Investigating the Implementation of "Family Office" in Singapore and Hong Kong (2024)

There is talk regarding "family offices" to increase the flow of capital circulation in the country.

A number of countries in the world have formed family offices to encourage the circulation of capital within the country. This capital flow is expected to have a positive impact on the country's economy.

Less than four months before the end of the second term of President Joko Widodo's administration, discourse emerged related to the family office. To realize this plan, the government formed a special team commanded directly by the Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan.

Quick action was taken to review various regulations to create a wealth management center (WMC) ecosystem. The government is preparing to review a number of aspects, such as ease of doing business (ease of doing business), financial system, legal framework, and other aspects, including taxes.

The family office concept itself is one of the main strategies offered by the government in the hope of attracting super-rich families who have previously chosen Singapore, Dubai or Hong Kong as their investment destination.

In contrast to conventional financial institutions, family offices are private wealth management advisory firms that serve ultra-high net worth individuals or families. They offer a total solution to the wealth management and investment needs of ultra-wealthy individuals or families. Generally, these rich families have investable assets worth at least 50 million to 100 million US dollars.

According to the Wealth Report from Knight Frank, the number of ultra-high-net-worth individuals with assets over 30 million US dollars in the world currently reaches at least 626,619 people. Asia, including Indonesia, has the second largest number of ultra-high-net-worth individuals after America. In 2023, this number will reach 165,442 people and is estimated to continue to increase to around 228,849 people in 2028.

Also read: ”Family Office” for Super-Rich Families, Why is Jokowi Discussing It Now?

The increasing number of super-rich people in the world means that family offices are also growing. A DBS Private Bank study entitled "The Family Office Boom: Contrasts Between East and West" shows that there are more than 10,000 single family offices and 5,000 multifamily offices worldwide. Collectively, the wealth managed by the family office reaches 5.9 trillion US dollars.

In the Asia Pacific region, the number of family offices has almost doubled in the decade since 2008. This growth was driven by a massive increase in the number of family offices, reaching 44 percent in 2017- 2019.

In the 18th edition of The Wealth Report released by Knight Frank, Hong Kong and Singapore are said to have led the competition to become the "host" of the new rich in Asia. So how is the development and implementation of family offices in these two countries?

Singapore

In Southeast Asia, Singapore is one of the centers for family offices. Summarized from the ASEAN Briefing page, this country nicknamed the "Lion City" is trying to attract many wealthy individuals from all over the world to manage their wealth in Singapore. Some who are often mentioned are Google co-founder, Sergey Brin; former Fosun International CEO Liang Xinjun; and Reliance Industries Chairman Mukesh Ambani.

Why is Singapore an attractive country to set up a family office? One of them is because Singapore is known as a business-friendly country that offers a stable socio-political environment, a free market economy, highly efficient infrastructure and an attractive tax regime.

Singapore is also considered to have a business environment, transparent taxation, and regulations that provide easy online access to information needed by most businesses. This is seen as greatly simplifying the market research process for international decision-makers when entering the market.

Another advantage is its ability to act as a center for regional asset storage and management. Singapore offers investors a stable environment to manage operations in more speculative markets in Asia.

Also read: Family Office Incentives and Tax Fairness

Singapore is also taking advantage of tax incentives and business-friendly regulations to encourage increasing family offices. On March 6 2024, Prime Minister Lawrence Wong said there were around 1,400 family offices receiving tax incentives in Singapore. This number has increased quite rapidly from 2022 which was 1,100 family offices or in 2021 which was still around 700 family offices.

These incentives are included in three schemes, namely the domestic funds tax exemption scheme, the foreign funds tax exemption scheme, and the increased level tax incentive scheme. This scheme will allow the majority of investment profits managed by the family office to be exempt from income tax. However, each scheme has its own eligibility requirements.

Not only tax incentives, the Singapore Government also encourages family offices with innovative grant schemes. One of these is the Tiered Fund Tax Exemption Scheme which allows certain ranges of income derived from a number of investments to be exempt from tax for qualifying investment entities.

Singapore does not impose capital gains tax and has an extensive network of double taxation agreements to prevent double taxation of income obtained in other countries. Singapore is one of the countries with the widest network of double tax avoidance agreements (DTAs) in the world. The country has signed more than 90 DTAs, consisting of three types: comprehensive, limited, and exchange of information agreements (EOIA).

These incentives contribute to Singapore being a very tax-efficient location for family offices and making it an attractive option for wealthy individuals looking to manage their assets effectively.

Singapore has had a family office since 1948, namely the Tolaram Group Family Office (Vaswani Family Office). In addition, key family office players in Singapore are the Clermont Group family office and One Hill Capital.

Hong Kong

No less than Singapore, Hong Kong also shines brightly as a center for family offices. Apart from being the gateway to mainland China, many companies choose Hong Kong as their base of operations because of its location in the heart of Asia Pacific. Of the total 10,339 companies operating in Hong Kong in 2022, around 87 percent will be foreign investment.

This geographic advantage allows Hong Kong-based family offices to take investment opportunities in a variety of assets, such as equities, bonds, real estate and private equity in a dynamic market.

As the number of family businesses in Asia increases, Hong Kong's role as a home for family offices is growing rapidly. A market study published by Deloitte in collaboration with FamilyOfficeHK says there are more than 2,700 single family offices in Hong Kong.

The development offamily officesin Hong Kong appears to be inseparable from strong regulations, a high level of financial transparency, and the presence of a variety of skilled financial professionals.

Also read: Contradictions Behind the "Family Office" Discourse in Indonesia

Apart from that, the application process for establishing a family office in Hong Kong is also relatively easy and fast, only taking a few weeks. All these factors make Hong Kong a prime gateway for family offices looking to thrive in Asia's dynamic economic landscape.

Hong Kong's fast-growing technology industry is increasingly attracting global investors, leading to an increase in family offices looking to achieve high growth potential. Because, this city is building a dynamic technology ecosystem with various innovative start-up companies in sectors such as financial technology (financial technology/fintech), artificial intelligence (artificial intelligence< /i>/AI), health technology, and e-commerce.

Not only that, the Hong Kong Financial Services and Treasury Bureau is also leading an initiative called "Wealth for Good in Hong Kong". This program is dedicated to promoting technology, philanthropy, green finance, and the arts in thefamily office business.

Hong Kong created a foreign investment scheme (CIES) to make it easier for wealthy people and family offices to immigrate. By investing in Hong Kong asset markets, such as equities, government and corporate bonds, applicants can obtain permanent resident status for themselves, their spouses, and their children under 18 years of age. The minimum asset limit is 10 million Hong Kong dollars or approximately 130,000 US dollars for qualified applicants. The goal is to attract the new rich to the region.

Hong Kong has passed a tax relief bill offering tax exemptions to qualifying family offices. The bill exempts taxes from profits earned by family-owned investment institutions (FIHVs).

The FIHV must be managed or controlled in Hong Kong during the basic assessment period and meet a minimum asset threshold of 240 million Hong Kong dollars or approximately 30 million US dollars. Various steps are being taken to strengthen Hong Kong's position as a center for international asset and wealth management.

One of the family offices in Hong Kong is Pacific Century Group, which has existed since 1993 with managed funds of more than 5 billion US dollars. The other two largest family offices are Hillhouse Family Office and Blue Pool Capital Family Office (Jack Ma's family office). (COMPAS R&D)