2020 Family Office Series
The 2020 Family Office Series is a 6 weeks special coverage on family office and multi-family office in Asia. Hear from leading family office experts, institutes, private banks, family offices and many more. Learn about family office, changes family office are facing, how to setup a family office or join a multi-family office. Find out how the biggest wealth transfer is taking shape, how managing traditional wealth and new wealth is different and many more.
About Family Office: Family offices manage assets of the wealthiest people in the world. There are about 2,800+ billionaires, 290,000 UHNWs and 15,000+ family offices worldwide. Billionaires and UHNWs setup family offices, with assets ranging from $300 million to $3 billion, and some with more than $10 billion assets. Newer family offices are also setting up family offices with $20 million to $100 million.
- 2020 Top 10 Largest Family Office in the World
- 2020 Top 10 Largest Multi-Family Offices in the World
- UBS Global Family Report 2020
Interview with Shantini Ramachandra, Southeast Asia Tax Leader of Deloitte Private
Interview with Shantini Ramachandra, Southeast Asia Tax Leader of Deloitte Private
We interview Shantini Ramachandra, Southeast Asia Tax Leader of Deloitte Private in Singapore, sharing her valuable insights on family office, important tax issues for family offices, billionaires, UHNWs & HNW Individuals and key considerations on tax planning and setup for business families and family offices.
Highlights from interview:
- Failure to plan for tax: “Face not only tax audits, unplanned tax liabilities, but also reputational risk from negative media coverage”
- When to do tax planning: “The earlier families act, the better position they and their future generations will be in”
- “It is quite common for tax authorities to raise queries”
- Who initiates the tax advisory process: The client – ultimate beneficial owners, the next generation, the management team of the family business, the lawyer or the banker.
- “Expect to see several measures that will lead to greater alignment of tax rules across countries”
” It is quite common for tax authorities to raise queries “
Who are you and what do you do?
Shantini: I am the Southeast Asia Tax Leader for Deloitte Private, advising business owners, family groups, and high-net-worth individuals in areas including succession planning, international tax, estate-planning and wealth preservation. I am also a Tax Partner for Business Tax and Mergers & Acquisitions.
- Southeast Asia Tax Leader for Deloitte Private
- Advocate and Solicitor of the Supreme Court of Singapore
- 20 years of international tax experience
I have been admitted as an Advocate and Solicitor of the Supreme Court of Singapore, and practiced commercial and corporate law before joining a Big Four professional services firm. I have about 20 years of international tax experience, and I am also an Accredited Tax Advisor (Income Tax) with the Singapore Institute of Accredited Tax Professionals.
1. What happens when a family office, billionaire or wealthy client (UHNW, HNW) did not plan for tax?
Shantini: Where tax planning has not been done, not only does the family business risk facing tax audits and unplanned tax liabilities (which could be sizeable), it also faces reputational risk arising from possible negative media coverage.
In addition, given the importance of tax in the current landscape, deficient planning could derail the succession planning process, and the implications could be far-reaching.
When family business do not plan for tax:
- Tax Audits
- (Sizeable) Unplanned Tax Liabilities
- Reputational Risk from Negative Media Coverage
- Derail Succession Planning process
” Reputational Risk from Negative Media Coverage “
2. What are the top 1 – 3 concerns on tax for family offices, billionaires or wealthy clients today?
Shantini: The top 3 concerns we have seen are concerns over Return on Investment (ROI), Succession Planning and Trend towards Transparency.
Top 1 – 3 concerns on tax:
- Concerns over return on investment (ROI) in today’s market. Families are therefore, assessing their allocation of traditional and alternative investments.
- Succession planning and preparing the next generation to take over.
- The trend towards transparency, given the multiple regulations that have been introduced, such as the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) and under the Base Erosion and Profit Shifting (BEPS)
Common Reporting Standard (CRS): Developed upon G20 request and approved by the OECD Council in 2014. CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.
Foreign Account Tax Compliance Act (FATCA) is a United States federal law passed in 2010 that requires foreign financial institutions and certain other non-financial foreign entities to report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments.
Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. Over 135 countries and jurisdictions are collaborating within OECD/G20 Inclusive Framework on BEPS on the implementation of 15 measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.
3. Which are the most popular tax structure, advice or services?
Shantini: We are seeing a lot of interest from families in Singapore family office structures. It is therefore not surprising that there is growing news coverage on the topic.
In addition, well-established families are also looking to set up trust structures, both onshore and offshore, and private foundations.
” interest from families in Singapore family office structures “
4. What are the key trends or topics on tax today? Is it still on CRS, FATCA etc?
Shantini: There is still a focus on CRS and FATCA reporting and the underlying transparency implications. Families are also increasingly focused on assessing the impact of the economic substance requirements in tax havens on their existing structure. There is a trend towards establishing substance and simplicity in their structures.
Tax residency planning is another hot topic. The demand for tax residency planning has increased as a result of the pandemic.
” Demand for Tax Residency Planning has Increased as a Result of the Pandemic “
On Tax Planning
1. How important is tax planning? When should clients start or reorganise?
Shantini: Tax planning should be made a key component of every family business and personal planning. Inadequate tax planning can lead to financial and reputation risk, or even threaten the family’s succession plan.
A good time to start is now. Clients should start by assessing whether their current structure is fit for purpose in the current tax and regulatory environment.
” A good time to start is now “
2. Is there an asset size like $30 million, $50 million or $100 million where the family office, business family or their advisors should start to look at tax planning?
Shantini: While there is no specific asset benchmark, the need for tax planning would start becoming more evident as families expand their investments across jurisdictions and start acquiring assets via different holding structures.
The need for tax planning would also be dependent on the family’s individual circumstances, and whether the current structure aligns with the succession plans, objectives and values of the family.
” The (Tax planning) need becomes more evident as families expand their investments across jurisdictions”
3. How do they integrate tax planning into their assets? Do they have to setup a family office or offshore companies (BVI or Cayman etc)?
Shantini: The recommendation to set up a family office, trust or offshore companies is made on a case-by-case basis, as it would depend on the client’s unique objectives and circumstances.
4. Who initiates the tax advisory process? How long does it take to be implemented?
Shantini: The client typically initiates the tax advisory process – be it the ultimate beneficial owners, the next generation, the management team of the family business, the lawyer or the banker.
The implementation timeline will depend on the structure, complexity, number of jurisdictions involved and many other factors.
” Client typically initiates the tax advisory process “
5. What is the setup cost and running cost for such structures and tax services? How much do they save on tax?
Shantini: The setup and running costs for each structure are subject to the specific facts of each case and other factors, including the scope and jurisdictions to cover.
Families often put structures in place to achieve various objectives other than for tax purposes, such as asset protection and succession planning. Therefore, it is difficult to determine if families save on taxes with their restructuring.
What is known however, is that Singapore offers attractive tax incentives such that families carrying out activities in supported industries (e.g. family office) will often enjoy concessionary tax rates and/or tax exemptions.
Lessons on Tax
1. Can you share a successful story on an implemented tax structure?
Shantini: A client in North Asia wanted to migrate some of his offshore business functions to Singapore, in line with his family’s proposed move to Singapore.
We assisted him with the rationalisation of the structure, and the setup of a new holding company in Singapore. We provided a clear picture of the resulting tax implications that would arise from the various restructuring options. With our advice, the client was able to fully assess the implications and choose a suitable option for the restructuring exercise.
2. Can you share a story on a tax structure that went horribly wrong?
Shantini: None that we can think of as we are generally able to assist the client with tax mitigation or realignment of their structure to ensure compliance going forward.
3. What is the impact on a tax structure in disputes, lawsuits or government intervention? How common is this?
Shantini: Government bodies such as tax authorities often have the right to request for information on the structure of corporate groups. For instance, this could arise during a tax audit or instances when the corporate entity is applying for grants or incentives.
Given the focus on tax audits nowadays, it is quite common for tax authorities to raise queries or challenge certain aspects of the structure. Tax authorities generally have the authority to disregard transactions and make adjustments if the transactions are not bona fide commercial transactions but are implemented for tax reasons.
We will often work with clients to address these queries and better explain the rationale and workings of each structure to the relevant authorities.
” it is quite common for tax authorities to raise queries “
4. Tax rate and tax regulations are constantly changing. How do clients adjust to changing tax systems?
Shantini: In a fast-changing world, clients have to keep themselves updated on the latest tax and regulatory trends. While clients are generally active and pay attention to the news, we would encourage clients to stay in contact and check in with their advisors from time to time in view of the complexity of tax changes.
Clients should also pay attention to the information brochures sent by advisors. It is also a good practice for clients to attend the update meetings and events organised by their advisors.
” clients have to keep themselves updated on the latest tax and regulatory trends “
Family Offices, Multi-Family Offices & Fund Managers
1. Many western family offices are setting up in Hong Kong and Singapore, is it because of tax or for investment opportunities into Asia?
Shantini: It is definitely a mix of both reasons. Asian tax regimes in Hong Kong and Singapore are known to be competitive for years, with both countries being touted as gateways to the rest of Asia.
Given the rise of Asia and the amount of investment opportunities available, European and U.S. families are setting up offices or branches in Singapore to be close to the latest and most attractive opportunities, or as part of their diversification plans.
2. More multi-family offices and fund managers are also setting up in Hong Kong and Singapore. Are these the large institutional money managers with $3 billion to $300 billion assets or boutique firms with $20 million to $3 billion?
Shantini: Given the supportive ecosystem in Singapore, we have seen fund managers ranging from large institutional managers to small boutique firms set up shop in Singapore to capitalise on regional investment opportunities. This is also in line with the trend towards using onshore locations as fund domiciles.
3. How do multi-family offices and fund managers setup their firm structure and fund structures in Singapore?
Shantini: Multi-family offices and fund managers wishing to carry on their businesses in Singapore will have to apply for the relevant Capital Markets Services licence from the Monetary Authority of Singapore. They will only be able to market their services to prospective clients after securing approval from the authorities.
Depending on their client’s requirements and profile, the fund structure setup could range from simple holding structures to complex arrangements involving multi-layered agreements or the Variable Capital Company (VCC) structure. There is no cookie-cutter solution for structures.
” There is no cookie-cutter solution for structures “
On Business Families – Tax setup & advice
There is a lot of conversation on succession planning and wealth transfer for business families.
1. What is really going on? Who is initiating the discussion? Are the families taking actions?
Shantini: For Asian families, conversations on succession planning are driven in part by the first generation who are keen to implement an equitable way of passing down assets to their next generations. Equally, these conversations are also initiated by the succeeding generations (e.g. second or third generations) who want to have proper governance structures in place before inheriting the family assets.
With large amounts of wealth expected to be transferred across generations in the next decade, families are increasingly aware of the need to plan in advance. As advisors, we are also doing our part to educate the families on this need and they have been very receptive.
” families are increasingly aware of the need to plan in advance “
2. Is there a difference between businesses families with $30 to $50 million and families with $100 million to billions of assets?
Shantini: Generally, the greater the size of the assets, the higher the cost to administer the assets. Families with larger assets under management (AUM) would also require a wider and diverse set of services.
Clients with large AUM are therefore, setting up their own family offices to allow for consolidation and oversight of their assets. The family office can also provide a wide range of services other than investment services, such as concierge and philanthropy services.
Depending on the complexity of their holding structures, business families with lower amounts of AUM may also choose to set up their family office though we would often caution clients on the running costs of such structures.
For clients who do not wish to set up their own family office, the use of multi-family office providers is a viable option.
1. What are 1 or 2 things family offices, billionaires, wealthy clients should know about tax.
Shantini: Paying taxes is part and parcel of being a member of society today. There are legitimate ways of tax planning which we can assist families with.
Succession planning has never been more important and complex in today’s world. The earlier families act, the better position they and their future generations will be in.
” The earlier families act, the better position they and their future generations will be in “
2. Your thoughts on Philanthropy in Asia:
Shantini: Philanthropy has always existed in Asia, although not undertaken in the same way as in the West, where it is a lot more understated.
Similar to the West, Asian families are increasingly focusing on philanthropic efforts and there will be increased demand for suitable philanthropic structures and measures across the region.
3. Country with the best or worst tax structure?
Shantini: Every country’s tax regime is different and each country has their taxing rules. Therefore, it is not possible to judge which is the ‘best’ or ‘worse’.
However, due to BEPS, countries around the world are facing pressure to adhere to global international tax standards. Therefore, we expect to see several measures that will lead to greater alignment of tax rules across the countries.
Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax.
” Expect to see measures that will lead to greater alignment of tax rules across countries”
Shantini Ramachandra is the Southeast Asia Tax Leader for Deloitte Private, serving business owners, family groups, and high-net-worth individuals in areas including succession planning, international tax, estate-planning and wealth preservation. She is also a Tax Partner for Business Tax and Mergers & Acquisitions.
Shantini has a Bachelor of Laws degree from the National University of Singapore and a Master of Laws degree from the University of London, King’s College, and has been admitted as an Advocate and Solicitor of the Supreme Court of Singapore. Shantini is also an Accredited Tax Advisor (Income Tax) with the Singapore Institute of Accredited Tax Professionals Limited. She practised commercial and corporate law before joining a Big Four professional services firm and has about 20 years of international tax experience.
Deloitte Southeast Asia is a member of Deloitte Asia Pacific and part of a leading global network that provides audit & assurance, consulting, financial advisory, risk advisory, tax & legal, and related services to select clients.
Deloitte Private is a dedicated team within the Deloitte network that offers specialised advice to private companies, private equity firms, family-owned businesses, and high-net-worth individuals. Deloitte Private is dedicated towards helping to address the unique challenges faced by private businesses, and is committed to building long-lasting and trusted relationships with clients, and ensure a sustainable future for their businesses. Deloitte Private in Southeast Asia provides services that include family office services (for example where we help global families set up family offices in Singapore), and assistance in establishing family trusts and foundations, and in areas such as group restructuring and pre-IPO trust planning.
In addition, the team assists with applications for Permanent Resident status under the Global Investor Program, which includes support in developing business plans and facilitating discussions with the Singapore Economic Development Board. Deloitte Private also offers customised service offerings to family businesses and wealth-owning families that help design and integrate family governance rules and structures in accordance to the unique culture, dynamics, and objectives of family enterprises.