How Asia’s Tax Crackdown Could Affect Your Wealth In Singapore

Investing

How Asia’s Tax Crackdown Could Affect Your Wealth In Singapore

A group of Asian countries, in particular India and Indonesia, have begun to press Singapore-based wealth managers to share information about their clients. Singapore is one of the few countries that retains strong client confidentiality when it comes to banking. However, Asia's tax crackdown may change the scene a little.

Published on 20 August 2015

A group of Asian countries, in particular India and Indonesia, have begun to press Singapore based wealth managers to share information about their clients. Singapore is one of the few countries that retains strong client confidentiality when it comes to banking. However, Asia’s tax crackdown may change the scene a little.

Why are Singapore based private banks a target?

How Asia’s Tax Crackdown Could Affect Your Wealth In Singapore WEALTH Singapore SG Cities City Skyline MBS

Singapore is the world’s fourth largest offshore financial centre, and may potentially overtake Switzerland by 2020. This is due to a number of factors, such as political stability, high financial security, and the infrastructure of a major global financial hub (there are now over 140 banks operating in Singapore). In 2013, Singapore had $1.34 trillion in assets under management, of which it’s estimated at least 70% came from abroad.

In the past, one attraction of placing your money in Singapore was the level of confidentiality. In order to respect the privacy of banking clients, Singapore banks asked few questions regarding their client’s domestic and international tax position.

Unfortunately, some saw this as an opportunity. Along with legitimate money, Singapore saw an influx of cash from tax evasion and other questionable sources.

Corrective measures already started in 2013

In 2013, Singapore authorities announced that handling proceeds of tax crimes would be a criminal offence. Singapore’s Minister of Finance, Tharman Shanmugaratnam, declared a “zero tolerance policy” on illicit funds.

Over the past five years, Singapore has signed over 50 agreements with other countries agreeing to the exchange of tax information. Singapore also agreed to adopt the OECD’s Automatic Exchange of Information (AEOI) standard – this requires private banks to disclose the financial information of non-resident clients to their home country.

The AEOI will take full effect only in 2018, and is contingent on a few factors:

  • Other financial hubs, such as Hong Kong, Dubai, Switzerland, etc. must agree to similar standards, in order to prevent regulatory arbitrage.
  • Singapore will only disclose the financial information to countries with strong rule of law, and which can ensure the information is used only by the proper authorities.
  • There is reciprocity from other AEOI partners, regarding the exchange of information.

But now, other Asian countries are demanding the same

There are now requests by other Asian countries, such as India and Indonesia, for the same kind of information sharing deals. To date, there has not been a specific response to the requests – but the Singapore government’s policy is clear: zero tolerance on illicit funds.

While we do not know the specifics of how the Monetary of Authority of Singapore (MAS) will respond to Asia’s tax crackdown, we can make two reasonable guesses: the first is that some kind of deal will be worked out, due to existing policy.

The second is that, as with the AEOI, it will be contingent on some requirements (disclosure only to countries with a strong rule of law, for example). This suggests that it may be some time before agreements are in place, and we won’t see an overnight change to the private banking sector.

Nonetheless, with between estimates of money from Indonesia alone put at 30% – 50% of Singapore’s wealth management assets, this latest declaration of intent will be sending shivers down the spine of Singapore based private banks and financial advisers.

How will this affect your money?

How Asia’s Tax Crackdown Could Affect Your Wealth In Singapore WEALTH Singapore SG Cities City Skyline MBS

There are three main ways all this could affect you:

  • Greater administrative burden
  • You might find your account being closed
  • It may be time to find a more specialised wealth manager

01.

Greater administrative burden

There may be more paperwork involved, both as an existing client but also if you want to set up an account with a private bank. You will face more questions and declarations, especially if you are a foreigner not residing in Singapore. You will almost certainly be asked to sign a waiver, absolving the bank of responsibility if you make false or erroneous declarations.

For some banks, it might take longer to make deposits, withdrawals, or to open and close accounts. If these concern you, you might want to consider switching.  The approach of wealth managers will vary significantly, it always does in these circumstances.

Do expect to be queried, even if you’ve held an existing account for many years. There may be a call for you to dig up documentation on your income sources and for verification of your domestic tax situation. These could be payslips, invoices and receipts if you own a business, lease agreements with your tenants if you’re a landlord, etc.

It’s best to start getting everything in order early, so you won’t face any problems later.

02.

You might find your account being closed

Banks have their own system of red flags, which lead them to avoid or close certain accounts. It isn’t always fair – you may simply not be from a jurisdiction that the bank is comfortable with or your money might be legitimate, but set off the bank’s bureaucratic alarms. When that happens, your bank may want to close your account. Depending on the urgency, your investments could be liquidated and the money be placed in escrow, until such time as there is a place to transfer it to.

If this happens to you, don’t give up on private banks altogether. Just look around for another one, because each bank has its own systems and appetite to deal with certain clients – they may take you on while others won’t.

03.

It may time to find a more specialised wealth manager

Some wealth managers may start to avoid clients of a particular nationality. This is not a political or social statement, it’s just about paperwork. If Indonesia becomes extremely demanding and nit-picky about its tax payers’ offshore banking, for example, some banks may shy away from Indonesian clients.

Fortunately, some wealth managers specialise in clients from a specific country. They will have relevant contacts and experience in that geography. A wealth manager focused on Indonesian clients, for example, would know lawyers and tax agents that are better suited to dealing with the country. The key is to look for depth of expertise, not breadth. If you need a new wealth manager or perhaps are already seeing the troublesome signs of these new bank policies, then try our private bank search tool and we can find your best alternatives and put you in touch with them in minutes.

Asia’s tax crackdown may be rhetoric today but since it takes a while to move wealth management accounts, start thinking how your wealth manager is going to perform for you. Don’t search for a new wealth manager at the last moment; urgency raises the odds of making a bad decision.

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