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Singapore has much to offer, but don’t bank on secrecy

Singapore now has the world's highest density of wealthy people - over 150,000 high-net-worth individuals (HNWIs) worth more than $1million by the end of last year - according to new figures by financial consultant Wealth Insight, which even predicts that Singapore could surpass Switzerland as the world's largest offshore financial centre by 2015.

This will be fuelled by HNWI growth in the Asia-Pacific region but also by global clients moving their offshore funds from other financial centres to Singapore as offshore banking comes under increasing pressure due to the ever stricter operational procedures being introduced by governments in Europe and North America.

Switzerland held $2.8 trillion at the end of 2011 - representing 34% of the estimated $8.3 trillion offshore wealth - making it the single largest such jurisdiction. The UK and Channel Islands were the second largest offshore market, with $1.8 trillion of assets, followed by the Caribbean and Panama with $800 billion, Singapore $550 billion, Luxembourg $350 billion, Hong Kong $250 billion and “other offshore” $1.6 trillion.

Switzerland’s historical bank secrecy has come under relentless international pressure from governments trying to halt an exodus of tax revenues. Many Swiss banks no longer provide offshore banking to US persons and Switzerland has now signed a number of bilateral tax information agreements with other countries. On top of this, Swiss banks could see assets from Western European clients fall by more than 25% by 2014 because of the so-called “Rubiks” deals to tax undeclared accounts but not disclose customer identities.

The impact from any shift in its status will be significant: more than 80% of funds held in Switzerland are owned by foreign clients and the perception is that Swiss banks have themselves decided Singapore is the new place to do business and are setting up operations there.

With personal income tax rates that top out at 20%, a corporate tax rate of only 17% and no capital gains tax, Singapore has much to offer international investors. In the first decade of this century total assets managed by the Singapore's wealth management and private banking sector increased 11-fold. Much of the recent inflows reflect the growing number of Asian millionaires, the region’s strong growth and the desire of foreign investors to get exposure to Asian growth. But, it is also increasingly clear that Singapore does not want to become a magnet for tax evaders.

As cash-strapped Western governments increase their efforts to improve tax collection, Singapore has faced accusations that some of the funds flowing in may be illicit and is now determined to show that it will not tolerate tax evasion. Over the past three years, Singapore has revised half of its 70 tax treaties with other countries to make it easier to exchange information on potential tax evasion. Starting next year, bankers who help clients evade taxes will also risk ending up in court on money laundering charges. In September, the Monetary Authority of Singapore said the new rules were part of “efforts to protect the integrity and reputation of Singapore as a trusted international financial centre.”

So it would be a mistake for anyone to see Singapore as a "soft touch" that will serve as a new safe haven for undisclosed assets. Any wealth holding strategy that relies in any way on confidentiality or bank secrecy cannot be classified as genuine and never has been. What is now clear, if it wasn't before, is that tax evaders will get caught.

Anyone who has set up an offshore company or trust will be familiar with the amount of “due diligence” paperwork required by the service provider. As a matter of law the Corporate Service Provider (CSP) must confirm your identity, residential address, source of funds and fully understand the intended business of the structure. Normally that requires you to provide a certified copy of your passport, an original utility bill or bank statement, documentation proving the source of funds injected into the structure and a detailed explanation of the business to be undertaken.

Service companies can provide you with nominee shareholders and professional directors, trustees, dummy settlors or whatever - but they must still correctly identify the beneficial owners of a company and the “client” and beneficiaries of any trust. This information must either be lodged with the offshore agent who forms the structure or under certain circumstances the firm can instead undertake to provide the information upon request.

That’s the way it is, or will be very shortly. There is no confidentiality offshore any more. Anyone who has made or is thinking of making arrangements offshore which they wouldn’t want revealed or wouldn’t stand up to scrutiny, should think again and seek advice. However if taxpayers have genuine cross-border economic interests, offshore centres provide stable, user-friendly and well-regulated platforms for international investment and it should be possible to use structures that are fully transparent and compliant and still save taxes and protect assets.

In the modern era, all nations permit their taxpayers to defer taxes through the use of pension and insurance-related products or charitable structures. Such schemes are approved, fully compliant and legitimately form part of sophisticated tax planning. Where there is an underlying family business, the scope for tax deferral can often be far greater.

If you live in Singapore and intend to stay, it is unlikely that you are using offshore accounts to avoid or evade taxes. If, however, you intend moving back to your home country in the future then this will all become very relevant and you had better make sure your affairs are compliant and legal. Hoping your new home tax authority will not find out would be rash in the extreme. They can and increasingly they are. They can legitimately request information under the many bilateral agreements or, as we are increasingly seeing, whistleblowers are stealing the information and handing it over in return for large rewards.

The children of wealthy families may also be facing potentially embarrassing tax demands if they inherit undeclared funds from their parents. Hiding assets and incorrect reporting have never been a good idea. It might seem an easy way to avoid tax but ultimately it may cost far more than is saved in terms of interest, penalties - even your liberty. If you don't want to leave a legacy of problems for the younger generation, or live in fear of getting caught yourself, you should seek proper advice and get your affairs in order. It almost always the case that there will be a way to defer or avoid taxes in a legal and compliant way but specialist advice will be needed to achieve this. It may cost but it will a lot cheaper in the long run. The days of hiding money in secret accounts are well and truly over.

Singapore is now proper wealth management centre where advice can be obtained and proper legally compliant tax structures can be put in placed and managed. An appropriate corporate structure combined with Singapore banking would be the way to go forward in this new world where bank secrecy as it once was no longer exists.

Sovereign has 26 offices around the world including Singapore. Sovereign’s core business is setting up and managing companies, trust and other structures to meet the specific personal or business needs of our clients. Typically these needs would include tax planning, wealth protection, property ownership and facilitating cross-border business.

To contact your nearest Sovereign office, please click here. To contact Sovereign Trust (Singapore) Pte Limited directly please email sg@SovereignGroup.com.