In a world where the ultra-wealthy are increasing in number, family offices are navigating significant growth and evolving challenges. Singapore, as a key centre for wealth management, continues to attract the affluent while addressing the complexities of a tax landscape that is under growing regulatory scrutiny. With over 1,400 family offices and counting, the island nation is both a destination for the ultra-wealthy and a hub for wealth management practices.

WMI Faculty Desmond Teo is EY Asia-Pacific Family Enterprise Leader and Asia-Pacific EY Private Deputy Leader. Leveraging his vast experience, having advised business in the fund management industry since the early 2000s, Desmond has identified three trends in the global tax landscape: enhancing transparency, establishing economic substance and addressing wealth inequality.

“These trends have accelerated in recent years,” Desmond says, who has been in the field since the early 2000s. “Notably, the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, with over 140 jurisdictions approving BEPS 2.0 Pillar 2, introduces a global minimum tax rate of 15% for large groups that meet specified revenue thresholds. This can impact large family offices and family holding structures.”

“As Pillar 2 is being implemented by different jurisdictions at varying paces, this adds to the complexities of compliance. Technology is often a critical component for compliance, requiring significant investment, both monetary and non-monetary,” he adds.

Family Offices Take a Global View for a New Regulatory Era

Desmond notes the rapid evolution from global authorities. “This may be in the form of additional monitoring or reporting requirements, or more stringent criteria for family offices,” he says. “Family offices should stay informed about these developments and consider the potential impact on their tax strategies.”

He highlights that Malaysia, the United Kingdom and Australia have introduced capital gains tax, while the United States, Japan, Korea and the Philippines have estate duty and gift tax. As governments revise their policies, family offices need to familiarise with the developments and develop new strategies to best comply with the changes.

As governments revise their policies, family offices must stay updated on these changes to keep compliance and optimise their strategies accordingly. During this time, Desmond suggests maintaining a portion of social impact investment.

“There is also growing emphasis on philanthropy as a ‘soft’ means of addressing wealth inequality,” he adds, emphasising that investments in community initiatives or donations can offer tax relief while addressing social causes.

Streamlining Compliance

To stay compliant, family offices should implement automated reporting systems to streamline compliance with Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS). This will allow them to adapt to these shifts more quickly.

Quarterly compliance audits can proactively identify and address potential issues, while keeping transparency and adherence to global standards. To facilitate this, ongoing training for staff on the latest regulatory updates and best practices is also crucial.

“In pursuing diversification — both in terms of types of investments and geography — family offices are increasingly establishing their presence in multiple jurisdictions,” he says. “This can become unwieldy if the family offices do not have a thorough understanding of the rules on the automatic exchange of information relating to financial assets in various foreign financial intermediaries (FFIs) in different locations.”

Desmond advises family offices to maintain a comprehensive view of the information on financial assets in various FFIs across different locations. He adds, “This allows family offices to clarify any queries and share the technical basis of any structures and transactions with the tax authorities. One common area needing clarification for FATCA and CRS is the duplicative reporting that may occur due to joint bank accounts being held and multiple tax residencies of ultimate beneficial owners.”

To support this, robust systems and processes must be in place “to help families piece together the global footprint of their financial assets. These systems and processes should also monitor updates in the family’s circumstances, such as a change in tax residency or the passing of a family member, and inform the FFIs within the FATCA and CRS ecosystem in a timely manner.”

There will be costs needed to facilitate this, and additional investing in technology or outsourcing to specialised service providers may be necessary for efficient communication and reporting. However, this transparency will benefit compliance in the long run.

Navigating Double Taxation and Other Challenges

Family offices with diverse international assets must proactively protect their investments by anticipating and optimising for potential hurdles. “Families with a significant global footprint often face challenges related to potential double taxation, as well as compliance and reporting in multiple tax regimes,” Desmond explains. “Common trigger points include having more than one tax residency, structures that may not have stayed relevant due to changing family circumstances or tax rules, or simply being unaware of evolving tax compliance obligations.”

For example, if a Singapore company has investments in mainland China but are held indirectly through offshore companies, it might face double taxation on the profits earned by the Chinese company, as mainland China taxes worldwide income while Singapore offers exemption on offshore dividends received but only if prescribed conditions are met. In another scenario, a family with a vacation home in France might find their initial tax strategy as a non-resident owner altered if they spend more time there as a retirement home, triggering unanticipated tax obligations.

Desmond stresses that due diligence is crucial for maintaining oversight and alignment within portfolios. “It is good practice to periodically review structures, taking into account the family’s circumstances, future plans and prevailing tax regimes, and refine the structures, where needed, to stay relevant and compliant.”

Beyond the Basics

The intricate operations within a family office require a skilled professional who understands its complexities, especially when it comes to tax considerations.

“Tax considerations for family offices are likely to become more complex with the evolving global tax landscape,” Desmond says. “Strategies may need to be more sophisticated and tailored to the specific circumstances of individual families.”

Asked about the skills the profession should develop, he says, “Those entering this field today should build a strong understanding of international tax law, stay up to date with the latest tax developments and enhance their skills in areas like data analytics and technology.”

The Certificate in International Tax Considerations for Families of Wealth at Wealth Management Institute (WMI) was designed to introduce and enhance these specialised skills. Leveraging Desmond’s extensive industry experience, the program informs participants about real-life scenarios and combines a comprehensive overview with specific strategies. This ensures professionals are prepared to offer customised solutions for their clients.
“Given the plethora of competencies that professionals working with family offices need to develop, as well as the ever-evolving nature of issues to keep track of, it is crucial for them to maintain the most up-to-date skill sets,” he concludes.

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