A PTC is exempt from the need to hold a trust business license under the TBA if it complies with certain conditions such as the trustee company being a private company and the resolution requirement on the board composition. Recently, under the Trusts (Amendment) Bill 2017, the demands for licensing have been further relaxed. The relevant change has increased the size of the equity interest that a professional trustee, regardless of whether he or she holds the position of director, management committee, or employee of a corporation serving as a trustee, is allowed to hold in the corporation trustee from 10% to 20%. This is a welcome move for those who are setting up PTCs or corporate trustees. Moreover, under the 13th Schedule of the TBA, corporate trustees must satisfy the MAS that they have a good reputation and their directors or officers are fit and proper persons. In reviewing the track record and relevant experience of the directors and officers, the MAS will take into account their education, employment record, character, reliability, and relevant qualifications or abilities.
Asia is one of the fastest growing wealth management centers in the world. Singapore and Hong Kong grew by 39% and 16% respectively from 2017 to 2018. The total wealth held across the region is expected to increase to US$58 trillion by 2023. For many businessmen and families in Asia, planning for succession continues to be a high priority. The trust structure has been commonly used by wealthy families as part of their wealth planning strategy to protect, preserve, and transfer their wealth to future generations. Not only does the trust structure provide an effective means of wealth preservation, it has various benefits including flexibility in structuring, protection against forced heirship and divorce claims, as well as confidentiality. In addition, the use of trusts has been extended across Asia including corporate trustee services and setting up of private trust companies (PTCs).
Benefits of Establishing a Private Trust Company in Singapore
A Singapore PTC possesses various distinct benefits in the trustee area. From the professional viewpoint, under section 27A of the Trustees Act, a provision was made to enhance the protection of trust corporations from professional negligence claims. These and all other possible disputes between the trust corporation and the client can proceed under Singaporean law and be determined by the competent Singapore courts. Also, in case of legislation in other mature and trusted jurisdictions supporting trusts, the Singaporean court is obligated to recognize the judgments from the leading jurisdiction and have those decisions enforced in Singapore. Such legal concurrent enforcement and mutual support arrangements render Singapore as an attractive jurisdiction for global investment and family office services.
Various advantages can be achieved by setting up a PTC in a favorable jurisdiction. These include reduced compliance costs, faster service standards, enhanced flexibility and confidentiality in capital structuring, innovative succession planning for family businesses, investor confidentiality, and superior management of investments. Interestingly, the PTC structure in many jurisdictions is particularly tailored for families which hold a substantial portion of their businesses within the family – the family members may well provide the full gamut of family office and trustee services to either an underlying trust or a web of trusts, holding capital from different branch structures or individual families, aggregately. In jurisdictions such as Singapore, which include a comprehensive tax policy favoring families and businesses, this is an especially attractive proposition.
Favorable Tax Environment
Singapore has one of the world’s most attractive tax systems for businesses and individuals. The country has a single-tier territorial based flat corporate tax rate of 17%. As a result, following the qualification of certain conditions, no tax is imposed on foreign-sourced income remitted into Singapore. Furthermore, dividends paid by a Singapore company are not subject to tax. Singapore does not have other taxes such as capital gains tax, estate duty, inheritance tax, and gift tax. These favorable tax conditions make it particularly advantageous for private trust companies which are holding and investment companies that manage the wealth of high net worth individuals who are based outside Singapore. This encourages the use of Singapore as a regional or global head office location for fund management, trade, and group treasury activities. Singapore also offers incentives for family investment holding companies to be based in Singapore. For example, a resident individual, holding at least 10% of the ordinary shares in the investment holding company for a continuous period of 12 months, is entitled to claim tax exemption on the foreign-sourced dividend, subject to certain conditions. In addition, such dividend received by the investment holding company is not taxable.
Singapore is fast emerging as the trust and family office hub in Asia, with trust structures increasingly being used as part of the wealth planning process for high net worth individuals. The city-state is well-known for its favourable tax regime and political stability, both key factors which attract many private trust companies to Singapore. In this article, we discuss the benefits of establishing a private trust company Singapore.
Robust Legal Framework
As with other global wealth management hubs, the choice of the framework to use in Singapore will depend on the specific needs of each family. The following provide a sense of what is possible in Singapore. Considering the increasing interest in principal protected trust structures, it would be prudent to keep a watchful eye on developments in Singapore. As of now, a trustee in Singapore must possess the capabilities to meet the Singapore standards of due skill and care. The Inland Revenue Authority of Singapore has issued guidelines which enable Singapore private trust companies to have a Registered Office Address under the authority of the trust company. As already discussed, a Singapore registered trust company is permitted to act as a trustee provided that it has the requisite skill, knowledge and resources to do so, and it is regulated by the Monetary Authority of Singapore, licensed by the MAS as a trust company pursuant to the Trust Companies (Licensing and Regulation) Act.
The Singapore trust regime is underpinned by a stable and robust legal framework. Trusts in Singapore are primarily governed by common law and the Trustees Act. Singapore law draws upon English trust law extensively and provides for domestic trusts. In general, Singapore law does not impose a domestic taxation on the creation of a trust. The common law on trusts has been codified in Singapore under the Trustees Act. A trust is valid if, inter alia, the trust property is sufficiently defined. There is no maximum duration for a trust under Singapore law, which also provides an enabling environment for perpetual trusts and dynastic planning structures. In addition, the Registered Trusts Act provides for the establishment of the Singapore International Trust, which is a bespoke regime suitable for “commercial arrangements and estate and succession planning outside Singapore”.
Wealth Management Expertise
The discretion afforded to professional trust companies in Singapore in mitigating domestic Singapore tax without the imposition of a deemed distribution is also unique. Onshore Lombard lending structures with a trust company outside Singapore acting as a lender (traditionally speaking BVI, Guernsey or the Cayman Islands or even Bermuda) are often laden with the requirement to make adjustments to the interest fees in the form of deemed distributions in order to benefit from withholding tax exemption. This can erode the returns that may be attractive to offshore clients as long as there is no adjustment for capital distributions within the trust. The tax treatment of loans becomes critical in investment decisions, which can have important impacts on risk and return characteristics, particularly with respect to leveraged loans. To a great extent, the use of a Singapore trust company acted as a lender holding a specific form of documented capital contributions via secured loans to the trust enables effective tax mitigation and supports income accumulation for subsequent reinvestment without the need for withholding tax adjustments.
A PTC in Singapore is not subject to the same outmoded restrictions on class of beneficiaries and accumulation of income that many other offshore jurisdictions still have. While the laws of many onshore jurisdictions now make it easy to establish a purpose trust (i.e., a trust that can be set up to further broad philanthropic goals without a need to establish beneficiaries), the choice to set up a purpose trust that can engage for charitable purposes not only in specific jurisdictions, but indeed worldwide is strategic in attracting a broader account base. This approach of utilizing Singapore as an onshore locus for trusts that has a purpose trust element coupled with geographical flexibility is in itself a unique approach and rare worldwide.
Setting Up a Private Trust Company in Singapore
The Wealthbridge group of companies is a licensed provider of independent directors, executive officers, company secretaries, and authorized persons (TMS and DIR) services coordinating governance support for Capital Markets Services License (CMSL) firms and Financial Institutions locally.
The Wealthbridge group of companies provides independent directors for the boards of our client’s companies in order to support fiduciary duties. Of the appropriate legal and trust governance, we operate under strict guidelines in alignment with all corporate and statutory requirements for the jurisdictions we operate in, such as under the Singapore Companies Act and the Singapore Trust Companies Act. Our corporate culture focuses on client service, integrity, transparency, and compliance, which has allowed The Wealthbridge to expand our support for companies, business trusts, and private trusts globally.
Fiduciary duties – the board of directors are required to act in the best interests of the PTC and its clients at all times. In order to achieve this, it is especially important for independent directors to fulfill their duties diligently by periodically assessing the performance of the trust. Before any decision or action is made, due care is taken for thorough investigation and the potential impact is carefully evaluated.
Composition of Board of Directors – PTCs must have a minimum of three directors at all times. To ensure the PTC has sufficient oversight, the majority of the directors must be independent – i.e. they are not employees, agents or associated persons of the PTC, its holding company or the trust. They would be first and foremost to act in the interest of the clients.
When setting up a PTC in Singapore, it is important to consider the following:
Eligibility Criteria
Dealing in Trust Business. Section 6A of the Trustees Act requires all corporate trustee companies acting as trustees in administering or dealing with the assets of an express trust constituted, whether under the law of Singapore or the law of a foreign country, to be licensed as trust companies. The section also prohibits a corporate trustee company from carrying on trust business unless it meets the terms and conditions under the Trustees Act or regulations made thereunder. This applies to both Singapore and foreign companies, and the Registrar has the overall discretion to approve or reject the application for a trustee license regardless of whether the company is regulated as a trust company overseas. Moreover, under the Monetary Authority of Singapore (Licensing and Administration of Financial Advisers) Regulations 2021, a person seeking to be licensed as a financial adviser in Singapore to carry on any regulated activity under the Securitization Act must be a corporation.
Foreign Shareholding Limits. Section 12A(1) of the Companies Act restricts foreign shareholdings in PTCs to foreign companies only. Furthermore, section 28(1) of the Companies Act requires the appointment of at least one local resident director (i.e. Singapore national, Permanent Resident or a person who has been issued with a pass to reside in Singapore), who is not an undischarged bankrupt nor is undergoing imprisonment or who has been disqualified under the Companies Act.
Shareholder’s Fund. Section 9(3) of the Companies Act requires a PTC to have a shareholder’s fund of not less than Singapore dollars 250,000 at the time of commencing business as a trustee company. The Registrar also has the discretion to approve the license subject to such terms and conditions as it thinks fit, including the requirement to lodge a performance bond with the Monetary Authority of Singapore (MAS) to be taken into account in calculating its minimum capital requirements.
Those who wish to establish a private trust company (PTC) may do so if they fulfill the requirements under Rule 24 of the Trustees Act (which sets out the Registrar’s discretion in application to act as a trustee). Briefly, an applicant that is incorporated in Singapore, or a foreign corporation that is registered under the Companies Act, is eligible to make an application under this Rule if it satisfies the following criteria (in addition to the requirements of the Companies Act and any other written law) in respect of:
Application Process
It may be noted that the MAS also takes into serious consideration the quality and robustness of the applicant’s management and operations, especially in relation to risk management. The application of a new trust company with no existing track record, or to expand its licensable business activities to include managing trust accounts or sole corporate trustee schemes, will generally be directly licensed. Meanwhile, applications from existing FIs that wish to convert their existing approved trustee, restricted trust company, or exempt status to a licensed trust company will be treated on a case-by-case basis, taking into account the applicant’s track record, experience in carrying out trust business, as well as the extensiveness and complexity of the applicant’s trust business. On top of these, the MAS will also consider applicants that are so-related as the existing licensee and whether the proposed business is the best arrangement to utilize the existing organization’s resources.
The application process for a trust company license generally takes between six to eight months. It involves the assessment of the suitability of the trusted country and its shareholders, directors, CEO, and key officers. In general, the key principles that the MAS applies to determine whether a trust company applicant is fit and proper include reliability and pedigree, integrity, and competence. The licensing criteria require that the applicant’s business activities will not compromise or conflict with the applicant’s business activities as a. It should be noted that directors, CEO, and key officers must be free from financial difficulties which may hamper the proper discharge of their duties or endanger the integrity of the trust company both before and after the application. The applicant would also need to provide a bank guarantee of S$5 million to underwrite the obligations of its officers and employees and to safeguard the assets of the reinvested assets.
Compliance Requirements
The obligation of the AI should also include assessment of the AML CTF risk of each potential customer. This may include assessing prospective settlers for their risk profile and, if so, the potential settlement. Settlement of direct persons that appear to be higher risk should generally only be accepted through intermediaries – particularly if the matter involves the direct provisioning of trust services. The Trustee, or another entity authorized under the trust Deed, will typically enter into reach agreements, resulting in the Trust Deed being amended so as to impose trust rights between the Trustee and the Related Persons stated by the Trustee. If subsequent requirements are not met, the trustees must either vary the term of the Trust or exit from the Reach Agreement, which would effectively amount to appointments of the trustees to carry out their duties. The Trustee will also need to ensure that the provision of trustee services complies with other applicable laws and regulations, particularly privacy regulations. The terms of the trust will also often seek to legalize security aids and data interference resulting from the use of assets related to the transaction.
Let’s devote some thought and unpack what the actual compliance requirements of a PTC in Singapore really are, before we make decisions that could impact not just us but also all our clients. One often overlooked distinction is that the Anti-Money Laundering and Counter Terrorism Financing (AML CTF) framework of an Accountable Institution (AI) which a PTC is in Singapore is different from that of a standalone trust company. In the first place, it is incorrect to label all entities within a group as AIs if the direct customers do not have a separate contractual relationship with the specific entity within the group regardless of whether the Trust Deed contains an Accession Clause. And even if there is a direct contractual relationship, that may not, by a strict application of the words in the written law, suffice. The point is that it is very easy to get caught up in the regulatory mechanics if one ever needs to set up another PTC in the group later. The problem then escalates as the designated AML CTF former makes provisions for Serious Penalties and fines. To quote the taxmen: “The penalty framework is designed to encourage a high level of compliance with the tax laws through taking enforcement action against people who are willing to comply. It is a critical part of ensuring the fairness and integrity of the tax system.” Similarly, the worst things can happen when it comes to AML CTF non-compliance.
Perhaps as families journey towards resettling and establishing themselves permanently in a new jurisdiction, they will consider whether it is time to restructure and accordingly establish regulated entities that are resident or incorporated in their new home as part of their broader governance infrastructure. Meanwhile, they could potentially venture towards having an entity that is managed by them but is not subject to as strict an enterprising framework as one that applies to a licensed trustee company, and, most importantly, they would not encounter the challenges of a de jure or de facto trust as a tax resident in their former home, and the effects of this choice on its source. When all the key market players commit to efficient collaboration, their combined expertise will bridge regulated and non-regulated jurisdictions so that wealth planning structures and mechanisms can cater to diverse individual and family needs effectively and securely in either, in Singapore, and beyond.
In conclusion, beyond achieving diverse investment goals that may set the scene for engaging with Singapore as a wealth structuring location, the establishment of a PTC in Singapore may offer families even greater benefits. A key deciding factor is the unique combination of factors that define such family, and the family’s aspirations and governance framework. The factors and circumstances that favor establishing a PTC would have to be considered alongside the relative advantages and disadvantages of not only the broader range of regulated entities that a framework like the Singapore Variable Capital Company (VCC) provides, or traditional trust company models elsewhere in the world, but also the potential issues of oversight and source reservation that an additional structure, the PTC, could bring into play.
