Focus on Singapore immigration, focus on Singapore's economy and culture
Singapore signed the "Foreign Account Tax Compliance Act" agreement with the United States, choosing the so-called first model, where Singapore's financial institutions provide information on American accounts to Singaporean government agencies, which then pass it on to the United States. In contrast, Switzerland chose the second model, where Swiss financial institutions directly submit the information to the U.S. Internal Revenue Service.
Reporter from Global Magazine / Hu Junxin (Reporting from Singapore)
After a busy week of work, bank employee Xiao Bao heads to Changi Airport, where she will be on a business trip to Shanghai, China for a week. This jet-setting lifestyle has become commonplace for Xiao Bao. She is a business development manager for offshore wealth management at a foreign bank in Singapore, and her background as a Chinese international student has made her a member of the company's dedicated Greater China market team.
Every day, she attends various gatherings and interacts with the new wealthy elite from Greater China, meeting various high-net-worth individuals, maintaining existing client relationships, and developing new ones. Xiao Bao admits: "My job is to tell clients why they should choose Singapore and why they should choose our bank."
Recently, a report from the British research institution "Wealth Insight" stated that by 2020, Singapore is expected to surpass Switzerland to become the world's largest offshore wealth center based on the scale of managed assets. In 2011, Singapore managed assets worth $550 billion, while in 2000, this figure was only $50 billion.
The Crisis of Traditional Wealth Centers
For a long time, Switzerland has attracted a large number of overseas depositors as a traditional wealth management center, thanks to its unique geographical advantages, low tax rates, political neutrality, stable currency, and banking secrecy policies. According to Switzerland's Banking Secrecy Law, bank employees who are found to leak client information face fines and imprisonment. Switzerland's tradition of strict confidentiality regarding bank client information has led to a global accumulation of wealth.
However, after the global financial crisis in 2008, some countries in Europe and America, due to expanding fiscal deficits and tax revenue losses, began to pressure Switzerland, accusing it of facilitating tax evasion for offshore clients through its long-standing secrecy measures, thus becoming a so-called "tax haven." In 2009, Swiss banks were accused of concealing information on American accounts, and under pressure, UBS agreed to pay $780 million in fines and back taxes to the U.S. government and submitted a list of 250 clients.
In 2010, relevant departments in France, Italy, and Germany successively had disputes with Switzerland over the issue of tax evasion by bank clients. The German government even expressed its intention to purchase stolen client information disks from Swiss banks. Ultimately, Germany and Switzerland signed a tax agreement in 2011, stipulating that German depositors would pay taxes on deposits in Swiss banks, and Switzerland would provide administrative assistance to Germany, bringing the matter to a close.
At the end of 2012, the Swiss Federal Department of Finance announced that, according to an agreement with the United States, Switzerland agreed to have its financial institutions comply with the U.S. "Foreign Account Tax Compliance Act" and report relevant information about American citizens' accounts in Swiss financial institutions to the U.S. tax authorities.
In early 2012, Wegelin Bank, a traditional private bank in Switzerland, was sued by the United States for allegedly colluding with American citizens to conceal taxable assets. The case continued into this year, and at the beginning of the year, Wegelin Bank admitted to having assisted American clients in concealing at least $1.2 billion in income from U.S. tax authorities. This bank has now announced its permanent closure.
Countries in Europe and America have been increasing pressure on Switzerland to combat offshore tax evasion, repeatedly challenging the country's banking secrecy tradition, which has posed significant operational challenges for the Swiss banking industry. Some analysts believe that the ongoing crisis in the Eurozone and investigations into Swiss offshore accounts will lower its ranking as a global offshore financial center, and the reputation of Switzerland as an offshore wealth center will suffer greatly. The report from Wealth Insight predicts that in the next three years, the offshore assets managed by Swiss banks will decrease by one-third.
As a result, with more wealthy individuals from Europe and America looking eastward, coupled with the growing and maturing high-net-worth population in emerging Asian economies, financial centers like Singapore and Hong Kong have become their new choices.
Singapore's Unique Advantages
On the island of Singapore, which covers only over 600 square kilometers (smaller than the area within Beijing's Fifth Ring Road), numerous wealth management institutions are gathered. These include local financial institutions such as DBS Bank, UOB, and OCBC Bank, which focus on private banking, as well as multinational companies like UBS, Credit Suisse, Citibank, and HSBC, which have established wealth management and private banking operations in Singapore, with some even setting up regional centers here.
What attracts global private wealth to Singapore?
First, both personal and corporate tax levels in Singapore are very low. In 2012, Singapore's personal income tax rate ranged from 2% to 18%, while the highest rate in the United States was 35%, and the average personal income tax in EU countries reached 36%. After Chinese actress Gong Li acquired Singaporean citizenship in 2010, some calculated that if her annual income were 10 million RMB, she could save 2.5 million RMB in personal income tax each year.
Regarding corporate income tax, Singapore reduced the corporate income tax to 17% starting in 2009, while the corporate income tax in the United States is 35%, and the average level in the EU is 21.5%.
Singapore does not impose capital gains tax. In 2012, Eduardo Saverin, one of the co-founders of the world's largest social networking company "Facebook," renounced his U.S. citizenship shortly before Facebook's IPO and acquired Singaporean citizenship. Public opinion generally believes this move was to avoid paying a substantial capital gains tax to the U.S. tax authorities—according to Bloomberg's estimates, Saverin's Facebook shares were worth $2.44 billion, and after immigrating to Singapore, he could avoid approximately $144 million in capital gains tax. Subsequently, Saverin successfully became a Singaporean citizen and made his debut on Forbes Asia's Singapore Rich List, ranking eighth with a net worth of $2.2 billion.
Additionally, since February 2008, Singapore has ceased to levy estate tax, which is also a reason attracting many high-net-worth individuals to invest here.
Second, Singapore has a sound legal system, strict regulations, and high costs for violations, resulting in a good overall reputation for the wealth management and private banking industry. Singapore's Banking Secrecy Law is even stricter than Swiss regulations; if violated, individuals can face fines of up to 125,000 Singapore dollars (approximately $100,000) or imprisonment for up to three years, or both. If it is a corporate entity, fines can be up to 250,000 Singapore dollars (approximately $200,000).
Finally, the relative stability of the Singapore dollar against other foreign currencies, a well-developed capital market, and a diverse talent pool also help capture the rising Asian wealth. Some analysts indicate that many wealthy individuals from China are also beginning to turn their attention to Singapore, believing that Singapore can provide a more comprehensive offshore solution than Hong Kong. Traditionally, Singapore has also focused more on wealth management, while Hong Kong has emphasized IPO (Initial Public Offering) business and investment.
The rise of Asian wealth has also fueled Singapore's emergence as a global wealth management center. According to the latest "2012 Asia-Pacific Wealth Report" published by Capgemini and Royal Bank of Canada Wealth Management, the number of high-net-worth individuals in the Asia-Pacific region increased to 3.37 million in 2011, surpassing North America for the first time to become the largest affluent market in the world. The report also pointed out that nearly one-third of Asia's "mobile wealthy" (wealthy individuals who spend half their time abroad) prefer Singapore as their overseas residence.
Xiao Bao also told Global Magazine that in her company's wealth management business, Indian clients account for more than half, and the number of clients from Greater China, Indonesia, Thailand, and other regions is also increasing year by year.
Each Has Its Own Challenges
However, as a gradually growing wealth management center, Singapore has attracted attention from various countries in Europe and America, and it has even appeared on the OECD's "grey list" of tax havens.
Today, Singapore faces the same pressures as Switzerland, needing to balance its Banking Secrecy Law with relevant information disclosure, ensuring that legitimate wealth management activities are respected in confidentiality while also combating tax evasion.
Since 2009, Singapore has recognized international standards for tax information sharing. In May of this year, the Singapore government announced that it would further share tax information, allowing the domestic tax authority to obtain relevant information from financial institutions without a court order and to pass this information on.
At the same time, Singapore announced that it would further enhance international cooperation in combating cross-border tax evasion, signing a tax administration mutual assistance agreement with the OECD, increasing the number of countries and regions exchanging tax information from 41 to 83; Singapore will also sign a cross-government agreement with the United States, requiring Singapore's financial institutions to comply with the U.S. "Foreign Account Tax Compliance Act" and regularly submit information on American accounts in Singapore.
The Straits Times compared the different choices made by Singapore and Switzerland. The agreement Singapore signed with the United States regarding the "Foreign Account Tax Compliance Act" is the so-called first model, where Singapore's financial institutions provide information on American accounts to Singaporean government agencies, which then pass it on to the United States. In contrast, Switzerland chose the second model, where Swiss financial institutions directly submit the information to the U.S. Internal Revenue Service. Additionally, Swiss financial institutions are not required to freeze illegal American accounts. This indicates that Switzerland has taken a more conservative stance in maintaining the privacy of its bank clients. Switzerland also opposes automatic exchange of information, opting instead for a more indirect approach, only transferring tax evasion funds to relevant countries without disclosing account names and other details.
Starting from July 1 of this year, in Singapore, serious tax crimes will be treated as seriously as money laundering, thus financial institutions here must thoroughly investigate all accounts beforehand to ensure that these clients are not evading taxes. The Straits Times believes that financial institutions will bear legal responsibility for clients who evade taxes, combined with the strict requirements of the U.S. "Foreign Account Tax Compliance Act," will significantly increase the risks and costs for financial institutions.
In the competition with Switzerland, Singapore is revealing unique advantages; however, if challenges are not handled properly, Singapore's advantages may be quickly diminished. It can be said that the significant benefits brought by wealth management, along with the accompanying issues, are becoming a new challenge on Singapore's development path.
