11 September 2024

How Family Offices can Stay Ahead of Trends Affecting Tax Considerations

Family Office

In a world where the ultra-wealthy are increasing in number, family offices are navigating significant growth and evolving challenges. Singapore, as a key centre for wealth management, continues to attract the affluent while addressing the complexities of a tax landscape that is under growing regulatory scrutiny. With over 1,400 family offices and counting, the island nation is both a destination for the ultra-wealthy and a hub for wealth management practices.

WMI Faculty Desmond Teo is EY Asia-Pacific Family Enterprise Leader and Asia-Pacific EY Private Deputy Leader. Leveraging his vast experience, having advised business in the fund management industry since the early 2000s, Desmond has identified three trends in the global tax landscape: enhancing transparency, establishing economic substance and addressing wealth inequality.

“These trends have accelerated in recent years,” Desmond says, who has been in the field since the early 2000s. “Notably, the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, with over 140 jurisdictions approving BEPS 2.0 Pillar 2, introduces a global minimum tax rate of 15% for large groups that meet specified revenue thresholds. This can impact large family offices and family holding structures.”

“As Pillar 2 is being implemented by different jurisdictions at varying paces, this adds to the complexities of compliance. Technology is often a critical component for compliance, requiring significant investment, both monetary and non-monetary,” he adds.

Family Offices Take a Global View for a New Regulatory Era

Desmond notes the rapid evolution from global authorities. “This may be in the form of additional monitoring or reporting requirements, or more stringent criteria for family offices,” he says. “Family offices should stay informed about these developments and consider the potential impact on their tax strategies.”

He highlights that Malaysia, the United Kingdom and Australia have introduced capital gains tax, while the United States, Japan, Korea and the Philippines have estate duty and gift tax. As governments revise their policies, family offices need to familiarise with the developments and develop new strategies to best comply with the changes.

As governments revise their policies, family offices must stay updated on these changes to keep compliance and optimise their strategies accordingly. During this time, Desmond suggests maintaining a portion of social impact investment.

“There is also growing emphasis on philanthropy as a ‘soft’ means of addressing wealth inequality,” he adds, emphasising that investments in community initiatives or donations can offer tax relief while addressing social causes.

Streamlining Compliance

To stay compliant, family offices should implement automated reporting systems to streamline compliance with Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS). This will allow them to adapt to these shifts more quickly.

Quarterly compliance audits can proactively identify and address potential issues, while keeping transparency and adherence to global standards. To facilitate this, ongoing training for staff on the latest regulatory updates and best practices is also crucial.

“In pursuing diversification — both in terms of types of investments and geography — family offices are increasingly establishing their presence in multiple jurisdictions,” he says. “This can become unwieldy if the family offices do not have a thorough understanding of the rules on the automatic exchange of information relating to financial assets in various foreign financial intermediaries (FFIs) in different locations.”

Desmond advises family offices to maintain a comprehensive view of the information on financial assets in various FFIs across different locations. He adds, “This allows family offices to clarify any queries and share the technical basis of any structures and transactions with the tax authorities. One common area needing clarification for FATCA and CRS is the duplicative reporting that may occur due to joint bank accounts being held and multiple tax residencies of ultimate beneficial owners.”

To support this, robust systems and processes must be in place “to help families piece together the global footprint of their financial assets. These systems and processes should also monitor updates in the family’s circumstances, such as a change in tax residency or the passing of a family member, and inform the FFIs within the FATCA and CRS ecosystem in a timely manner.”

There will be costs needed to facilitate this, and additional investing in technology or outsourcing to specialised service providers may be necessary for efficient communication and reporting. However, this transparency will benefit compliance in the long run.

Navigating Double Taxation and Other Challenges

Family offices with diverse international assets must proactively protect their investments by anticipating and optimising for potential hurdles. “Families with a significant global footprint often face challenges related to potential double taxation, as well as compliance and reporting in multiple tax regimes,” Desmond explains. “Common trigger points include having more than one tax residency, structures that may not have stayed relevant due to changing family circumstances or tax rules, or simply being unaware of evolving tax compliance obligations.”

For example, if a Singapore company has investments in mainland China but are held indirectly through offshore companies, it might face double taxation on the profits earned by the Chinese company, as mainland China taxes worldwide income while Singapore offers exemption on offshore dividends received but only if prescribed conditions are met. In another scenario, a family with a vacation home in France might find their initial tax strategy as a non-resident owner altered if they spend more time there as a retirement home, triggering unanticipated tax obligations.

Desmond stresses that due diligence is crucial for maintaining oversight and alignment within portfolios. “It is good practice to periodically review structures, taking into account the family’s circumstances, future plans and prevailing tax regimes, and refine the structures, where needed, to stay relevant and compliant.”

Beyond the Basics

The intricate operations within a family office require a skilled professional who understands its complexities, especially when it comes to tax considerations.

“Tax considerations for family offices are likely to become more complex with the evolving global tax landscape,” Desmond says. “Strategies may need to be more sophisticated and tailored to the specific circumstances of individual families.”

Asked about the skills the profession should develop, he says, “Those entering this field today should build a strong understanding of international tax law, stay up to date with the latest tax developments and enhance their skills in areas like data analytics and technology.”

The Certificate in International Tax Considerations for Families of Wealth at Wealth Management Institute (WMI) was designed to introduce and enhance these specialised skills. Leveraging Desmond’s extensive industry experience, the program informs participants about real-life scenarios and combines a comprehensive overview with specific strategies. This ensures professionals are prepared to offer customised solutions for their clients.
“Given the plethora of competencies that professionals working with family offices need to develop, as well as the ever-evolving nature of issues to keep track of, it is crucial for them to maintain the most up-to-date skill sets,” he concludes.

Learn more about WMI’s ESG Programmes

Compliance, Risk & Governance

3 Reasons Why Private Bankers Should Learn About ESG

Programme Overview

3 Reasons Why Private Bankers Should Learn About ESG

The financial sector is experiencing significant shifts in a critical area—sustainability—alongside ongoing technological transformations. Traditionally, financial strategies have focused predominantly on maximising returns; however, a growing awareness of their environmental impact is giving rise to a new paradigm—one that today’s professionals may find challenging to navigate.

As more investors and institutions prioritise sustainability in their financial decision-making, recognising the long-term benefits it offers, the trend driven by the Environmental, Social, and Governance (ESG) framework is fundamentally reshaping our approach to wealth creation and responsible stewardship.

Mervyn Tang, who is Schroders’ Head of Sustainability, APAC, highlights three compelling reasons why private bankers should enhance their understanding of ESG to better serve their clients and future-proof their careers.

ESG: A Global Imperative Reshaping Investments

What was once a secondary consideration has now become a global imperative. The response to ESG issues, particularly climate change, is transforming how economies operate. “Governments around the world are putting policies to battle issues like climate change,” Mervyn says. “It’s changing the business models (and) the way our economy operates.”

As organisations navigate new regulations and seek incentives, such as those for electric vehicles, they must strike a balance between upfront costs and long-term objectives—ensuring their capital investments deliver sustainable returns over time.

Already, economies covering 90% of global GDP have set net zero targets, and over half of the world’s largest companies are aligning themselves with this vision. The results so far have been encouraging, with market research platform Gitnux reporting in 2024 that companies with strong ESG credentials have seen a 3-5% increase in annual revenue growth. Those with high ESG ratings also consistently outperform competitors who neglect them.

This shift creates a new role for private bankers. They’ll need to understand how these policies affect different industries, determine which are the reliable markers to prove sustainability, and how to position client portfolios for a sustainable future.

“Private bankers would be expected to talk about changes in sustainability and ESG policy in the same way as they are meant to talk about energy price inflation or Fed interest rates,” he surmises. “You’ll be expected to know more about ESG in the future.”

The senior professional explains how these fundamental concepts are discussed in WMI’s Certificate in Introduction to Climate Change and Decarbonisation Strategies programme. Besides gaining a broad perspective on topics such as climate science and international agreements in order to understand the global push for sustainability, the curriculum also includes training in core skills to assess and advise on green products and initiatives.

With outlets like Bloomberg indicating that the world’s ESG assets are projected to hit $40 trillion by 2030, informed finance professionals will stand out with their enriched knowledge and become invaluable assets to their clients’ evolving investment journey.

A Growing Emphasis Across Generations

The rise of ESG investing is not just shaped by policies. It is being fuelled by increasing demand from individuals, particularly younger generations.

“The general public is caring more about ESG,” Mervyn reveals. “You see this in search trends for things like sustainable investing and climate change.”

Figures from PricewaterhouseCoopers substantiate this observation, with a report citing that a whopping 83% of consumers expect companies to actively shape their ESG best practices, and that 76% would discontinue relations with companies which mistreat employees, communities and the environment.

“This is particularly apparent for younger generations like Gen Z or the millennials,” Mervyn notes.

A Stanford University study supports this, revealing that while only 30% of boomers were invested in ESG issues when it comes to their investments, this grew to 60% with Gen X, and became a pronounced 80% with Gen Zs and millennials.

“If these generations are more interested in sustainable investing, as we see the intergenerational transfer of wealth, more and more of your clients may want to talk about ESG in the future,” he predicts.

As ESG considerations grow increasingly complex, effective ESG investing requires integrating all three pillars—environmental, social, and governance—into the decision-making process. Beyond environmental factors, social considerations evaluate a company’s labour practices, diversity and inclusion policies, and its impact on the communities in which it operates. Governance focuses on leadership quality, transparency, and risk management practices.

WMI’s programme provides advanced modules that delve into these areas, equipping professionals with the skills to assess the right metrics and deliver comprehensive reports that support informed discussions on sustainability. By considering all three pillars of ESG alongside traditional financial analysis, private bankers can help investors capture an organisation’s long-term potential.

A Sustainable Future Unlocks New Investment Opportunities

In response to this accelerating trend, the financial sector is embracing the increasing demand for sustainable investment options.

“Sustainable investing options are increasing,” notes Mervyn, referencing both market trends and insights from his work at Schroders. “We’re talking about equities, fixed income, private assets. There’s a lot of things that your end retail investor can invest in to achieve their sustainability objectives and their financial objectives.”

The same report by Github reflects this sentiment in Asia, where 60% of retail investors have shown particular interest in ESF-focused funds, and that with the exception of Japan, allocation to ESG investing is expected to surge over 20% in Asia over the next five years.

Furthermore, the rise of digitalisation is democratising access to sustainable investments. Platforms such as crowdfunding now enable individuals to invest directly in emerging opportunities like green bonds and carbon offset initiatives—areas once limited to large institutional investors.

Rather than viewing this as competition, Mervyn emphasises that these developments highlight the need for complementary expertise. Informed private bankers can leverage their knowledge and these new tools to enhance their client offerings.

“More products means more options for your end clients to deliver what they need,” he says. “This is partly one of the reasons why asset managers are building up their sustainable investment product ranges. We see funds evolving from just your general sustainable funds to lots of different themes, to even direct private assets investing in things like renewable infrastructure.”

There’s more and more investment options for you to help cater to your clients’ financial objectives as well as sustainability objectives,” he adds.

Conclusion

The integration of ESG considerations into financial strategies is no longer a niche movement but a crucial complement to traditional finance. As private bankers navigate an evolving landscape, a solid understanding of ESG frameworks, reporting, and products becomes a vital tool for building resilient portfolios, managing risks, and fostering a more sustainable future.

WMI’s ESG programmes embrace this shift, offering a practical and industry-relevant syllabus designed by leading experts. Through engagements with senior professionals like Mervyn, participants gain real-world insights and case studies, equipping them to apply their knowledge effectively post-graduation—for the benefit of their organisation, clients, and the planet.