential property: 10 per cent.

However, these nationals will be afforded the same stamp duty treatment as Singapore citizens, pursuant to Free Trade Agreements that have been entered with Singapore:

  • a nationals and permanent residents of Switzerland;
  • b nationals of Liechtenstein;
  • c nationals of Norway;
  • d nationals of Iceland; and
  • e nationals of the United States.
iv Goods and services tax

Goods and services tax (GST) is the consumption tax in Singapore. Currently, the standard rate of GST is 7 per cent.

v Property tax

Property tax is imposed on immoveable properties in Singapore. It is computed by applying the applicable tax rate on the ‘annual value’ of the property. The annual value of a property is generally derived based on the estimated annual rent that it can fetch if it were rented out (i.e., hypothetical rent). The annual value is determined in the same manner regardless of whether the property is owner-occupied, rented out or vacant. In the case of vacant land, for example, in the case where a building has been demolished, the annual value is determined to be 5 per cent of the market value of the land.

With the implementation of progressive tax rates on residential properties since 2010, which was further enhanced in 2013, property tax on residential properties has been refashioned as a form of wealth tax in Singapore. Prior to that, property tax was levied on residential properties at a flat rate. Non-residential properties (including commercial and industrial properties) continue to be taxed at a single tax rate.

vi Customs duty

Customs duty is primarily levied on four categories of goods: motor vehicles, tobacco, fuel and alcohol.

III SUCCESSION

The statutory rule for intestate succession is that:

  • a the distribution of the moveable property of the deceased is regulated by the law of the country in which he was domiciled at the time of his death; and
  • b for immoveable property located in Singapore, the intestate estate will be regulated by the Intestate Succession Act, regardless of where the deceased person was domiciled at the time of his death.

The Intestate Succession Act sets out the distribution rules: where a person dies leaving a spouse and children, the spouse will be entitled to half share, and the children the remaining half. ‘Child’ is defined to mean a legitimate child. The Intestate Succession Act has thus far not been interpreted to recognise ‘spouse’ as including partners in civil partnerships or same-sex marriages.

Formal validity of testamentary succession is governed by the Wills Act 1996. Under the Wills Act, a will is considered to be properly executed if its execution conforms to the internal law in force in:

  • a the territory where it was executed;
  • b the territory where the testator was domiciled at the time:

• when the will was executed; or

• of his or her death;

  • c the territory where the testator habitually resided at either of the times referred to in (b); or
  • d the state of which the testator was a national at either of the times referred to in (b).

Generally, probate or letters of administration are required by various institutions (for example, banks, the land registry) to deal with the assets of the deceased. The proving of wills in the Singapore court is done by way of an application for grant of probate. Foreign grants of probate or letters of administration granted by a court of probate in any part of the Commonwealth and Hong Kong may be sealed in Singapore with the seal of the Singapore Family Justice Courts.

Generally, it is not possible for beneficiaries to challenge the adequacy of their provision under the intestacy rules. However, if the deceased was domiciled in Singapore at the time of death, it may be possible for certain family members (such as the spouse, unmarried daughter, infant son, disabled children) to apply to court for reasonable provision, as the court thinks fit, to be made out of the deceased’s net estate for their maintenance. The purpose of this application is not meant to displace the intestacy rules, but rather to obtain reasonable maintenance during the applicant’s lifetime. Factors that would be considered include:

  • a whether the deceased made adequate provisions during his or her lifetime;
  • b whether, prior to his or her death, the deceased was making a substantial contribution to the applicant other than for payment for work or services rendered;
  • c whether there is any source of past, present, or future capital or income for the applicant;
  • d the conduct of the applicant to the deceased and vice versa; and
  • e other circumstances relevant or material in relation to the applicant and the persons interested in the estate.

Singapore has comprehensive specialist Family Justice Courts that deal with matters concerning probate, succession, mental capacity, adoption, guardianship and family matters. The purpose of the Family Justice Courts is to bring all family-related work under a specialised body of courts to better serve litigants and frame disputes from the perspective of families and the individuals within, and provide better support for families to resolve disputes.

IV WEALTH STRUCTURING & REGULATION

i Trusts

The law of trusts in Singapore has the same roots as the law of trusts in England and fundamentally still follows these principles. The Application of English Law Act, enacted in 1993, provides that ‘the common law of England (including the principles and rules of equity) so far as it was part of the law of Singapore immediately before 12 November 1993, shall continue to be part of the law of Singapore.’

Other relevant statutes concerning trustees and trusts in the private client context are the:

  • a Trustees Act 2005. This concerns the general power of investment, statutory duty of care and other duties and powers of the trustees (including personal representatives where the context permits).
  • b Trust Companies Act. This concerns trust business licensing regime regulated by the Monetary Authority of Singapore. The Trust Companies Act and its subsidiary legislation regulate the following business activities:

• the provision of services for the creation of express trusts;

• acting as trustee in relation to express trusts;

• arranging for any person to act as trustee in relation to an express trust; and

• the provision of trust.

The trust business licence regulatory framework has been introduced for about a decade now. There are currently 53 holders of trust business licences in Singapore.10

Settlor reserved power trusts are formally recognised: the Trustees Act provides that no trust or settlement of any property on trust shall be invalid by reason only of the person creating the trust or making the settlement reserving to himself any or all powers of investment or asset management functions under the trust or settlement.

Non-charitable purpose trusts generally are not valid. However, there are certain English exceptions (for example, the care of particular animals, the maintenance of specific graves and monuments and so on) which may possibly be valid in Singapore. There is also a known exception in relation to local customs (testamentary trust to perform Sinchew rites).

The statutory perpetuity period is 100 years.11 Following reforms to trust law in 2004, income arising from a settlement or disposition of property may be accumulated for the duration of the settlement or disposition, subject to the terms of the settlement or disposition to the contrary.12

Cases concerning trust assets are typically fact specific. In Anna Wee v. Ng Li-Ann Genevieve (sole executrix of the estate of Ng Hock Seng) and another [2013] SGCA 36, the settlor and the claimant were married for 12 years before they were divorced and the decree nisi was made absolute. The claimant came from a wealthy family. Her claim was that she had thought the settlor had little or no assets and therefore did not ask for division of matrimonial assets. Two years after their divorce, the settlor died. On his death, the claimant discovered that the settlor had amassed a sizeable fortune, which was primarily kept in two offshore trusts. The beneficiaries of the first trust were the settlor’s two children from his marriage with the claimant, and Ng, his daughter from an earlier marriage. The beneficiaries of the second trust were Ng and the trustees of the first trust. However the settlor was specifically excluded from benefitting under both trusts. The claimant brought both a claim of fraudulent misrepresentation against the settlor’s estate, and a claim of unjust enrichment against the trustee of two offshore trusts.

Both claims were dismissed in the High Court and subsequently in the Court of Appeal. On the first claim, the Court of Appeal agreed with the High Court’s finding of fact that there was no expressed misrepresentation or active attempts to conceal assets during the settlor’s lifetime. Rather it was the claimant’s own perception and conclusion that the settlor was a ‘man of straw’. Even if the settlor had made a fraudulent misrepresentation, the claimant did not rely on it and there is therefore no need to consider whether she has suffered loss. Given that there was no fraudulent misrepresentation on the settlor’s part, that being the threshold question, the Court of Appeal held that the claim for unjust enrichment against the trustee cannot succeed.

In another case, during divorce proceedings, the wife made a claim of division of matrimonial assets over an Australian property that was acquired prior to the marriage and placed into a trust in respect of which the husband’s parents are unitholders. It was inconclusive as to whether the husband had funded the purchase of the property during the course of the marriage. However, the court recognised that prima facie there was a trust over the property, and found that because the husband did not deliberately put the property out of the reach of the wife, the property did not form part of matrimonial assets (BF v. BG [2006] SGHC upheld in BG v. BF [2007] 3 SLR(R) 233).

In Marie Eileen Guin v. Arun Guin [1994] SGHC 157, during the course of his marriage, the husband created a discretionary trust for Australian tax purposes. On divorce, the husband claimed, among other things, that he lost control over the settled assets and therefore the assets should not be included as matrimonial assets. The judgment did not comment on the law on whether losing control over assets would preclude the trust assets from being part of matrimonial assets. Instead, the court decided this point on a finding of fact that the husband was unlikely to have lost control because he was a savvy and tenacious businessman. As such, trust assets were taken into consideration in the division of matrimonial assets.

In AQT v. AQU [2011] SGHC 138, the husband set up a trust mere months after filing for divorce. It was held that the assets used to set up the trust need not be notionally included in the pool of matrimonial assets, since the terms of the trust showed that it was intended for the children’s benefit, which is consistent with the aims of the matrimonial partnership.

In contrast, in the case of TQ v. TR [2009] SGCA, the husband set up an irrevocable trust in Mauritius for the benefit of the children of the marriage after a decree nisi was granted. Rather than setting aside the trust, the Court of Appeal regarded this as ‘a naked attempt’ by the husband to present the wife and the court with a fait accompli in respect of the issues of maintenance of the wife and their children, and the distribution of the matrimonial assets. The husband was ordered to pay a sum equivalent to that in the trust into an account in a Singapore bank, which could be used by either of the parents for the benefit of the children.

ii Charities, international charitable organisations, qualifying grant makers

Charitable purpose trusts are recognised in Singapore. Charities could be set up in the form of a trust, company or society.

Charities are defined as ‘any institution that is established for charitable purposes and is subject to the control of the High Court in exercise of the Court’s jurisdiction with respect to charities’ (Charities Act). Although the term ‘charitable purposes’ is not specifically defined in statute, four broad categories are generally recognised:

  • a the relief of poverty;
  • b the advancement of education;
  • c the advancement of religion; and
  • d other charitable purposes that help and benefit the community that do not fall into any of the above categories.

Charitable purposes for the benefit of the community can include:

  • a the advancement of health;
  • b the advancement of citizenship or community development;
  • c the advancement of arts, heritage or science;
  • d the advancement of environmental protection or improvement;
  • e the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantages;
  • f the advancement of animal welfare; and
  • g the advancement of sports, where the sport advances health through physical skill and exertion.

Charities are primarily regulated by the Charities Act. The governing board members of a charity must apply for registration within three months of the charity’s establishment. The Commissioner of Charities (COC) keeps the register of charities. A registered charity is exempt from Singapore income tax and qualifies for property tax exemption on premises that it owns and uses for charitable purposes.

Organisations with international charitable aspirations could consider the International Charitable Organisation scheme for charity registration. Separately, the Economic Development Board administers the international non-profit organisation (INPO) scheme. Intergovernmental organisations such as the World Intellectual Property Office (WIPO) and the United Nations Development Programme (UNDP) have established regional presences in Singapore.13

Grant making by itself is not a charitable purpose. However, grant making in advancement of one of the recognised heads of charitable purposes is considered by the Commissioner of Charities to be a charitable purpose.14 Such organisations could consider the qualifying grant maker scheme which provides for a lighter touch registration regime, given that such grant makers are founded by private or institutional money rather than through public solicitation which would require more regulatory safeguards.

Donation benefits are limited to donations to institutions of a public character (IPCs) for local charitable purposes. Donations to IPCs are tax deductible against the donor’s statutory income.

To encourage charitable giving locally, a liberal deduction of 2.5 times is currently available (until 31 December 2018).

Under the Public Art Incentive Scheme, donations of sculptures or work of art for public display to the National Heritage Board or its approved recipients may also qualify for tax deduction.

In 2016, a pilot business and IPC partnership scheme was introduced. From 1 July 2016 till the end of 2018, businesses that send their employees to volunteer and provide services to institutions of a public character (IPCs), including secondments, will receive a 250 per cent tax deduction on associated cost incurred, subject to the receiving IPC’s agreement. This deduction will be subject to a yearly cap of S$250,000 per business and S$50,000 per IPC.

iii Capacity

There is no statute or enacted law in Singapore that fixes the age of majority across the board. The age of majority, under common law, is 21 years. However, several statutes fix the age of persons under which the particular statute or law is applicable (for example, under the Civil Law Act, a minor who has reached 18 years can enter into certain contracts and bring or defend a legal action in his own name, as if he were of full age).

In the case of an adult who loses capacity: an application in court can be made for a deputy or deputies to be appointed in respect of a person who has lost capacity. Alternatively, one can draw up and register a valid lasting power of attorney registered in Singapore while one still has capacity. The lasting power of attorney appoints a donee who can act under specific terms as provided in the lasting power of attorney when the donor loses capacity. Only lasting powers of attorney registered in Singapore will be recognised for Singapore purposes. A new legal framework is being proposed in 2016 to introduce professional donees and deputies.

iv Working in Singapore

Foreign professionals, managers, executives and technicians live and work on a non-permanent basis in Singapore under work passes. Depending on the income level of the pass holder, the individual may sponsor dependant’s passes for his or her parents, spouse and children to live in Singapore. The Ministry of Manpower (MOM) has implemented and further enhanced the Fair Consideration Framework to ensure that firms give fair consideration to Singaporeans in their hiring practices; apart from job advertisement requirements for Singaporean professionals, managers and executives (PME), the MOM will also increase scrutiny of EP applications for selected firms who have a weaker Singaporean core of PMEs relative to others in their industry.

v Obtaining permanent residence in Singapore

A direct means of obtaining permanent residence in Singapore is through the global investor programme (GIP). The GIP applicant could choose from three options: option A – invest at least S$2.5 million in a new business entity or expansion of an existing business operation or; option B – invest at least S$2.5 million in one or more GIP-approved fund (up to a maximum of three funds); or option FO – invest at least S$2.5 million in a Singapore-based single family office with AUM of at least S$200 million. To qualify for options A or B, the applicant must have a substantial business record and a successful entrepreneurial background whose business turnover is a minimum of S$50 million per annum in the year immediately before the application and an average of S$50 million in the three years immediately before the application. A five-year investment or business plan with milestones to be achieved needs to be submitted for option A. The approved list of sectors in which the applicant can invest is wide ranging (e.g., consumer business, education, precision engineering, professional services, art galleries, family office and financial services). To qualify for option FO, the applicant needs to have at least five years of entrepreneurial, investment or management experience and an individual or direct family net worth of at least S$400 million.

vi Anti-money laundering and counter-terrorism financing

Money laundering is the process of converting income that was obtained by criminal or illegitimate means to give the appearance of having come from a legal or legitimate source. Terrorism financing refers to the process of hiding funds to sponsor or facilitate terrorist activity. Singapore is a member of the Financial Action Task Force (FATF) – the global standard-setting body to combat money laundering and terrorist financing. As a member country, Singapore has introduced laws to prevent money laundering and terrorist financing.

Financial institutions are required to comply with the notices issued by the Monetary Authority of Singapore (MAS) on anti-money laundering and counter-terrorism financing. In April 2015, the MAS issued revised notices that introduced key changes that are benchmarked against international best practices and the latest recommendations from FATF. The key changes are:15

  • a requiring more comprehensive money laundering and terrorism financing risk assessment;
  • b elaborating on steps to identify and verify beneficial ownership of companies, limited liability partnerships and trusts;
  • c introducing a new category of politically exposed persons (PEPs); and
  • d additional requirements for cross-border wire transfers exceeding S$1,500.

As a Member State of the United Nations (UN), Singapore is also committed to implementing the UN Security Council Resolutions (UNSCRs). Among other measures, the UNSCRs may impose targeted financial sanctions against specific individuals and entities identified by the UN Security Council (or relevant UN Committees) as contributing to a particular threat to, or breach of, international peace and security. For instance, there are UNSCRs issued to address risks of proliferation of weapons of mass destruction emanating from Iran and the Democratic People’s Republic of Korea. Broadly, MAS regulations require financial institutions to:

  • a immediately freeze funds, other financial assets or economic resources of designated individuals and entities;
  • b not enter into financial transactions or provide financial assistance or services in relation to:

• designated individuals, entities or items; or

• proliferation and nuclear, or other sanctioned activities; and

  • c inform MAS of any fact or information relating to the funds, other financial assets or economic resources owned or controlled, directly or indirectly, by a designated individual or entity.16
vii Exchange of information and the Common Reporting Standard

Exchange of information upon request already exists bilaterally between Singapore and its tax treaty partners’ competent authority.

In addition, Singapore has committed to implementing the OECD Standard for Automatic Exchange of Financial Account Information in Tax Matters, also known as the Common Reporting Standard (CRS) by 2018. The main difference between exchange of information under the tax treaties and the CRS is that the implementation of the latter will introduce automatic, unsolicited, yearly exchange of information between Singapore and the countries with whom it will enter into international tax compliance agreements.

In July 2016, regulations were proposed by the Ministry of Finance, the Inland Revenue Authority of Singapore and the Monetary Authority of Singapore to implement the CRS with effect from 1 January 2017. As at the time of writing, public consultation and feedback is being sought on the proposed regulations, with the expectation that the regulations will be enacted soon.

V CONCLUSIONS & OUTLOOK

Singapore intends to remain competitive and attuned to global trends and challenges with continued investment into long-term infrastructure plans, including the development of Changi Airport T5, which is expected to grow passenger handling to 140 million per year,17 and the Singapore–Kuala Lumpur High Speed Rail Project, which aims to cut travelling time between the two cities to a mere 90 minutes.18 Although Singapore’s private wealth management industry will face additional regulatory compliance with the implementation of CRS, with the ease of doing business in Singapore and incentives granted to the financial sector, Singapore’s private wealth management industry is expected to continue to grow.

Footnotes

1 Chua Yee Hoong is a partner at KhattarWong LLP, a member of Withers KhattarWong.

2 See: ‘World Outlook Economic Database 2015’ at www.imf.org, accessed in July 2015.

3 ‘Singapore to see world’s fastest growth of super rich individuals: Knight Frank Survey’ published on 5 March 2015 by The Straits Times: www.straitstimes.com/business/singapore-to-see-worlds-fastest-growth-of-super-rich-individuals-knight-frank-survey.

4 ‘2014 Singapore Asset Management Industry Survey’ published by the Monetary Authority of Singapore. See: www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Surveys/Asset%20Management/2014%20AM%20Survey%20Report.pdf.

5 See Note 4.

6 Sections 13CA, 13R and 13X of the Income Tax Act (Cap 134), commonly known as non-resident funds, resident funds and enhanced-tier funds respectively.

7 See: www.doingbusiness.org/rankings accessed on 5 September 2016.

8 Estate duties have been abolished in regards deaths occurring on or after 15 February 2008.

9 Generally, these refer to shares of companies for which share transfer instruments need to be executed. Stamp duties are effectively not chargeable in respect of the trading of securities which are transferrable by book-entry, (e.g., listed shares).

10 See the financial directory published on Monetary Authority of Singapore website: https://masnetsvc.mas.gov.sg/FID.html, accessed on 21 July 2016.

11 Section 32(1), Civil Law Act (Cap. 43).

12 Section 31(1), Civil Law Act (Cap. 43).

13 See: www.edb.gov.sg/content/edb/en/industries/industries/international-non-profit-organisation.html.

14 See: www.edb.gov.sg/content/dam/edb/en/industries/International%20Non%20Profit%20Organisation/COC%27s%20Guidance%20on%20Regulation%20of%20Grantmakers.pdf.

15 MAS media release on 24 April 2015. See: www.mas.gov.sg/News-and-Publications/Media-Releases/2015/MAS-Strengthens-Regulations-against-Money-Laundering-and-Terrorism-Financing.aspx.

16 See: www.mas.gov.sg/Regulations-and-Financial-Stability/Anti-Money-Laundering-Countering-The-Financing-Of-Terrorism-And-Targeted-Financial-Sanctions/Targeted-Financial-Sanctions.aspx.

17 See: www.straitstimes.com/singapore/changi-airports-t5-will-be-10-times-as-big-as-vivocity.

18 On 19 July 2016, Singapore signed a Memorandum of Understanding with Malaysia on the High Speed Rail Project: www.lta.gov.sg/apps/news/page.aspx?c=2&id=f91cfc0d-46b4-454e-905d-ba7574c5dc50.