Singapore is gaining more attraction as a trust jurisdiction internationally. A range of factors have contributed to achieving a reputable offshore trust status, including but not limited to the following reasons:
- Singapore is home to many local and foreign financial institutions. Many firms provide accounting, legal and tax advisory services.
- Well defined legal framework and robust regulatory framework. Provides a comprehensive legislation that ensures an attractive tax regime and strong framework for trust arrangements.
- The country has open, sound and stable economic policies this is Singapore’s greatest competitive advantage compared to other countries.
- The wealth management industry in Singapore continues to be an exciting phase of growth, notwithstanding the current global climate.
What is a trust?
A trust is a legal arrangement whereby a donor or settlor transfers property to the trustees who hold and deal with it on behalf of the third parties (the beneficiaries).
The owner of the property who creates the trust arrangement (the settlor) would enter into the arrangement in order to allow the trustee to have control over the property and any economic benefits from the property will accrue to the beneficiary. The settlor and beneficiary can be the same person.
Types of trust
There are various kinds of trusts available in Singapore which have different purposes associated with them.
- Private family trust: used by financially sound families for managing their assets.
- Statutory trust: meant for establishing statutory compliance.
- Charitable trust: an irrevocable trust established for charitable purposes.
- Collective investment trusts: examples of such trust are unit trust, business trust and real estate investment trusts.
- Foreign trusts: qualify for tax benefits, including tax exemption on a wide range of incomes as well as the exemption of tax on the distribution to beneficiaries of such trusts.
Singapore trust law
Settlors of trusts are seeking solution for asset protection, confidentiality, estate planning and family circumstances. Their concerns will be addressed if they are guaranteed of an effective legal and regulatory framework.
Singapore operates with a common law legal system based substantially upon English Trust principles. Trusts in Singapore are regulated predominantly by the Trustees Act which is administered by the ministry of law.
In addition, the Trust Companies Act (TCA) governs trust businesses in Singapore. The Monetary Authority of Singapore (“MAS”) is the regulator of trust companies under the TCA. The conduct of trust businesses are subject to strict anti-money laundering requirements. MAS grants licenses only to those trust companies that meet their high standard in terms of qualifying, financial reporting, controls and the experience of the professionals that are employed to manage the business.
Singapore has a territorial tax system. There is no capital gains tax and estate duty was abolished in 2008. There is no exchange controls and funds may be remitted to and from Singapore. Since 2006, foreigners setting up Qualifying Foreign Trust (“QFTs”) and Singapore residents setting up Qualifying Domestic Trust (“QDT”) enjoy tax exemptions.
Both QFTs and QDTs must be administered by a Singaporean licensed trust company. Singapore also has an extensive double tax treaty network with over 50 countries across the world. This entails interesting tax planning opportunities.
Benefits that Singapore’s trust framework provides
Assets are protected from any risks such as any potential future liabilities of a settlor. Assets can also be safeguarded against being taken away or attacked by the state of the settlor’s country of residence, nationality or domicile.
As mentioned earlier if the settlors and beneficiaries are non-residents, the trust will be exempt from income tax. There will be no withholding tax, deduction of Singapore income tax, no inheritance, wealth, gift or capital gains taxes levied in Singapore.
Avoid the expense and delay of probate
The establishment of trust removes any assets present in the estate and avoids the need to obtain a grant of representation.
There is strict confidentiality and banking secrecy laws. There is no public register of trusts in Singapore. The ownership of trust assets can remain entirely confidential in most circumstances.
Avoid forced hiership
Settlors are protected from forced heirship claims.
A trust is a convenient and flexible method of making complex arrangements for distribution of the assets.
Protecting the vulnerable
A trust enables people to manage their own affairs such as infant children, disabled relatives, the aged or persons suffering from certain illness.
Finally, Singapore offers economic and political stability, tax neutrality, access to a broad range of financial services and top quality financial institutions, a strong judicial system, sound regulation and overall integrity. The statutory and tax environment for trusts in Singapore continues to evolve and grow and simultaneously so does the trust jurisdiction’s magnetism for wealthy individuals and wealth-management professionals alike.