The international law firm sets out major developments, and explains continuing cases, that affect the work of private client advisors and wealth managers in Singapore.
The law firm Baker McKenzie Wong & Leow, member firm of Baker McKenzie in Singapore, outlines the latest developments important for private client advisors and wealth managers focused on Singapore. This is among an occasional series of updates already published by the international law firm and this news service on developments in Malaysia. The individual authors of this article are Dawn Quek, principal, Enoch Wan, senior associate, and Jaclyn Toh, associate.
The editors of this news service are pleased to share these insights. The usual editorial disclaimers apply about contributions from outside. We invite readers to jump into the conversation. Email email@example.com and firstname.lastname@example.org
Changes to the Global Investor Programme
There have been some updates to the Global Investor Programme ("GIP"), which offers Singapore permanent residency ("PR") status to individuals planning to invest and relocate to Singapore. These new updates took effect for new GIP applications made on or after 1 March 2020.
Updates to qualifying threshold criteria
(a) Established Business Owners. There has been an increase in the minimum average annual turnover requirement (of the applicant's existing business) from S$50 million to S$200 million. This criterion is in addition to the existing minimum shareholding requirements, a proven business and entrepreneurial track record, and the requirement for the applicant's company to fall within a list of specified industries.
(b) Next Generation Business Owners. This new criteria requires (i) the applicant's immediate family to be either the largest shareholder or hold at least a 30 per cent shareholding in a company that falls within a list of specified industries; (ii) such company's minimum average annual turnover should be at least SG500 million; and (iii) the applicant must be a part of the management team of such company.
(c) Founders of Fast Growth Companies. This new criterion requires the applicant to be a founder and one of the largest individual shareholders of a company that falls within a list of specified industries and has a valuation of at least S$500 million, and such company must also be invested into by reputable venture capital/private equity firms.
(d) Family Office Principals. This newly published criteria requires the applicant to possess some form of entrepreneurial, investment or management track record, and to have net investable assets (excluding real estate) of at least S$200 million.
Published investment options
Upon meeting one of the four threshold criteria above, applicants then have the option of choosing to invest S$2.5 million into one of three investment options. However, family office principals may only choose to invest under Option C, which is to invest S$2.5 million into a new or existing Singapore-based single family office. If there are intentions to take advantage of Option C, the applicant should also assess how the GIP application may be aligned with the applications for tax incentives (such as the Section 13X or 13R fund incentives).
There has largely been no change to the two previously published investment options under the previous rules of (a) Option A: Investing SGD 2.5 million into a new or existing business entity or (b) Option B: Investing SGD 2.5 million into a GIP-approved fund.
The third-year milestone requirement of a minimum additional headcount and local business spending has now been removed.
Renewal criteria for PR status
Upon attaining GIP approval, and having made the requisite investments within the specified timeframe, applicants and their dependents will be able to obtain PR status for a period of five years. Such PR status is subject to renewal criteria that has recently been amended. Depending on the period of renewal (three years or five years), the renewal criteria includes additional headcount, increased local business spending as well as the applicants or their dependents spending at least half their time in Singapore.
2, Singapore extends and refines tax incentives for venture capital funds and venture capital fund management companies
Section 13H Incentive
Introduced in 1993, Section 13H of the Singapore Income Tax Act (Cap. 134) ("ITA") seeks to encourage investments into Singapore-based businesses and start-ups by providing a tax exemption for eligible venture capital funds on qualifying income streams ("Section 13H Incentive"). Pursuant to Singapore's Budget 2020, this incentive will be extended for another five years until 31 December, 2025.
Key enhancements to the incentive are summarised as follows.
To be approved under the Section 13H Incentive, the applicant venture capital fund must fulfil the following conditions:
(a) have a minimum fund size of at least SGD10 million at the time of application;
(b) attain sufficient localisation by having at least 30 per cent of its invested capital invested into unlisted Singapore-based companies by the fifth year of being approved as a Section 13H fund, or by the end of the incentive period, whichever is earlier;
(c) incur local business spending ("LBS") of at least SGD100,000 per year, multiplied by the incentive tenure (at the end of each incentive year, the fund must have incurred cumulative LBS of at least SGD100,000 multiplied by the number of years of incentive enjoyed, but the requirement is met if the fund achieves the total cumulative LBS target at any point during the incentive tenure);
(d) satisfy any other conditions stipulated in the letter of award; and
(e) The expansion of the categories of qualifying income incentivised under the Section 13H Incentive will allow participants far greater flexibility in structuring their investments. As it is common for venture capital investments to be funded by a mixture of debt and equity, the newly-introduced list of "designated investments" for Section 13H, which includes Singapore-sourced interest income, amounts to a significant enhancement of the incentive.
Fund Management Incentive
Introduced in Budget 2015, the FMI offers a concessionary tax rate of 5% to fund management companies managing Section 13H-approved funds. The concessionary tax rate will apply in respect
(a) management fees; and
(b) performance bonuses from managing funds approved under Section 13H.
Like the Section 13H Incentive, the FMI has been extended until 31 December 2025. In addition, under Budget 2020, statutory limitations on the total incentive tenure will be removed. Instead, each FMI award will be subject to a maximum tenure of five years, which may be renewable in tranches of up to five years, subject to qualifying conditions.
For approvals or renewals under the FMI scheme on or after 1 April 1 2020, the fund manager must fulfil the following conditions:
· manage at least SGD 40 million of assets under management of Section 13H funds at the point of application or renewal;
· hire at least one additional investment professional by the end of the FMI award. For renewals, an incremental headcount of one additional investment professional is required by the end of the renewal tranche. The number of existing investment professionals at the start of each incentive tranche must be maintained for the entire award tenure.
There is no LBS requirement for the FMI.
3. COVID-19 administrative guidance on tax residency for individuals and companies
The COVID-19 pandemic has brought significant disruption to global cross-border movement. To address uncertainties in tax positions that may have arisen from border closures and travel restrictions, the Inland Revenue Authority of Singapore ("IRAS") published administrative guidance on 6 April 2020 to provide a clearer picture to both companies and individuals on their tax position.
Tax residency status for individuals working remotely from Singapore
(a) Singaporeans or Singapore Permanent Residents exercising overseas employment and currently working remotely from Singapore. IRAS is prepared to consider such individuals as not exercising employment in Singapore for a limited timeframe where the following conditions are met:
(i) there is no change in the contractual terms governing the employment overseas before and after the individuals' return to Singapore; and (ii) this is a temporary work arrangement due to COVID-19.
Where these conditions are met, the individual will not be considered as exercising employment in Singapore during the period starting from the individual's date of return to Singapore, unyil 30 September 2020. As such, the employment income earned during that period will not be taxable in Singapore.
(b) Non-resident foreigners exercising overseas employment who are on a short-term business assignment in Singapore and are unable to leave Singapore due to COVID-19. Such individuals may also be working remotely from Singapore for their overseas employers during this extended stay in Singapore.
IRAS is prepared to consider such individuals as not exercising employment in Singapore during this period of extended stay, where the following conditions are met:
(i) the period of the extended stay is not more than 60 days; and
(ii) the work done during the extended stay is not connected to the initial business assignment leading to the travel to Singapore and would have been performed overseas but for COVID-19.
Where these conditions are met, the employment income for this period of extended stay will not be taxable.
Tax residency status for companies
Under the ITA, for a company to be resident in Singapore, the control and management of its business has to be exercised in Singapore. Thus, the location of the physical board meetings of a company's directors is generally a key consideration in the determination of tax residency.
Cognisant of the potential impact that COVID-19 travel restrictions will have on board meetings, IRAS is prepared to consider the company as a Singapore tax resident for Year of Assessment ("YA") 2021, notwithstanding the fact that board meetings are not held in Singapore due to the travel restrictions, provided that all of thefollowing conditions are met:
(i) the company is a Singapore tax resident for YA 2020;
(ii) there are no other changes to the economic circumstances (e.g., principal activities, nature of business operations, usual locations in which the company operates) of the company; and
(iii) the directors are obliged to attend board meeting(s) held outside Singapore or participate electronically (via video conference) due to their movement being restricted by COVID-19 related travel restrictions.
Conversely, where a company is not a Singapore tax resident for YA 2020, IRAS will continue to consider the company as a non-resident for YA 2021, provided that (i) the company is obliged to hold its board meeting(s) in Singapore due to the travel restrictions in place; and (ii) there are no other changes to the economic circumstances of the company.
Whether a company claims to be a Singapore tax resident or otherwise, IRAS expects the company to maintain relevant records and to provide the same to IRAS when requested.
4. Ernest Ferdinand Perez De La Sala v Compañía De Navegación Palomar, SA and others  SGCA 24
One of the largest trust law cases heard in Singapore, this case concerns an underlying suit brought against Ernest Ferdinand Perez De La Sala ("Ernest") by several related family companies ("the Companies") on grounds that Ernest had wrongfully, and in breach of his fiduciary duties, transferred $600 million from the Companies to his personal account.
Pursuant to the underlying suit, the Court of Appeal had earlier granted (i) a worldwide Mareva injunction over assets in Ernest's name, and (ii) a proprietary injunction compelling him to procure the transfer of USD250 million to the Companies.
The present case concerned Ernest's application to vary the proprietary injunction so that the assets held on trust by the Companies can be released in the amount of $60,000 per week for his living expenses and a lump sum of $6 million for legal expenses. To this end, Ernest relied on Section 56 of the Singapore Trustees Act (Cap. 337) ("Trustees Act") and/or the inherent jurisdiction of the court. Section 56(1) of the Trustees Act allows the court to empower trustees to perform an act, otherwise unauthorised by the trust instrument, if the act is in the court's opinion, expedient in the management or administration of a trust.
The Court of Appeal dismissed Ernest's application. First, it found that Section 56(3) of the Trustees Act only provides trustees or beneficiaries of the trust with locus standi to apply for relief under Section 56. Since Ernest was neither a trustee nor adjudged a beneficiary of the trust, he had no standing to apply for relief under Section 56 of the Trustees Act.
Secondly, it also held that its inherent jurisdiction to vary a trust only fell within narrow and established classes of cases. Since the facts did not concern such scenarios, the court declined to exercise its inherent jurisdiction.
In sum, the Court of Appeal judgment helpfully elucidates the circumstances in which a defendant can rely on the Trustees Act and the court's inherent jurisdiction to withdraw funds seized under a proprietary injunction for living, legal and other expenses. With the court's interpretation of the Section 56(1) of the Trustees Act and its exegesis of the common law position on its inherent jurisdiction to vary trusts, it would appear that that a relief of the type sought by Ernest would have little prospect of success under these two legal grounds.