Singapore is not thought of as one of the world’s leading trust jurisdictions. But with its wealth management industry booming, and with trust business a key pillar of this sector, the city-state is rapidly becoming a favoured jurisdiction in which to form a trust, thanks to its favourable tax laws, strong confidentiality laws and reform of trust legislation in 2004.
Singapore is reputed to have the highest density of millionaires in the world so it is not surprising that the wealth management business has grown to become one of the city-state’s largest industries. The industry doesn’t not only serve a local client base of wealthy individuals however, and Singapore has benefited from a steady flow of assets from overseas as the wealthy, or at least their assets, decamp from traditional havens in Europe and the Americas.
Assets under management in Singapore are thought to total about USD1 trillion, as against USD3 trillion in Switzerland, but the gap is closing fast. The central bank says that about half of these assets come from outside the Asia-Pacific region. The result of the flood of money coming Singapore's way in recent years has been a doubling in the number of major banks offering wealth management services in the city-state.
One recent advantage bestowed on Singapore in relation to its main European banking and wealth management rival is that Switzerland has come under intense pressure in the past few years to cast aside the veil of banking secrecy so that governments in the United States, Germany and other European Union member states can more effectively tax their citizens’ wealth in Swiss accounts. While Singapore has been updating and renegotiating its double tax treaties following a change in its domestic legislation to allow for the exchange of information with other jurisdictions on tax matters, generally-speaking, confidentiality remains an important foundation of Singapore law, a situation that is unlikely to change in the near-term.
Singapore's trust law is broadly based upon English trust principles. Trustees in Singapore are also subjected to statutory duties under the Trustees Act and trust companies are licensed and closely regulated by the Monetary Authority of Singapore under the Trust Companies Act 2005 (see below).
Singapore trust law permits the formation of foreign trusts, and distributions to beneficiaries are granted exemption from tax under Section 13G of the Singapore Income Tax Act. There are also various other categories of tax exempt income under the foreign trust regulations, including: interest and dividends derived outside Singapore from designated investments; interest derived from deposits with and certificates of deposits issued by approved banks and from approved Asian dollar bonds; gains or profits from the sale of any designated investments; and gains from foreign exchange transactions in currencies other than the Singapore dollar.
‘Designated investments’ generally means stocks and shares in foreign currency of non-Singapore companies, foreign currency denominated securities outside of Singapore, futures contracts denominated in foreign currency and held in any futures exchange, immovable property outside of Singapore, various deposits and foreign exchange transactions not in Singapore currency.
In order to form a foreign trust, the settlor and the beneficiaries must neither be Singapore citizens, nor residents of the jurisdiction. The Trustees must also be a licensed Singapore Trust Company. Annual accounts are required, but there is no legal obligation for the trust to be audited. Assets can be added to a Singapore foreign trust at any time, and the perpetuity period is 100 years. Significantly, recent legislative amendments now give foreign trusts protection from forced heirship rules. Foreign trust formation typically takes two to three weeks.
Singapore trust law also permits the use of a Private Trust Company (PTC) to act as trustee of a specific trust, or a group of related trusts.
PTCs are popular with wealthy families who wish to retain control of the management of the assets within a trust. However, the PTC can only act as trustee of such a trust if each beneficiary of the trust is a ‘connected person’ to the settlor of that trust (a ‘connected person’ meaning a relationship established by blood, marriage or adoption). A Private Trust Company is exempt from licensing by the Monetary Authority of Singapore; but under anti-money laundering rules the PTC must engage the services of a licensed trust company to provide administration services.
The 2005 Trust Companies Act
Trust business in Singapore is governed by the Trust Companies Act (TCA) of 2005, which was revised in 2006, and is the legislative and regulatory framework for companies that are in the business of providing trust business services in Singapore, whether the trusts are established under Singapore law or other law.
Explaining the rationale behind the reform of Singapore’s trust laws, the Monetary Authority of Singapore, which regulates trust business in the city-state, says that:
“Dovetailing the robust growth experienced by the private banking and wealth management industries, the strong growth in the Singapore trust services industry has prompted the need to ensure high standards of probity, professionalism and business conduct by trust service providers to strengthen Singapore’s status as an international financial centre. The new TCA framework seeks to achieve this by ensuring, among other things, that only fit and proper persons are allowed to operate in the trust services industry and that trust service providers observe rigorous anti-money laundering requirements.”
Trust business activities regulated under the TCA including the following:
The provision of services with respect to the creation of an express trust;
Acting as trustee in relation to an express trust;
Arranging for any person to act as trustee in respect of an express trust; and
Providing trust administration services in relation to an express trust.
Advisors on wills, executors and administrators of the estates of deceased persons, bare trustees, and managers and trustees of business trusts are excluded from the ambit of the TCA, as the trusts involved are not actively used for investment and wealth planning purposes.
The TCA is separate from the Trustees Act, which provides the basic legislative framework for trustees of trusts established under Singapore law. The Trustees Act 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 Trustees Act is administered by the Ministry of Law.
A trust company regulated by MAS under the TCA would also have to comply with the Trustees Act if it is acting as trustee of a trust established under Singapore law.
Certain persons are, however, exempt from holding a trust business licence, and these include:
Banks and merchant banks regulated by MAS;
Holders of a capital markets services licence, or persons who are exempt from holding a capital markets services licence for providing fund management or custodial services for securities under the Securities and Futures Act;
Lawyers and accountants;
Private trust companies;
Persons engaging in trust business in connection with the issuance of debentures;
Trustees of collective investment schemes approved under the Securities and Futures Act; and
Persons carrying out introducing activities.
The MAS’s objective in its regulation and supervision of trust companies is to ensure safe, sound, and fair dealing financial intermediaries. MAS supervises trust companies by conducting off-site reviews, on-site inspections and company visits. For on-site inspections, MAS could either conduct a full-scope inspection or a “thematic” inspection on the trust company. A full-scope inspection will cover a company's compliance with the entire trust companies legislation, while a thematic inspection will cover only a specific area.
In reviewing an application for a trust business licence, MAS will consider the following factors:
Physical presence and management expertise of the applicant in Singapore;
Financial soundness of the applicant and its parent company;
Ability to meet the minimum financial requirements and professional indemnity insurance requirements;
Adequacy of internal compliance systems and processes of the applicant; and
Competence and integrity of the applicant.
A licensed trust company incorporated either in or outside Singapore must maintain a net asset value of not less than one-quarter of its relevant annual expenditure of the financial year immediately preceding the current financial year or three-quarters of the minimum paid-up capital of SGD250,000 (USD194,000), whichever is the higher amount.
Under the TPA, a licensed trust company must have a professional indemnity insurance (PII) policy that covers all liabilities arising out of negligent discharge of the duties of the licensed trust company, and is commensurate with the levels of risk of the licensed trust company’s business. The MAS is likely to consider that the PII is adequate if the following conditions are met: annual PII cover is at least SGD1 million or 2.5 times the turnover (previous year's turnover or, for new businesses, estimated turnover for the first year) of the trust business, whichever is the higher. The excess must not exceed SGD10,000, where the annual PII cover is SGD1 million, or not more than 3% of the turnover of the trust business in any other cases.
Licensed trust companies are required to lodge the following documents with MAS on an annual basis:
A true and fair profit and loss account and a balance sheet made up to the last day of its financial year, within 5 months after the end of the financial year;
A statement in showing the maintenance of the licensed trust company’s net asset value or qualifying assets, within 14 days from the grant of its licence and thereafter, within 5 months from the end of each of its financial year; and
A statement regarding information on the licensed trust company’s headcount, sources of revenue and assets under trusteeship in respect of each calendar year, within 60 days from the end of each calendar year.
The application fee payable to the MAS in respect of an application for a trust business licence is SGD1,000. An annual fee of SGD4,000 is also payable to the Authority. Trust licence applications are usually processed within eight weeks.
The recent improvements to Singapore’s trust laws have certainly met with approval from wealth management businesses around the world, and by 2008 assets placed in trust in Singapore had grown to USD100bn from USD25bn prior to the trust law reforms.
Wealth surveys consistently show that Asia-Pacific’s high-net-worth population is growing faster than anywhere else in the world despite the tough economic conditions, and recent figures suggest that Singapore has captured a substantial slice of this business with assets under management (AUM) by fund managers in Singapore reaching a new high of SGD1.4 trillion (USD1.1 trillion) in 2010, representing a 13% year-on-year increase.
Singapore is now said to be the leading wealth management centre in the Asia-Pac region, and with offshore trust, law and wealth management specialists from the traditional common law trust jurisdictions like the Channel Islands moving into the city-state at an increasing rate, its status as Asia’s leading trust centre looks assured.