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Overview of Starting a Trustee Business in Singapore

Last modified: December 8, 2017
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Competitive economy, lower tax rates, high rate of foreign investment, strong regulatory framework and the least amount crime occurrences make the city-state of Singapore, a favorable place for the High Net Worth Individuals (HNWIs) to set up a trust. The well-heeled individuals from across the world are moving towards the East, especially Singapore, for keeping their bounty safe, secure, and stable. As their numbers keep increasing, there arises a need to develop a vigorous framework for managing their wealth. Hence, the requirement of a set of competent rules for setting up trusts.

To start with, a trust in Singapore requires no registration, even if it is a foreign trust. Furthermore, according to the local tax laws, a foreign trust need not disclose the identities of the settler or the beneficiaries.

Legislative Framework

Trusts ensure that the wealth of the ultra-rich gets taken care of in risky times, and is passed on to its right inheritor.  Trusts in Singapore fall under the regulatory framework of the Trustees Act, which is administered by the Ministry of Law. Their rules are robust enough to ensure that the purpose of setting up of a company in the form of a trust is met. They have put forth certain minimum requirements that the trustee has to abide by while running a trust. In addition, there is the TCA (Trust Companies Act) which also governs the trust businesses of Singapore. They regulate those companies that are in the business of providing trust business service.

Licensing Requirements

The licensing of trust businesses fall under the MAS (Monetary Authority of Singapore). The licensing requirements of the MAS are very stringent. To scale down the chances of money laundering, they require the trust companies to meet their high standards of quality, if the trust wants to procure a license. A Trust Business License is what is required to carry out all the activities related operating a trust, unless exempted from the licensing requirement.

Only private trust companies, accountants, lawyers, people residing outside Singapore, people who carry out trust business in connection with the issuance of debentures are exempted. In addition, trustees of collective investment schemes approved under the Securities and Futures Act (Cap. 289), MAS (Monetary Authority of Singapore) regulated banks and merchant banks, and holders of a Capital Markets Services (CMS) license, are also exempt from holding a trust business license.

For all other, the pre-requirements for procuring a trust business license are –

  1. An already incorporated Singapore company
  2. Minimum paid-up capital or qualifying assets to the tune of S$250,000
  3. Satisfactory internal compliance system or process, to show that it is compliant with the standards of conduct issued under the Trust Companies Act.
  4. Appointing of at least two Singapore-resident managers.
  5. A non-hybrid professional indemnity insurance (PII) policy.
  6. A letter of responsibility (obtained from its parent company in the case of corporate applicants) to the MAS in the prescribed format.

Taxation Rules

All the income earned or received by the trust in Singapore is liable to tax. This income is charged at the trustee level, but when it gets distributed or handed over to the beneficiary, it is not liable to any tax. On the other hand, in case of foreign beneficiaries, who are entitled to the trust income are taxed at the beneficiary level, and not at the trustee level. They are also entitled to enjoy the benefits of concessions, exemptions, and foreign credits. Whereas, this rule is not applicable to resident beneficiaries.  For the trustee, tax is levied on his income generated by carrying out the duties of the trust.

There are a few exemptions to the above rule. All the qualifying foreign trusts (QFTs) and their underlying holding companies are exempt from paying tax in Singapore. For a QFT, all the settlers and beneficiaries should be foreigners. Even if one settler or beneficiary runs a business in Singapore or has a beneficial stake of more than 20% in any Singapore incorporated company, then the exemption will not apply. In addition, the trustee company that runs the QFT will be taxed at a concessionary rate of 10%, on the income derived by running the QFT.

For qualifying domestic trusts (QDT), tax exemption is granted if the trust is run by an approved trustee company in Singapore, and every settler of the trust is an individual. In addition, at least one of the beneficiaries should not a settler of the trust. There is no capital gains tax and no estate duty in Singapore. In addition, there is no exchange control, which implies, funds can be freely routed in and out of Singapore.

On a final note, due to the stringent regulatory framework that Singapore provides, the affluent are constantly flocking its shores. On top of it, the tax benefits, effective banking system and the growing numbers of professional experts, strictness in maintaining confidentiality and asset protection makes the island all the more lucrative.

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