Succession planning with the use of Singapore Foreign Trusts
Singapore’s foreign trust scheme is set to close to new entrants from 30 March 2019, so it may be worth considering how it could fit into a family’s wealth planning arrangements.
Singapore is considered one of the most economically and politically stable countries in Asia. One of the world’s largest financial centres, it is supported by well-developed laws and regulations, technology infrastructure and fuelled by a fluid and educated workforce.
Singapore’s corporate tax rate of 17% is among the lowest in the region and has various tax exemption schemes targeted at specific industries in which the Government wants to boost investment. Furthermore, Singapore’s tax system meets international standards and is not considered to be a ‘harmful or preferential’ tax regime.
Features of a Singapore foreign trust
Singapore’s foreign trusts enjoy a wide range of tax exemptions on specified income from various designated investments. These include passive-sourced income such as interest, dividends, rental income derived from outside Singapore and gains from the disposal of certain designated investments, subject to certain conditions which are usually easily achievable.
A foreign trust is defined as a trust that is created in writing and in which every settlor and beneficiary must be:
- Individuals who are not citizens or residents of Singapore.
- Foreign companies, i.e. companies that are not incorporated or resident in Singapore (subject to further conditions).
- Other persons who are not resident in Singapore or constituted or registered under any written law in Singapore.
- Trustees of other trusts which are regarded as foreign trusts (subject to further conditions).
- Trustees of certain philanthropic purpose trusts.
In addition, the trust has to be administered by a registered trustee company in Singapore.
Families considering use of these trusts as part of their wealth planning should act now as a sunset clause has been implemented meaning the foreign trust scheme will lapse. Foreign trusts set up on or before 30 March 2019 (sunset date) under Section 13G of the Singapore Income Tax Act will continue to be ‘grandfathered’ so long as the nucleus that defines the trust remains the same.
A foreign trust can still continue to be regarded as a foreign trust for the purposes of Section 13G even if a settlor or beneficiary of the trust who is an individual subsequently becomes a citizen of Singapore or resident in Singapore, subject to conditions.