Lectern

By Steve Kelman

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Understanding wealth management in Singapore

I am spending a few weeks in Singapore as a visiting professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. Singapore, a city-state with a population of 5 million (about one million of whom are temporary guest workers in construction, domestic help, and other unskilled occupations), now has one of the highest standards of living in the world.

Like China, it is filled with new high rises. But compared to China, the architecture is generally more graceful, the city planning much less chaotic, and – last but not least -- the air much cleaner. With its humid and often rainy year-round tropical climate -- the country is close to the equator -- the city is filled with greenery and blessed with a newly developed waterfront and harborside walking area, dominated by a brand-new Sands casino and adjacent art museum, both architecturally spectacular. (A former student from Singapore complained to me about living in a city whose signature building was a casino.)

The old areas of the city -- Chinatown, Arab Street (where Malays traditionally lived), and India Town -- each represent one of the traditional ethnic groups making up Singapore's population, and in fact were set up as ethnic conclaves by Singapore's founder, Sir Thomas Stamford Raffles. They have been spruced up and painted bright colors so they currently look considerably better than they probably did when first built, somewhat touristy and Disneyesque but nonetheless fun to walk around.

Shortly after arriving, I had a Sunday lunch with another former student who had lived in Hong Kong for several years after graduating, and who recently came to Singapore to work in “wealth management,” first for one and now for another bank. The clients are wealthy people in mainland China and Taiwan. (OK, this is not exactly public service – maybe he’ll return to public service later.) I learned a lot about this world when I asked him the simple question: “Why would a client choose to send his money to Singapore to be managed?”

Part of his answer to my question was relatively straightforward and didn’t surprise me: Singapore has strong rule of law and contract protections, so a wealthy person could be quite sure that his money wouldn’t suddenly be confiscated by an arbitrary government or a corrupt official, as can occur in many places. (I blogged about this regarding Russia last summer.)

But then he added that people brought their wealth to park in Singapore because Singapore had no capital gains tax, no inheritance tax, and low income taxes. My initial reaction was to wonder how that would help, because they would need to pay taxes on the earnings from their wealth in their home country, unless of course they cheated. Then he told me something I should have known but actually didn't -- the U.S., it turns out, is one of the very few countries in the world that taxes its citizens based on their worldwide earnings.

If an American earns a million dollars abroad, that income must be declared for taxes in the U.S. If the local tax where the income was earned is lower than the U.S. tax rate for the income, an American must pay the difference to the IRS. (If it is higher, an American gets credit for the higher foreign tax, lowering their tax liability.) So there is no tax advantage for an American to put their money in Singapore, with its low taxes, because you still need to pay the U.S. tax rate back home. However, if Chinese investors put wealth in Singapore, they do not need to pay taxes in China on the income earned in Singapore, only Singapore taxes. So tax differences pay a huge role in attracting funds from wealthy people to a country.

There's more. Singapore has strict bank secrecy about local bank accounts, stricter than Switzerland. But U.S. law no longer recognizes bank secrecy -- Americans may not set up a bank account in Singapore without signing a form stating that they waive Singapore bank secrecy laws. Furthermore, U.S. law requires foreign banks to report significant transactions to the U.S. government.

Tiny Singapore thus is becoming one of the world's -- and certainly Asia's -- centers for wealth management. All the big private banks have a large presence here. But wealthy Americans have no reason to join the party.

Posted on Mar 15, 2012 at 7:27 PM


Reader Comments

Mon, Jul 29, 2013

Singapore's reputation is built on government publicity and everything is done to attract money and maintain GDP figures , as this defines government salaries . The Singapore of 10 years ago no longer exists , it has just become another concrete city where quantity not quality is the norm . The infrastructure is showing signs of failure , the majority of Singaporeans struggle all their lives for nothing . The government has not shown it is capable of running the city state in the long term as it now has even less resources than before .

Fri, Mar 16, 2012 Steve Kelman

First regarding food: I predict the next big food thing in the US will be the Din Tai Fung dumpling chain, originally one restaurant in Taipei, but now expanding as a chain -- they have nine (I think) locations in Singapore. Great food, quite inexpensive, and crowded at all the Singapore malls where they are. Regarding the SAIC case, I really just don't know anything about it, so I am not willing to comment. About all I can say as a general matter is that if a company official's conduct meets the standards of criminal behavior according to the law, they should be punished accordingly.

Thu, Mar 15, 2012 Gorgonzola

Ah, I love S'pore, too, from many trips, including in the semi-police-state days, e.g., 1980s. But I would like to divert you to a new topic that you would have rare insight into from your OMB role and your entree into various contractors of note. I am speaking of the $500 M settlement by SAIC w NYC over its bungled, fraud-ridden City Time contract. Though not federal, and disregarding the criminality of the people indicted at the program level, what is your view as to the culpability of the three top SAIC execs canned last year when the mess hit the fan? And why don't most contractor execs holding the bag when really bad things go wrong ever go to jail? It is really rare, e.g., the Boeing tanker mess. And what do you think of deferred criminal prosecution agreements for miscreant companies? As a stakeholder in strong contractor ethics and performance, I am continually upset that contractors, like almost all senior govt officials involved in really bad things, never get prosecuted or jailed. Again, I am thinking of big services contractors, not small fraudsters who sell bad goods to the govt. Enjoy your time in the City, and take a weekend in Peninsular Malaysia if you have time. And don't bother with the hawker stands much; they ain't what they used to be, but you already know Singapore cuisine just about anywhere is really good.

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