Here, Carey Olsen managing partner Anthony McKenzie and counsel Rachel Yao from our Singapore office reflect on Singapore's legal landscape, discussing the considerations for foreign law firms entering Singapore and the growth of family offices.
HOW DOES SINGAPORE'S BUSINESS ENVIRONMENT MAKE IT AN ATTRACTIVE LOCATION FOR FOREIGN LAW FIRMS?
Anthony McKenzie: Singapore is considered a favourable destination for doing business due to its political stability, strong legal framework, well-regulated financial sector, competitive tax rates, excellent infrastructure and pro-business policies that attract foreign investment. It has a highly skilled and educated workforce with a strong emphasis on innovation and technological advancements.
With China's economy slowing, Singapore is closer to the next wave of fast-growing economies in Southeast Asia, is a stepping stone to the India market and is ideally situated as a regional Asian hub for international businesses. It has also become Asia's leading tech, private client and asset management hub. As a result, we are seeing regional, international and offshore law firms fast expanding their footprint in Singapore or opening new offices there.
WHAT ARE THE KEY REGULATIONS AND THE RISKS OR PITFALLS THAT FOREIGN LAW FIRMS NEED TO BE AWARE OF WHEN OPERATING IN SINGAPORE?
ARE THERE ANY REGULATORY BARRIERS THAT FOREIGN LAW FIRMS FACE WHEN EXPANDING THEIR PRESENCE INTO THE SINGAPOREAN LEGAL MARKET?
Anthony: Increasingly, Singapore law is a preferred governing law in contracts for cross-border contracts across Asia, and a popular venue for dispute resolution. Firms that hold a Foreign Law Practice (FLP) licence can offer the full range of legal services in foreign and international law, but cannot practice Singapore law except in the context of international commercial arbitration. Most of Singapore's foreign law firms (including offshore firms) operate FLPs, and while it is fairly straightforward to enter Singapore as a FLP, if a foreign law firm wants to advise on Singapore law, it is a more complicated process requiring approval from the Legal Services Regulatory Authority. For that reason, many foreign firms will simply refer such domestic legal work to a local Singapore law firm and are satisfied with that model. To practice Singapore law, FLPs require either a Qualifying Foreign Law Practice (QFLP) licence, a Joint Law Venture (JLV) with a Singapore Law Practice (SLP), or a Formal Law Alliance (FLA) with a SLP. All of these options (with the exception of the QFLP) involve a combination with a local Singapore law firm, and each is subject to lengthy regulatory scrutiny.
To expand your business in Singapore, you must be aware of the high rental and labour costs, high costs of living, work pass requirements and the competition around you. Singapore is a crowded legal market, already saturated with law firms of all shapes and sizes and fee-models. Competition is accelerating and an important consideration for firms entering the market is the incumbent position of the existing players, many of whom have been on the ground for decades.
As more foreign firms move into Singapore, we expect the war for local legal talent to continue. Demand for lawyers who know the market, understand the needs of local and regional clients and have strong networks remain high. Ultimately, the size and shape of a firm's Singapore office will be determined by its strategy in targeting defined practices and market segments and understanding where its existing and potential clients are. The real challenge for any foreign law firm entering Singapore will be to bring on board the right people, keep standards high and ensure that what you are doing enhances your global brand and provides a good platform for future growth. We have risen to this challenge and welcomed several new lateral hires to the firm and made a number of new senior promotions. We are excited to discover what the future will bring as we continue to grow and evolve in Singapore.
WHAT ARE YOUR TAKES ON THE INCREASING NUMBER OF FAMILY OFFICES SET UP IN SINGAPORE AND HOW THIS TREND ACCELERATED GROWTH IN THE LEGAL INDUSTRY?
Rachel Yao: Singapore, which had over 1,100 single family offices ("SFOs") registered at the start of 2023, is now home to more than half of Asia's family offices. This growth in new SFOs has led to significant demand for the full spectrum of legal services, ranging from simple legal opinions and licensing exemption applications, to more complex legal advice on the creation and maintenance of sophisticated SFO holding structures. At the point of SFO set up, we regularly provide holistic solutions for our clients to implement offshore trusts into the holding structures in order to provide for an extra layer of protection over underlying assets.
Wealthy families of today are increasingly looking for legal professionals who can provide up-to-date guidance on evolving laws and regulations, alongside compliance requirements during the operation of the SFOs. As SFOs evolve, they may look to invest in equities, bonds, structured products and financial derivatives. They are also often involved in philanthropic activities. Such diversified activities of SFOs bring numerous opportunities to lawyers in private wealth, corporate, funds, immigration, tax planning and dispute resolution practices.
WHAT ARE THE KEY REGULATIONS THAT ATTRACT WEALTHY FAMILIES AND INDIVIDUALS TO SET UP FAMILY OFFICES IN SINGAPORE AND HOW IS IT DIFFERENT COMPARED TO OTHER JURISDICTIONS?
Rachel: Key regulations that make Singapore an attractive jurisdiction for SFOs include tax exemptions on income generated by funds managed by an SFO and the ability to obtain employment passes under the SFO which provides an excellent stepping stone to an eventual immigration plan.
Both Singapore and Hong Kong have put in place tax incentive schemes designed to encourage high-net worth families to set up SFOs, so these two jurisdictions have often been compared to one another. There are only minor differences in the tax exemption schemes in these two jurisdictions.
With its robust regulatory structure, steady economy, stable political environment, skilled workforce, and strategic geographic position, Singapore has solidified its position as a prominent international centre for family offices, drawing wealthy individuals and families from across the globe especially surrounding Asian countries. We have observed a trend of wealthy families who are setting up multiple presences in different jurisdictions to leverage the benefits of local infrastructure and regulations in each jurisdiction.
WHAT ARE THE MOST ANTICIPATED REGULATIONS THAT WOULD AFFECT SINGAPORE'S ATTRACTIVENESS FOR SETTING UP FAMILY OFFICES AND WHAT ARE THEIR POSSIBLE IMPLICATIONS?
Rachel: On 5 July 2023, the Monetary Authority of Singapore ("MAS") announced changes to the qualifying criteria for SFO fund vehicles applying for tax exemptions under sections 13O and 13U of the Singapore Income Tax Act 1947. These include:
- The removal of a two-year grace period to meet the SGD$20 million AUM at the point of application.
- A clarification that the minimum AUM must be deployed in designated investments defined in the Income Tax (Exemption of Income of Prescribed Persons Arising from Funds Managed by the Fund Manager in Singapore) Regulations 2010.
- The tightening of the qualification requirements of investment professionals, where the fund vehicles must be managed by a SFO that employs at least two investment professionals, of whom at least one shall not be a family member of the ultimate beneficial owner(s).
- The streamlining of the minimum spending requirement at SGD$200,000 in local business spending, regardless of which tax incentive the SFOs' fund vehicle applies for.
We also expect that Singapore will introduce a stricter scrutiny over the operations of SFOs. On 31 July 2023, MAS released a consultation paper on proposed framework for SFOs. This consultation paper sets out a proposed framework for SFOs operating in Singapore, under which there will be qualifying criteria for class exemption from licensing under the Securities and Futures Act, as well as notification and annual reporting requirement. The revised framework will introduce a harmonised class exemption for SFOs with specific requirements to ensure that all SFOs are subject to anti-money laundering controls.
This is our full response to the Q&A from Asia Business Law Journal (ABLJ) for the article Singapore Swing in the August 2023 issue of the ABLJ magazine.
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