Why the world’s ultra-rich put their money in S’pore, explained – Mothership.SG
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Singapore financial and business watchers may have noticed a trend lately – the richest people in the world are increasingly moving to our small island.
Over the past few years, we’ve seen Google co-founder Sergey Brin, British inventor and entrepreneur James Dyson, and the son of Haidilao founders Zhang Hanzhi set up family offices and buy property here.
What are “family offices”?
Family offices are described by Investopedia as consulting firms that manage the finances or investments of a wealthy person or family.
In other words, if you are a wealthy person with a lot of money that you want to keep for your life and future generations, you can set up one of these offices to help you do that.
In response to a parliamentary question on the matter, Trade and Industry Minister Chan Chun Sing said on April 4, 2021 that around 400 family offices have been operating here since the end of 2020.
This is double the figure given by Chief Minister Tharman Shanmugaratnam in October 2020, barely six months earlier.
At the time, Tharman also cited research estimating that each family office typically managed assets in excess of US $ 100 million ($ 132.77 million).
If this figure is still true, the total assets managed by family offices in Singapore today would be at least S $ 54.4 billion.
So if we take the proliferation of family offices here as proof that the ultra rich are parking their money in Singapore, the next question to ask would be: why?
A safe place to operate
The most obvious reason the ultra-rich love Singapore is because it’s a pretty safe place for a wealthy person to park their money.
One indication of this is the fact that our country receives the highest ratings for its sovereign credit rating.
In fact, Singapore is one of the few countries in the world that currently holds the highest possible AAA rating from the three most influential agencies that assign these ratings – Moody’s, Fitch, and Standard and Poor’s.
Those looking to set up a family office might be interested in specific factors such as political and economic stability, as well as the strength and transparency of its legal system, all of which contribute to a better credit rating.
For example, if a country’s government or judiciary is known to have high levels of corruption, a wealthy individual may choose not to operate there because of concerns about how he might be treated, s ‘he was unable to get into the good books of those in power.
Or maybe a country’s policy can be so volatile that there is a risk that the government will collapse into chaos, or even just change its corporate tax policy, for example, after every election. This too would naturally be a deactivation for someone looking for a location for their head office.
Yet security and stability cannot be the only things that make Singapore attractive to the rich.
After all, countries like Sweden, Denmark, and Switzerland have also received AAA ratings in all areas; Canada, the United States, the United Kingdom and Australia also score high.
So, while security and stability are basic requirements, it takes something else to really attract the money of the world’s richest people to Singapore.
Here are a few:
According to Deloitte, Singapore is known for having one of the most competitive tax systems in the world.
Corporate tax here is levied at a flat rate of 17 percent, while income tax is 22 percent for those in the higher bracket.
Compare that to tax rates in Sweden, an AAA-rated country, where corporation tax is around 20% and income tax can be as high as 57%, according to Investopedia.
Meanwhile in Singapore, Deloitte cites the absence of capital gains taxes and foreign-source income taxes in the hands of individuals – a rarity in the developed world – as being particularly attractive to very wealthy individuals.
Besides friendly taxation, a few other government policies have allowed the wealthy to bring their wealth to Singapore.
This includes the Company with Variable Capital (VCC) framework introduced in January 2020 and administered by the Accounting and Business Regulatory Authority (ACRA).
Explaining how VCCs work is beyond the scope of this article, but in layman’s terms, Financial in the world wrote that it provides a new legal structure that offers a superior option to existing structures of funds or collective investment schemes.
According to InCorp Asia, VCCs provide shareholders with greater freedom and flexibility to enter and exit a fund through easy subscription and redemption of shares, which increases the efficiency of investment funds.
In even simpler terms, it just makes it easier for a wealthy person to manage their money.
To make things even more convenient for those looking to move their wealth here from other tax havens, the MAS is covering part of the costs of setting up CCVs until 2023.
Another policy that has helped attract the wealthy to our island nation is the Global Investor Program (GIP).
Under the GIP, an individual can apply for permanent residence here if they invest S $ 2.5 million or more in new or existing businesses registered in Singapore, or in GIP funds that invest in Singapore businesses.
Once they achieve permanent resident status, their families can then enjoy Singapore’s world-class education system along with the other benefits and amenities that our city has to offer.
Stand out from competition
We have established that Singapore is somewhat of a tax haven with investor-friendly policies.
But regardless of the competitor, there are things that set us apart even more from other tax havens like the Cayman Islands, Switzerland or Hong Kong.
One is our status as a financial hub.
This means that the range of services that family offices, or individuals looking to invest their wealth need, are widely available in Singapore.
Accounting and consulting services firm Crowe Singapore highlighted our strong ecosystem and “vast pool of talent such as asset managers, private bankers, and legal and financial professionals.”
In addition to having the infrastructure to support the financial activities of the world’s millionaires and billionaires, Singapore benefits from being in Asia.
Write for CNA, David Kuo – co-founder of the investment education website The Smart Investor – pointed out that Asia has been touted as the next center of global economic growth. Singapore therefore presents itself as an entry point for those looking to invest in the region.
What about Hong Kong? The Special Administrative Region has some of these advantages that we have already described – it is a financial center in Asia.
A popular view is that political instability in Hong Kong has deterred many.
Asian investor said Steve Diggle, founder of Singapore-based multi-family office Taurus Investment Management, saying in 2020 that wealthy families in mainland China appeared to be transferring their money out of Hong Kong.
the same, Nikkei Asia Review spoke with a nearly two-decade private banker who said that “people in Hong Kong with financial assets in excess of $ 20 million have dispersed their assets in several places overseas, including Singapore.”
Good or bad for Singapore?
So how should we view this development in our nation?
On the one hand, it can be argued that the rich who come here and invest their money should be seen as a good thing.
Theoretically, by bringing their money to Singapore, using our banking and financial services, and in some cases investing in our businesses, the ultra-rich create jobs for those of us who have less.
Chan, in his parliamentary response, said that family offices “generate indirect employment when they work with external finance, tax and legal professionals on wealth planning and operational matters” and also expand the pool of capital for Singapore-based startups and business enterprises. like the funds that invest in these companies.
Kuo, in his commentary, highlighted the “multiplier effect” of family offices on the economy.
“It is not unreasonable, for example, for a S $ 100 million family fund to spend around S $ 1 million a year on expenses.”
But others may point to the lingering problem of inequality – highlighted in particular by the Covid-19 pandemic – and question whether pimping of the ultra-rich may have unwanted effects on society as a whole.
The topic of wealth redistribution was brought up by MP Foo Mee Har in February earlier this year.
In parliament, Foo noted that the trend of getting the rich to contribute more “is gaining ground globally.”
“When you consider that some entities or individuals may have benefited from windfall gains from Covid-19, it may not be unreasonable to expect them to do more for the common good,” he said. she declared.
In response, outgoing Finance Minister Heng Swee Keat acknowledged the uneven effects of the pandemic on society.
“We will indeed continue to review our wealth taxes,” he said.
Mothership explains is a series where we delve into the important, interesting and confusing events of our world and try to explain them.
This series aims to provide in-depth, easy-to-understand explanations to keep our readers up to date not only with what’s going on in the world, but also the “why”.
Top image made from photos by Zhu Hongzhi and Jason Leung via Unsplash