Singapore: Wealth Management

On this Page:

- Singapore: The Tax System and Wealth
- Singapore: Inheritance Taxes
- Singapore: Banks, Stocks and Real Estate
- Singapore: Alternative Investment
- Singapore: The Wealth Management Industry

Singapore: The Tax System and Wealth

All individuals pay tax on income earned or received in Singapore; however overseas income received in Singapore after January 1, 2004, including income paid into a Singapore bank account (but excluding overseas income received through a partnership in Singapore), is not taxable.

Income tax is assessed based on a preceding year basis.

Tax Rates in 2010

Individual

The income tax rates for resident individuals are as follows:

Chargeable income	Rate (%)	Gross tax payable (SGD)
First SGD20,000 Next SGD10,000	0 3.5	0 350
First SGD30,000 Next SGD10,000	–5.5	350 550
First SGD40,000 Next SGD40,000	–8.5	900 3,400
First SGD80,000 Next SGD80,000	–14	4,300 11,200
First SGD160,000 Next SGD160,000	–17	15,500 27,200
First SGD320,000 Next SGD320,000	–20	42,700

There is a one-off personal income tax rebate of 20% for resident individuals, subject to a cap of SGD2,000, for tax payable for year of assessment 2009.

The income tax rate for non-residents’ employment income is either 15% or the relevant resident tax rate, whichever produces the highest sum. Director's fees, consultation fees and most other income are taxed at 20%, which is generally withheld at source.

Certain other payments to non-resident individuals are subject to withholding tax at source.

The majority of dividend payments received are exempt from income tax.

Corporate

The normal rate of Profits Tax is 17%.

Capital gains

Generally, capital gains realised from the sale of property in Singapore, or derived from buying and selling shares or other financial instruments, are not subject to tax.

If, however, such sale of property or buying and selling of shares and other financial instruments are regarded as a trade, the gain may be regarded as taxable income.

Indirect Taxes

Companies must register for goods and services tax (GST) if their turnover for the previous 12 months exceeds SGD1m, or if the business reasonably expects its turnover will exceed SGD1m over the following 12 months. Voluntary registration is permitted, for example where the company intends to make taxable supplies, only supplies goods outside Singapore, or makes exempt supplies of financial services that are also deemed to be international services. A foreign company registering for GST must appoint a Singapore agent to act on its behalf on all its GST matters, including the accounting and payment of GST.

The standard rate of GST is 7%, and applies to most sales of goods and services made in Singapore. Exports and related international services are zero-rated. Financial services and the sale or lease of residential properties are exempt from GST.

Real Estate Taxes

Property tax is charged on immovable property, including a house, building and land. The amount of tax due is calculated based on a percentage (tax rate) of the annual value of a property. The tax rate is 10%, or 4% where the property is granted an owner-occupier concession.

From January 1, 2011, the 4% tax rate will be replaced by a three-tier tax rate based on the annual value, as follows:

Annual value	Tax rate
First SGD6,000	0%
Next SGD59,000	4%
Above SGD65,000	6%

Other Taxes.

Stamp duty is payable on certain executed documents relating to properties and shares, or interest in properties and shares. Such documents include a lease, sale, purchase, gift or mortgage of property. Liability arises once the document is executed, even if the transaction itself has been aborted.

The amount of duty payable varies according to the transaction. For example, in the case of a mortgage, the duty is SGD4 for every SGD1,000 or part thereof, subject to a maximum duty payable of SGD500..

Withholding Taxes

There are no domestic withholding taxes on dividends, interest or royalties.

Evidently this is a tax regime which is conducive to the accumulation of wealth. The number of rich people and their wealth is reportedly growing at more than 30% annually in Singapore, double the global average.

Singapore: Inheritance Taxes

There is no estate duty in Singapore.

Singapore: Banks, Stocks and Real Estate

Singapore is one of the world’s fastest growing private banking centres, as demonstrated by the many global banks that have set up offices there. The jurisdiction has strict banking secrecy laws, yet it aims for a transparent economy and complies with the requirements of the OECD “white list”. All banks operating in Singapore must be licensed by the Monetary Authority of Singapore, which is the jurisdiction’s central bank.

On December 1, 1999, the Stock Exchange of Singapore and the Singapore International Monetary Exchange merged to form the Singapore Stock Exchange (SGX). On November 23, 2000, it was the first Asia-Pacific exchange to be listed via a public offer and a private placement. The SGX’s stated aim is “to offer a highly trusted securities & derivatives marketplace for capital raising, risk transfer, trading, clearing and settlement”.

The SGX has forged a number of strategic alliances with other exchanges, including: a joint venture with the American Stock Exchange to promote Exchange Traded Funds; a securities co-trading link with the Australian Stock Exchange; an agreement with the Baltic Exchange for the provision of the Baltic Exchange’s benchmark prices for the settlement of Forward Freight Agreements; and a futures trading link with the Chicago Mercantile Exchange.

In October, 2010, the Australian stock exchange, ASX Limited (ASX), and the Singapore Exchange (SGX) announced that they had entered into an AUD8.4bn (USD8.35bn) merger implementation agreement.

In a joint statement, the two exchanges have said that their combination “will bring together the complementary businesses of two successful exchanges in the Asian time zone, with internationally recognised regulatory standards. The combination leverages the strengths of ASX through its listings, stock options and fixed income franchises, with SGX, the Asian gateway for international listings, equity futures and OTC clearing, to create the region’s pre-eminent exchange group.”

“The combined group,” they added, “will augment Australia’s financial market and funds management industry through direct participation in Asian growth, and increase ASX’s and SGX’s competitiveness in a changing global markets landscape. As proven platforms for raising capital and managing price risk for the resource sector, ASX and SGX will build on existing distribution and clearing capabilities, and intend to play an important role in establishing price discovery for global commodities in the Asia-Pacific.”

The combined group, with ASX-SGX Limited as its holding company, will have pro forma revenues of approximately USD1.1bn and pro forma earnings before interest and income tax of approximately USD700m, based on the audited financial statements of ASX and SGX for the financial year ended June 30, 2010.

It would, however, only be the second largest exchange in Asian. The Hong Kong Stock Exchange is expected to remain as Asia’s primary exchange, and is likely to remain so given its links to mainland China and its development of yuan-denominated business.

Nevertheless, ASX and SGX will still, it is said, offer access to over 2,700 listed companies from over 20 countries; to the world’s second largest cluster of companies in the resource sector (more than 900 listings); and to the largest real estate investment trust sector (over 80) and the largest number of exchange traded funds (over 100) in the Asia-Pacific.

It will also offer the world’s widest range of Asia-Pacific equity, fixed income and commodity derivatives with over 400 contracts from over 10 countries, including Australia, China, India and Japan, and covering a range of commodities including metals, energy and agricultural products.

In addition, it will have the Asia-Pacific’s largest and the world’s second largest base of institutional investors with combined assets under management of over USD2.3 trillion from existing superannuation, institutional and sovereign wealth funds.

With a global distribution network with over 90 securities market participant firms and over 170 derivatives market participant firms on a combined basis, it will possess leading exchange technology, including the proposed introduction of the world’s fastest trading platform.

Structured as a takeover of ASX by SGX, it is expected that the combined group’s chief executive officer and non-executive chairman will come from the latter, while ASX will only provide its deputy chairman. It is also reported that 40% of the holding company’s shareholders will be Singaporean, with 30% Australian and the remainder international investors.

In his 2006 budget, Lee Hsien Loong announced a range of tax and other initiatives aimed at spurring growth in the financial services and asset management industry. Among the measures designed to promote the development of Singapore as a financial centre were enhanced tax incentives for asset and wealth management, capital and treasury markets, and captive insurance.

With a view to encouraging the growth of financial services companies the Government grants the following categories of fiscal incentives:

Trading Income: Capital gains and income made by financial service companies trading investments for and on behalf of their non-resident clients are often tax exempt both in the hands of the financial services company and in the hands of the non-resident client. The effect of this incentive is to make Singapore an attractive location for foreigners to base their investments.

Fee Income: Concessionary tax rates are levied on profits earned by financial services companies in respect of income earned billing clients for investment services rendered. Profits distributed as dividends are also granted a concessionary tax status.

Bond Market

Debt market tax concessions have traditionally included:

A concessionary tax rate of 10% on interest income from holding qualifying debt securities arranged in Singapore.
Withholding tax exemption on interest from qualifying debt securities arranged in Singapore payable to non-residents.
Withholding tax exemption on swaps in relation to SGD bond issues. Issuers are automatically waived from the requirement under S45 of the Income Tax Act to withhold tax on interest paid on qualifying debt securities.

Foreign Securities Companies

Companies which deal in foreign securities have traditionally been entitled to various fiscal concessions. The rate of corporate income tax payable depends on the nature of the activity. For example:

A corporate income tax rate of 10% is payable on income earned from providing advice to and buying and selling foreign securities on behalf of non-residents.
Income earned from arranging and underwriting initial public offerings of foreign currency denominated shares on the Singapore stock exchange and from transactions in respect of the same are exempt from corporate income tax.
Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at the standard rate, with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Companies which deal in foreign securities on behalf of non-residents are exempt from any further taxation on the shortfall in so far as that shortfall is caused by the concessionary fiscal status granted to the company.
Commodity derivatives: Under this scheme, a concessionary tax rate of 5% will be granted for income derived from qualifying activities undertaken by a financial institution granted Commodity Derivatives Traders (CDT) status.

Financial Services Processing Companies

To promote Singapore as the hub for high value-added processing activities, a tax incentive scheme for Qualifying Processing Services Company ("QPC") was introduced in 2004.

This scheme aimed at encouraging companies which undertake high value-added processing services supporting financial institutions to set up their operations in Singapore. Under this scheme, a QPC would be granted concessionary tax rate of 5% on income derived from the provision of the prescribed processing services, which are in support of financial activities such as Treasury and Securities, Asset Management, Private Banking, Wholesale Banking and Retail Banking.

Examples of core processing services which are eligible under the scheme are settlement and reconciliation, cash management, product control, securities borrowing/lending processing, portfolio valuation, etc. In addition, ancillary services such as risk management, IT processing, financial control, compliance and legal, and management information and reporting, which are in support of the core processing services, may also be eligible under the incentive.

Credit Rating Agencies

With a view to encouraging the growth of companies which provide credit rating services on foreign securities such companies have traditionally been entitled to the following fiscal concessions:

Profits are subject to an indefinite 10% concessionary tax rate.
Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at the standard rate, with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Companies which deal in foreign securities on behalf of non-residents are exempt from any further taxation on the shortfall in so far as that shortfall is caused by the concessionary fiscal status granted to the company.

R&D Expenses (Financial Products Research)

This incentive, which was designed to encourage financial institutions in Singapore to develop new and innovative financial products, has traditionally allowed double tax deduction for expenses such as the cost of R& D personnel, legal expenses, training costs and consultancy fees. The Innovation in Financial Technology & Infrastructure Grant (ITIG) Scheme, introduced in 2004 (now named the Further Deduction for R&D Expenses Scheme), was launched to encourage innovation in technology and/or infrastructure in financial services. The scheme was designed to target Singapore-registered companies, and offer grants for qualifying expenses with respect to innovation in financial technology and/or infrastructure activity in Singapore.

Approved Trustee & Custodian Companies

The Tax Incentive Scheme for Approved Trustee Companies has traditionally been aimed at encouraging the development of reputable trustee companies and banks to offer international trust administration and custodian services in Singapore, as well as to complement the growth of the fund management industry in Singapore. Under the scheme, an Approved Trustee Companies (ATC) would be granted a 10% concessionary rate on income derived from the following:

Trustee or custodian services in respect of a foreign trust created in writing, i.e. where both the settlor and beneficiaries of the trust are not residents or citizens of Singapore (and, if a company, not incorporated in Singapore or controlled by persons who are residents or citizens of Singapore);
Trustee or custodian services for or on behalf of a unit trust which is not owned or controlled by Singapore residents or citizens, and whose funds are invested in "designated investments";
Trustee or custodian services in respect of foreign bond or loan stock issues (e.g., monitoring loan covenants, administering loan repayments);
Custodian services for foreign currency denominated stocks and shares issued by companies not incorporated and not resident in Singapore; and
Provision of trust management or administration services to foreign trusts of which it is not the trustee, including the setting up and administration of eligible investment holding companies for such trusts.

Offshore Insurance Business

To encourage insurance companies, in particular professional reinsurers and captives to set up operations in Singapore to write offshore business, a concessionary tax rate of 10 per cent has traditionally been granted to insurance companies on income derived from:

Underwriting profits of offshore insurance business; and
Non-Singapore sourced dividends, realised capital gains and interest including interest on Asian Currency Unit (ACU) deposits, derived from investing offshore premium income and shareholders' funds used to support the offshore insurance business.

The Tax Exemption Scheme for Marine Hull & Liability Insurance Business aims to encourage all general direct insurance and reinsurance companies (including P&I clubs) in Singapore to tap the insurance potential of the shipping communities in the Asia Pacific region. It provides tax exemptions for income derived from underwriting profits of marine hull and liability business, as well as non-Singapore dividends, realised capital gains and interest, including Asian Currency Unit (ACU) deposits, derived from investing premium income from offshore marine hull & liability insurance business and shareholders' funds used to support the marine hull & liability insurance business.

Singapore's 2006 budget gave tax exemption to captive insurance companies for a period of 10 years on specified types of income; the exemption will be available until 2011.

Real Estate

With more than USD3bn of commercial property sales in Q3 2010, Singapore ranked third in the Asia Pacific region after Japan and Australia. Q1 had seen a comparable level of activity, although Q2 was lower.

Altogether, it's clear that the Singapore commercial property market is back to full health after problems in 2008 and 2009. A new business development, the Marina Bay Financial Centre, has helped to boost Singapore's image as a regional business centre.

There is considerable over-supply of commercial space at present, after completions in 2008 and 2009 failed to find immediate tenants, particularly in the retail sector, where a number of new malls came on the market in 2009.

A study issued by consultancy DTZ in August, 2010, says that Singapore's commercial properties offer highly attractive returns, and the firm expects that rents will show strong growth in the next five years.

Singapore: Alternative Investment

In September, 2010, Singapore was tipped in a PricewaterhouseCoopers (PwC) report to beat Hong Kong in the asset management sector.

PwC expects “to see a general shift of the world’s largest clusters from developed to emerging and developing nations as the centre of global economic gravity continues to shift towards these countries.”

It forecasts that “the existing large clusters in New York, London and Boston will be joined by Singapore, which may become the leading cluster in the Asian region. Tighter regulation and higher taxes are currently working against clusters in the United States and Europe but the key factor will be the increase in public and private capital available in Asia – which will fuel growth in asset management in the region.”

In its analysis, it expects the existing asset management clusters of Hong Kong and Singapore to both grow rapidly. It says that “both locations offer less burdensome tax regimes than their western counterparts and have ‘well-regulated but moderate’ regulatory structures.”

However, in its view, “there can only be one dominant regional centre in Asia. This is because of the enormous benefits accruing from knowledge spillovers and labour force specialisation in this industry. At present, we see the competition to be the regional asset management centre between Hong Kong and Singapore.”

“In the first half of 2010,” it says, “Hong Kong out-performed Singapore in attracting start up asset management funds with 65% of Asian fund launches during the period occurring in Hong Kong. However, with the Singaporean government actively promoting the city as a global centre for asset management and with a higher existing value of assets under management, Singapore is well-placed to compete with Hong Kong going forward.”

It concludes that “while Hong Kong’s proximity to China allows it access to the growing Chinese market, it will also be competing with other financial centres within China, such as Beijing, for a majority share of the Chinese asset management market. As a more independent cluster in close proximity to Indonesia, Malaysia and Thailand, we expect Singapore to attract the internationally footloose capital and become the second largest global asset management cluster by 2025.”

Therefore, by 2040, “the three largest clusters by value of assets under management are projected to be New York, Singapore and London. Despite growth in Asian markets, New York is projected to retain its position as the dominant asset management cluster.”

Hedge Funds

Singapore is emerging as the most popular Asian location amongst hedge fund managers for fund start ups, and in June 2006, Singapore Exchange Ltd (SGX) announced that it would accept listings of hedge funds from the end of that month.

Although eligible hedge funds were listed, however, there was to be no trading in their units on SGX. Typically, issue and redemption takes place in the over-the-counter market.

The new listing rules for hedge funds had the following key features:

A hedge fund must:

Be authorised or recognised under section 286 or 287 of the Securities and Futures Act; or be offered only to institutions and/or accredited investors.
Have a minimum asset size of at least SGD20 million (at the time the new rules were introduced) or USD20 million for Singapore and foreign currency denominated funds respectively.

Under additional rules:

Fund managers are required to have in place an independent risk management function.

The investment management team of a hedge fund is expected to have at least one principal with a minimum of five years relevant investment management experience.

A hedge fund will announce its net asset value per unit, as soon as practicable after each month end, but in any event no later than seven business days.

In addition, a fund must immediately announce any material change relating to its operations, including but not limited to, any change in its investment manager, custodian, administrator or independent auditor.

The factor that has appeared to spur hedge fund growth in Singapore is the relatively short time taken to register a fund in the city-state, an issue identified by hedge fund managers as the most crucial.

Fund Management

Fund management companies have traditionally been entitled to the following fiscal concessions:

Fee income received by fund management companies in respect of services rendered are exempt from corporate income tax for a period of 5 years provided the fund management company manages an asset portfolio with a value in excess of SGD5m (at the time of writing). The exemption period can be 10 years if the fund managers can make suitably strong commitments to significantly increase their level of fund management activities in Singapore. The exemption is granted by the monetary authority of Singapore on a case by case basis.

Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at the standard rate, with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the standard rate charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Companies engaged in fund management are exempt from any further taxation on the shortfall in so far as that shortfall is caused by the concessionary fiscal status granted to the company.

Regulatory changes introduced in 2004 meant that international fund managers are no longer required to maintain a physical presence in the territory, and are permitted to make their funds available via private banks.

The number of hedge funds in Singapore grew from just eight in 2001 to more than 50 in 2004. However, accounting firm PricewaterhouseCoopers warned that future growth in the industry would be stifled unless the government made key changes to tax legislation.

The firm called on the government to address the rule requiring at least 80% of investments in foreign hedge funds to have originated from overseas in order for them to qualify for tax exemption.

"They probably have to relook at the 80-20 rule,” observed Deepak Kaul, Manager, Corporate Tax Services, PwC. He added: “I think the easiest thing is to do is to relax the imposition of the 80-20 rule, maybe make it applicable over a period of time. In which case then, even fund managers who are not meeting the 80-20 rule initially will be incentivised to actually start up in Singapore."

Singapore's Prime Minister Lee Hsien Loong responded by announcing in his 2005 budget that start-up fund managers would be given a 12-month grace period to meet the requirement that 80% of share capital must come from foreign investors to qualify for a 10% tax rate on fee income.

The 80-20 rule was rescinded by the Monetary Authority of Singapore (MAS) in August 2007, and the requirements for benefiting from the aforementioned tax exemption were significantly loosened.

The other aspect of hedge fund taxation that industry participants called for to be changed was the level of the 10% tax, considered somewhat high by many. By cutting this levy to 5%, observers believed that Singapore would be able to continue to carve out a niche as a centre for the management of Indian, Japanese and Korean-based funds, in addition to capturing some of the growing interest in specialist Islamic hedge funds.

In his 2005 budget speech, Lee Hsien Loong announced that foreign non-individual investors would be encouraged to invest in the Singapore property market with a proposed reduction in the withholding tax on REIT distributions to 10% from 20%, for a period of five years. Additionally, to attract more REIT listings, the government wants to waive stamp duty on the instruments of transfer of Singapore properties into REITs to be listed, or already listed on the SGX, for a five-year period.

In his Budget Speech for the Financial Year 2009, which was delivered in Parliament on Thursday, January 22, 2009, Minister for Finance, Tharman Shanmugaratnam announced that the tax exemption schemes for foreign investors and qualifying resident funds, and tax incentive schemes for approved trustee companies and financial sector incentive companies would be enhanced by expanding the list of specified income and designated investment.

In May, 2010, the Monetary Authority of Singapore (MAS) – the jurisdiction’s central bank – said in a statement that it is to review its rules for the fund management industry. The review will include hedge funds, fund managers, and investment managers.

The review will include a re-examination of how investment and alternative fund managers interact with their investors and stakeholders. The MAS emphasized, however, that it remains committed to efforts to develop Singapore as a key alternative investment and fund management hub.

The MAS believes the review “is essential for the long-term and sustainable growth” of the industry.

The city state’s hedge fund industry is the second largest in Asia. Growth in the sector has been promoted through tax breaks and incentives offered to foreign companies setting up business there, as well as light or, in some cases, no regulation – particularly for hedge funds with 30 or fewer professional investors that qualify under MAS guidelines. Those regulations that are in place for such hedge funds relate to money-laundering and local rules relating to securities and futures trading, which require hedge funds to be sure of their clients’ financial awareness.

Singapore: The Wealth Management Industry

Singapore is reputed to have the highest density of millionaires in the world, and along with Hong Kong, which might want to dispute that assertion, is riding high in the global wealth management stakes, as the wealthy, or at least their assets, decamp from traditional havens in Europe and the Americas.

A comparison with Switzerland is particularly apt, as that country comes under unremitting pressure from the EU and the USA to weaken traditional banking secrecy. No such pressure is being exerted on Singapore, although the city-state has agreed to incorporate the OECD's standard wording for exchange of information in a number of its tax treaties and TIEAs. Assets under management in Singapore are thought to total about USD1 trillion, as against USD3 trillion in Switzerland, but the gap is closing fast. The central bank says that about half of these assets come from outside the Asia-Pacific region.

Of course, Singapore, like Hong Kong, will have no truck with the EU's Savings Tax Directive.

The result of the flood of money coming Singapore's way in recent years has been a doubling in the number of major banks offering wealth management services in the city-state to more than 40.

For the third time, the world's leading Shorex wealth management forum is moving to Singapore to address the growing need of the Asian market for private banking, asset management and international tax planning solutions and services. The event is an exhibition and conference offering a unique platform where professionals can network to explore new services, products and ideas in wealth management.

The Shorex Wealth Management Forum in Singapore in 2011 is expected to attract over 50 exhibitors and 1400 delegates.

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