Families have been using trusts as a means of holding and passing on family wealth for centuries and they still offer great advantages, particularly for individuals who are changing, or planning to change, their domicile, residence or citizenship; those with families resident abroad; those seeking asset protection; and those whose principal motivation is to ensure the smooth succession of their estate on death, free of any forced heirship restrictions or lengthy probate procedures.
Singapore is increasingly considered by HNWIs worldwide as the preferred location for trust setups. Singapore's stable government and political system, robust legal system, progressive financial regulatory framework, competitive tax regime and compliance with international standards have made it a legitimate and respected jurisdiction for wealth management and an attractive trust jurisdiction.
Singapore trust law is based upon English trust law principles. Trusts in Singapore are regulated predominantly by the Trustees Act, which has been regularly updated to accommodate the evolving needs of the trust sector. It provides, among others things, safeguards to ensure that trustees adhere to certain minimum standards when they exercise their trustee powers, and defines a duty of care for trustees when carrying out specified duties or acts.
The tax treatment of trusts is dependent on the residency of the trust. Where there is residency in Singapore, and an exemption does not apply, income derived by trusts will be either taxed at the trustee level or in the hands of the beneficiaries. Generally income derived from a trade or business carried on by the trustees is subject to tax at the trustee level, while other income is subject to tax in the hands of the beneficiaries where they are resident in Singapore and entitled to the trust income.
However Singapore Qualifying Foreign Trusts (QFTs) - where neither the settlor nor beneficiaries of the trust are a citizen or resident of Singapore, or a Singapore resident company, and the trust is administered by a licensed Singapore trust company - are exempt from Singapore tax on certain 'specified income'. This includes income from the following sources that is received in Singapore:
- Interest and dividends derived from any designated investments outside Singapore;
- Rents, royalties, premiums and any other profits arising from property outside Singapore;
- Gains or profits derived from sale of any designated investments outside Singapore;
- Distributions from foreign unit trusts derived from outside Singapore.
This tax exemption further applies to distributions to beneficiaries and any underlying company of the trust that qualifies as an 'eligible holding company'. An eligible holding company is a company incorporated outside of Singapore, that is wholly owned by the trustee and formed specifically to hold the assets of the QFT, and whose operations consist solely of trading or making investments for the purpose of the QFT.
A QFT offers enhanced confidentiality. There is no registration requirement for Singapore QFTs and no requirement to disclose the identities of the settlor or the beneficiaries.
Under Singapore law, trusts are valid for a maximum period of 100 years, unless a shorter period is specified in the trust deed. A trust will continue to be a QFT even where a settlor or beneficiary subsequently becomes a citizen or resident of Singapore, subject to certain detailed conditions.
In addition to tax neutrality for foreign settlors and beneficiaries within its domestic tax law, Singapore also has an extensive network of double tax treaties with over 70 countries across the world, which can create tax planning opportunities for clients with substantial international interests.
Trust business in Singapore is governed by the 2005 Trust Companies Act (TCA), which sets out the legislative and regulatory framework for companies providing trust services in Singapore. Professional trust companies, such as Sovereign Straits Trust Ltd., must be licensed by the Monetary Authority of Singapore (MAS) and the TCA also contains very strict confidentiality provisions preventing trustees from disclosing affairs of their clients.
Singapore also offers the flexibility of using private trust companies (PTCs). These are companies formed in Singapore to act as trustees of Singapore trusts. A PTC is established with the sole purpose of acting as a corporate trustee to a trust or a number of trusts, provided those trusts are 'connected'. They therefore enable a family to retain more control over assets settled into trust, such as a family business, than by appointing an independent trustee because family members can be involved in the decision-making process within a PTC.
On a practical level, a PTC ensures more privacy in relation to the trusts, and allows for rapid commercial decisions to be made. A PTC does not compromise the validity of the trust structure and its residency for tax purposes, and can provide immediate and long-term tax planning advantages. A PTC also enables the next generation of a family to be trained to ultimately take over as directors of the PTC.
A PTC is exempt from licensing by the MAS, but must appoint a licensed trust company to administer the anti-money laundering obligations required by the MAS.
Singapore is a progressive and business-friendly international financial centre that continues to make itself the choice for wealthy individuals who wish to establish trust arrangements for their families. Sovereign Straits Trust Ltd. has more than 20 years' experience in managing trusts and estates with complex structures involving assets and beneficiaries in multiple jurisdictions and the legal, tax and compliance issues that arise when the laws of several jurisdictions may apply.
We also provide the support to maximise opportunities and achieve long-term sustainability, from full family office solutions to assistance with tax and regulatory compliance. This includes but is not limited to asset management, accountancy, foreign property ownership, retirement planning, residency, immigration and citizenship, insurance, yacht and aircraft registration and management, as well as specialist tax advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.