Singapore is quickly rising to prominence as a leading international trust jurisdiction. Singapore’s wealth management sector is seeing a remarkable expansion as Asia drives the global economy, and the trust business market is also expanding.

Due to Singapore’s compelling advantages as a trust jurisdiction, both local millionaires and foreign High Net Worth Individuals (HNWI) are choosing Singapore trusts as their preferred vehicle for managing their wealth.

An overview of the benefits of setting up a private family trust in Singapore is provided in the guide below.

Be aware that this neither serves as a comprehensive synthesis of all pertinent knowledge on the subject nor a replacement for professional guidance.

Singapore’s Excellent Infrastructure and Reputation

Singapore has one of the greatest per capita GDPs in the world, a competitive and open economy, and a thriving finance sector. There are more than 700 financial institutions there, both domestic and foreign, including 32 merchant banks, 59 regulated trust organizations, and 126 commercial banks. Singapore actively combats money laundering and terrorism financing.

It is a founding member of the Asia-Pacific Group on Money Laundering and a member of the Financial Action Task Force (FATF).

A respectable and reputable country for wealth management and asset protection, Singapore has updated its legal framework to ensure compliance with the improved OECD Standard for effective exchange of information (EOI). Singapore’s innovative financial regulatory structure, together with its monitoring and transparency, are held to high standards.

Singapore also boasts a strong legal system, a strong corporate governance structure, and a supportive climate for business. Together, these requirements support Singapore’s position as a leading centre for wealth management and a desirable trust jurisdiction.

Singapore has a solid image around the world due to a number of elements, including its stable political system and administration, commitment to staying relevant in an ever-changing economic climate, and unwavering integrity.

Regulatory Framework

Trust creators typically look for a solution to address important issues like asset protection, confidentiality, estate planning, and other personal situations. If the settlors can be assured of an adequate legal and regulatory framework, their worries are eased.

English trust law ideas provide a large part of the foundation of Singaporean trust law. The Trustees Act, which is continuously reviewed and updated to fit the changing demands of the trust market while ensuring the provisions are robust to support the purpose of trusts generally, serves as the primary regulatory framework for trusts in Singapore.

The Trustees Act, among other things, stipulates protections to guarantee that trustees follow certain minimum standards when they exercise their trustee responsibilities and establishes a trustee’s duty of care when performing particular tasks or acts. The Ministry of Law is responsible for overseeing the Trustees Act.

The Trust Companies Act (TCA) also regulates trust companies in Singapore. Whether the trusts are set up under Singaporean law or a foreign law, the TCA provides the statutory and regulatory framework for businesses who are in the business of providing trust business services.

The Monetary Authority of Singapore (MAS) has authority over how trust business is conducted and how trust businesses are licensed and regulated. These activities are subject to stringent anti-money laundering requirements. Only trust firms that meet MAS’s rigorous standards for quality, financial reporting, operational controls, and the knowledge and moral character of the people hired to run the company are granted licenses. By conducting both on-site inspections and off-site reviews, MAS oversees trust companies.

Tax Advantages

Because a trust’s income is subject to the territorial principle of taxation, any income earned or received in Singapore will be subject to tax. When dispersed, this income is not subject to further tax in the hands of the beneficiaries because it is the trustee’s statutory income and is taxable at the trustee level.

However, beneficiaries who are (i) Singapore residents and (ii) entitled to the trust’s income receive a tax transparency treatment. In this instance, the tax will not be applied at the trustee level; rather, the beneficiaries will be taxed on the distributions they receive and be eligible for any applicable concessions, exemptions, and foreign credits. Residents who are not entitled to the trust income are not subject to this treatment.

Separately, the trustee is responsible for paying final tax on any income received from operating its business or trade.

Foreign Trust Exemptions

Qualifying Foreign Trusts (QFTs) and their underlying holding businesses may be free from taxes on certain income. A qualified foreign trust (QFT) is a trust established by deed with all of the settlors and beneficiaries being foreigners (i.e., neither Singapore citizens nor residents), and is managed by an authorized trustee corporation. Income from the following sources is included in the income that is not subject to tax:

• dividends and interest on any designated investments that are earned outside of Singapore and received there.

• any additional earnings from real estate derived from sources outside of Singapore and paid into Singapore, including rents, royalties, premiums, and other fees.

• income or gains from the sale of any specified investments.

• foreign unit trust distributions that originate outside of Singapore and are received there.

A trust shall continue to be recognized as a QFT for tax exemption purposes, subject to specified restrictions, even if any settlor or beneficiary of the trust who is an individual later acquires Singaporean citizenship or residency.

It should be noted that the tax exemption will not be granted to a foreign trust whose settlor or beneficiary is a corporation with a permanent establishment in Singapore, conducts business there, owns more than 20% of any corporation incorporated in Singapore, or is beneficially owned by a corporation that fits any of these criteria.

The approved trust firm that manages the QFT is subject to a 10% concessionary tax rate on the revenue it receives from the business of managing the trust, in addition to the tax exemption granted to the trust income of the QFT.

Exemptions for Domestic Trusts

Tax exemption is conferred on some local investment income and overseas revenue to Qualifying Domestic Trusts (QDT) and holding businesses that are created for the trust’s purposes. The beneficiaries are not charged for the disbursements. Some qualifying requirements are

• An authorized Singaporean trustee company must manage the trust.
• The trust’s settlors must all be individuals.
• Beneficiaries may include individuals, trusts, charity organizations, and groups of people who have come together for charitable purposes.
• At least one beneficiary is not the trust’s settlor.

No Estate Duty, Capital Gains Tax, or Exchange Control

Singapore does not impose a capital gains tax. In 2008, estate duty was eliminated. Because of this, capital distributions from Singapore trusts are tax-free, and successors to a Singapore trust may be added as beneficiaries without incurring any estate-tax obligations. This makes estate planning easier. Only the estate’s revenue distribution is subject to taxes.

Money can be transferred freely into and out of Singapore because there is no exchange regulation. As a result, there are no safeguards to prevent additional increases to the trust’s assets.

Asset Protection & Forced Heirship Prevention

If the settlor files for bankruptcy or liquidates their business, the trust will not be void or voidable in Singapore. However, if it is demonstrated to the satisfaction of a Singapore court that the trust was created with the goal to mislead the settlor’s creditors, the court may set aside a trust against claims made by the settlor’s creditors.

By reserving some rights, the settlor can ensure asset protection while simultaneously maintaining control over the management of the assets. According to the Trustees Act, a trust cannot be declared invalid simply because the settlor has reserved all or any of the trust’s investment or asset management power.

Forced heirship is a problem that often arises in some legal systems. For instance, compelled heirship laws in several Middle Eastern nations where Islamic Shariah Law is in effect support the rights of family members who cannot be disinherited by the asset’s legitimate owner and require that the assets be divided among his living successors. The anti-forced heirship provisions of Singaporean trust law can be used to resolve this.

Foreigners who establish local trusts are immune from these compulsory heirship restrictions, enabling an owner to leave all of their assets to beneficiaries of their choosing.

Strict Confidentiality

Any trust in Singapore is not required to register.

Furthermore, the settlor and beneficiaries’ names are not need to be disclosed under local tax regulations for a foreign trust. Neither the registration of the foreign trust nor the filing of the trust instrument with any governmental body is necessary.

The OECD’s internationally recognized standards for the Exchange of Information have been integrated into more than 90 comprehensive Double Taxation Agreements (DTAs) to which Singapore is a party. However, it cannot undermine the Banking Act’s and the Trust Companies Act’s confidentiality provisions, which effectively protect clients’ information.

Only genuine requests meeting all of the requirements for legitimacy and relevance are considered, and only the Singapore Courts have the authority to lift the legislation’s protections for banking and trust confidentiality. The party that will be impacted will be informed and will have the option of asking the court to cancel or modify the order.

Perpetuity

Unless a lower time frame is included in the trust deed, trusts in Singapore are only valid for up to 100 years. For the course of the trust period, the trust’s revenue may also be accumulated. A “wait and see” clause is also included, which recognizes a non-vested interest as valid if it finally vests within the validity term.

In summary

The statute and tax framework for trusts in Singapore is constantly changing and expanding, and at the same time, so is the jurisdiction’s appeal to both wealthy people and wealth-management experts. Among the many elements that support Singapore’s trust jurisdiction are the updated legal and regulatory framework for trusts, numerous tax benefits, and secrecy safeguards.

Any person looking to set up a family trust can be sure to accomplish their goals, such as asset protection and succession planning, while concurrently taking advantage of investment growth and tax savings for the trust’s assets, all against the backdrop of a powerful regulator, a preeminent financial center, and an expanding economy.