Singapore Expanding Family Office Incentives to Keep Cash Local, Go Green

The Monetary Authority of Singapore on Wednesday expanded the island financial hub’s outreach to wealthy private investors by introducing new tax policies to nudge single family offices towards sustainability-focused projects and philanthropic works.

In remarks at a briefing on MAS’s annual report, managing director Ravi Menon outlined several adjustments intended to boost local investment by Singapore-based SFOs, which numbered 1,100 at the end of 2022 — up from 700 the previous year — and are granted tax incentives by the central bank.

With many locals growing wary of outsized spending by wealthy families from beyond the nation’s borders, Menon prefaced the introduction of the expanded incentive package by explaining that wealth inflows into Singapore have little effect on the exchange rate, domestic inflation or property and car prices.

“The reason for this is simple: while the wealth is managed here, most of it is invested outside Singapore,” he said. “This means that the wealth inflows typically remain in foreign currencies and have little or no effect on the Singapore dollar exchange rate. Singapore is just an intermediary for these flows.”

Green Incentives

To support the region’s transition to net zero emissions, MAS will broaden the scope of SFOs’ eligible investments to include blended finance structures in which financial institutions in Singapore have been substantially involved. The central bank will give more recognition to capital that accepts lower returns or higher risks — so-called concessional capital — for funding worthwhile but less attractive green and transition projects.

“Hence, for every dollar of concessional capital invested, we will recognise it as equivalent to up to S$2 of investments for the purpose of assessing if the SFO has met its investment requirement,” Menon said.

MAS will also acknowledge grants that SFOs give to support blended finance structures. Given that such grants have no expectation of income or return of principal, the central bank will recognise as S$2 for every dollar of grant given to these finance structures.

SFOs will also be urged to make climate-related investments, which will be recognised wherever in the world they are made — not just in Singapore.

Hometown Helping Hand

MAS will encourage SFOs to invest in Singapore companies and the local equity market by expanding tax incentives to recognise all investments in non-listed Singapore operating companies, including private credit, and not merely private equity investments as is currently the case. The central bank will recognise twice the amount invested in Singapore-listed equities, and in eligible ETFs and unlisted funds that invest primarily in Singapore-listed equities, for the purposes of meeting the SFO investment requirement.

To expand the pool of available jobs for professionals in Singapore, MAS will require that at least one of the investment professionals that SFO applicants currently need to hire is a non-family member. In addition, all new SFO applicants will have to meet the business spending requirement solely from spending locally, unlike previously when this could be met with overseas spending.

To motivate SFOs to conduct philanthropic activities through Singapore, MAS will recognise donations to local charities alongside normal business spending. To encourage giving overseas using Singapore SFOs as a base, the Philanthropy Tax Incentive Scheme will let qualifying donors in the city-state claim a 100 percent tax deduction, capped at 40 percent of the donor’s statutory income, for overseas donations made through qualifying local intermediaries.