Singapore’s Strong Reputation and Infrastructure
Singapore boasts a stable, competitive and open economy, with one of the highest per capita GDP in the world, and with a dominant financial industry. It has more than 700 local and foreign financial institutions, including 126 commercial banks, 59 licensed trust companies and 32 merchant banks. Singapore is a member of the Financial Action Task Force (FATF) and a founding member of Asia-Pacific Group on Money Laundering, and continues to relentlessly fight against money laundering and terrorist financing. Singapore has amended its legislation to ensure compliance with the enhanced OECD Standard for effective exchange of information (EOI), making it a legitimate and respected jurisdiction for wealth management and asset protection. Singapore has high standards for its progressive financial regulatory framework, together with its supervision and transparency.
Singapore also has a robust legal system and an effective corporate governance framework that is complemented by a pro-business environment. These standards together contribute to the reinforcement of Singapore’s status as a premier wealth management hub with an attractive trust jurisdiction. Singapore’s stable government and political system, its commitment to stay relevant to the evolving economic environment and its consistent integrity, are only a few factors that have fostered the country’s strong reputation across the globe.
Settlors of trusts are generally seeking a solution for key concerns such as asset protection, confidentiality, estate planning, and any family circumstances. These concerns are allayed if the settlors can be assured of an effective legal and regulatory framework. Singapore trust law is based substantially upon English trust law principles. Trusts in Singapore are regulated predominantly by the Trustees Act, which is constantly reviewed and revamped to accommodate the evolving needs of the trust market, while ensuring the provisions are robust to uphold the purpose of trusts in general. 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.
In addition, the Trust Companies Act (TCA) governs trust businesses in Singapore. The TCA provides the legislative and regulatory framework for companies that are in the business of providing trust business services, whether the trusts are established under Singapore law or a foreign law. The conduct of trust business, and the licensing and regulation of trust companies, are controlled by the Monetary Authority of Singapore (MAS) and are subjected to strict anti-money laundering requirements. MAS grants licenses only to those trust companies that meet their high standards in terms of quality, financial reporting, operational controls, and the experience and integrity of the professionals that are employed to manage the business. MAS supervises trust companies by conducting off-site reviews and on-site inspections.
The territorial principle of tax applies to the income of a trust; accordingly, tax will be charged on income that is earned or received in Singapore. Such income is the statutory income of the trustee and is chargeable to tax at the trustee level; therefore, when distributed, this income is not subjected to further tax in the hands of the beneficiaries. That being said, a tax transparency treatment is accorded to beneficiaries who are (i) resident in Singapore, and (ii) entitled to the trust income under the trust. In this case, the tax will not be applied at trustee level; instead, the beneficiaries are subject to tax on the distributions received and will enjoy the concessions, exemptions and foreign credits that may be available to them. This treatment does not apply to resident beneficiaries who are not entitled to the trust income. Separately, the income derived by the trustee from carrying on its trade or business is subject to final tax at the trustee level.
Exemptions for Foreign Trusts
Tax exemption is available for specified income that is derived by Qualifying Foreign Trusts (QFTs) and their underlying holding companies. A QFT is a trust created by deed where all of the settlors and beneficiaries are foreigners (i.e. neither citizens nor residents of Singapore), and administered by an approved trustee company. The income that is exempted from tax includes income from the following sources –
Interests and dividends derived from outside Singapore and received in Singapore in respect of any designated investments
Rents, royalties, premiums and any other profits arising from property derived from outside Singapore and received in Singapore
Gains or profits derived from sale of any designated investments. Distributions from foreign unit trusts derived from outside Singapore and received in Singapore. For the purpose of tax exemption, subject to certain conditions, a trust shall continue to be regarded as a QFT notwithstanding that any settlor or beneficiary of the trust who is an individual subsequently becomes a citizen or resident of Singapore. It must be noted that the tax exemption shall not apply to a foreign trust where any settlor or beneficiary is a company that has a permanent establishment in Singapore, carries on a business in Singapore, has a beneficial stake of more than 20% in any Singapore incorporated company, or is beneficially owned more than 20% by a company that falls within any of these. In addition to the tax exemption accorded to the trust income of the QFT, the approved trust company that administers the QFT is also taxed at a concessionary tax rate of 10% on the income derived from the business of administering the trust.
Exemptions for Domestic Trusts
Qualifying Domestic Trusts (QDT), and holding companies that are established for the purposes of the trust, are granted tax exemption on specified locally-sourced investment income and foreign-sourced income. The distributions are not charged at the hands of the beneficiaries. Qualifying criteria include:
The trust must be administered by an approved trustee company in Singapore
Every settlor of the trust must be an individual
Beneficiaries could be individuals, charitable institution, trust or body of persons established for charitable purposes
At least one of the beneficiaries is not a settlor of the trust
No Capital Gains Tax, Estate Duty or Exchange Control
There is no capital gains tax in Singapore. Estate duty was abolished in 2008. Therefore, the distribution of capital from Singapore trusts are exempt from tax and successors of a Singapore trust can be included as beneficiaries without any estate duty. This facilitates estate planning. Only the distribution of income from the estate is taxable. There is no exchange control, and funds may be freely remitted to and from Singapore. As such, there are no controls to impeded any additions to trust assets subsequent to its formation.
Asset Protection & Anti-Forced Heirship
A Singapore trust will not be void or voidable in the event of the settlor’s bankruptcy or liquidation. However, the court may set aside a trust against claims made by the settlor’s creditors if it is proven to the satisfaction of a Singapore court that the trust was made with the intent to defraud the settlor’s creditors. The settlor, whilst being assured of asset protection, can also concurrently ensure their control over the management of the assets by reserving some powers. The Trustees Act stipulates that a trust shall not be invalid only by reason of the settlor’s reserving all or any powers of investment or asset management functions under the trust.
In certain jurisdictions, forced heirship is a common issue. For example, in some Middle Eastern countries where Islamic Shariah Law prevails, the forced inheritance provisions upholds the right of family members who cannot be disinherited by the lawful owner of the asset, and the assets have to be apportioned among his living successors as provided by the forced heirship law. This can be addressed under Singapore trust law, which has anti-forced heirship provisions. Foreigners who set up local trusts are exempted from these forced heirship limitations, allowing an owner to leave all his or her money to people that are chosen by the owner.
No registration is required for any trust in Singapore. Furthermore, for a foreign trust, the local tax laws do not require disclosure of the identities of the settlor nor the beneficiaries. There is no requirement for the foreign trust to be registered, nor for the trust instrument to be filed with any government authority. Singapore is party to more than 90 comprehensive Double Taxation Agreements (DTAs) that have incorporated OECD’s internationally-approved standards on the Exchange of Information.
Nevertheless, it cannot compromise the confidentiality laws under the Banking Act and the Trust Companies Act, which effectively protect clients’ information – only bona fide requests satisfying all the requisite conditions of legitimacy and relevance are entertained, and only the Singapore Courts have the power to lift the veil of banking and trust confidentiality conferred by the legislation. The affected party will be notified and has a right to apply to the Court to discharge or vary the Court order.
Under Singapore law, trusts are valid for a maximum period of 100 years, unless a shorter period is specified in the trust deed. The income of the trust may also be accumulated for the duration of the trust period. In addition, there is a “wait and see” provision that treats a non-vested interest as valid if such an interest eventually vests within the validity period.
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. The modernized legislative and regulatory framework for trusts, alongside the various tax savings, and confidentiality assurances, are just a few factors that nurture Singapore’s trust jurisdiction. Any individual looking to establish a family trust can be assured of achieving their intentions, such as asset protection and succession planning, whilst contemporaneously enjoying investment growth and tax savings for the trust assets, amidst the backdrop of a strong regulator, dominant financial hub, and a growing economy.