Editor’s note: a lot of people have asked our opinion lately on Singapore as a private or offshore banking haven. Peter Macfarlane has written an excellent article for the next Q Wealth Report (issue 58) specifically covering Singapore’s bilateral tax information exchange protocols and double tax agreements, as they relate to banking privacy in Singapore. Below, we present a brief  ‘teaser’. The full text of the article will be published in the forthcoming QWR. If you are not yet a subscriber, please consider joining today to receive the full article as soon as it is published. Click here for a detailed summary of membership benefits.

SINGAPORE AS A PRIVATE BANKING HAVEN: STEPS TOWARDS EXCHANGE OF TAX INFORMATION

By Peter Macfarlane

First there was the Black List. Then the grey list and the white list – and various shades in between. 2009-2010 saw a comical frenzy of new tax information exchange treaties as the offshore jurisdictions scrambled to become whiter than white by signing tax treaties with sparsely-inhabited islands somewhere up near where Santa lives. (For that story, please refer to my article in the last edition of Q Wealth Report, covering the Panama-US tax information exchange treaty)

The famous G-20 summit in London in April 2009, during which Sarkozy and Merkel railed against tax havens, certainly caused a stir and made inroads into banking secrecy laws worldwide. Attacks from the US on the Swiss Banks, first UBS and now – as I predicted two years ago – on Credit Suisse are putting banks under further pressure. Their solution? Go East!

We don’t hear so much about attacks on bank secrecy in Singapore. It’s still much lower profile than Switzerland for banking purposes. An increasing number of Q Wealth members are expressing an interest in opening private bank accounts in the city-state. In this article, I study the implications of the exchange of information treaties recently signed by Singapore.

Some background first. European – predominantly Swiss – banks are clearly interested in Singapore, opening a multitude of new branches there primarily as a hub to enter the increasingly lucrative business of managing money for Asia’s nouveaux riches. Traditional Swiss-style banking for Asian clients – dare I say it, secret numbered accounts and the like – is very big business today, and much easier for the banks than dealing with those pesky gringos and their extra-territorial laws! While some developing countries like Brazil and Argentina are showing disturbing signs of aggression against those who help their citizens avoid taxes, China, Taiwan and other regional powers have as yet shown little  interest in their wealthy citizens’ financial activities beyond their borders.

Although Singapore does not benefit from a significant history of private banking like Switzerland, or even Panama, since its independence from the British in 1965, Singapore has made up for this simply by importing banks and bankers. It has become a major intercontinental trade hub, linking Europe, Asia and Australasia. With its business friendly policies, it is natural that it should have developed into a regional banking centre too.

Singapore today is the fourth largest foreign exchange centre in the world, after London, New York and Tokyo, and plays host to many businesses, multinational corporations, banks and financial investment companies.  Singapore possesses the world’s ninth largest foreign exchange reserves, quite impressive for such a small country. The currency of Singapore is the Singapore dollar, represented by the ISO abbreviation SGD, and it’s been performing very well recently as a safe haven currency, similar to the Swiss Franc. Naturally, Singapore banks open accounts in both Singapore Dollars and Swiss francs, as well as all major currencies and even precious metals.

It is in this context that Singapore banks have been quietly gaining more of a foothold in far off markets like the US, UK and Canada. Whilst banks did not originally set up in Singapore to target these markets, they have been taking on substantial numbers of clients from there, including US citizens who are generally given the cold shoulder in Switzerland these days. And it is from here that Q Wealth members’ interest in Singapore has undoubtedly developed.

Private banking in Singapore is not for everybody. For a start, you normally have to go there to open an account. There is almost no way to get a bank account opened in Singapore without flying there in person, though there are a few exceptions in terms of banks that have other offices outside Singapore. I have now started working with a couple of these banks for my private consulting clients.

There are, however, substantial advantages too. Singapore does not tax bank deposits of non-residents. A pure offshore company like an LLC or IBC can easily open a bank account in Singapore, especially if it’s incorporated in one of the English speaking jurisdictions. English is the business language in Singapore, another reason why it’s attracting Americans and Brits. Our clients who deal with Singapore banks generally report extremely high levels of satisfaction with the service.

What about privacy and exchange of information? Singapore banking privacy is, unfortunately, being gradually whittled away. Singapore was initially placed on the grey list after the G-20 summit. The “Income Tax (Amendment) (Exchange of Information) Bill” was passed promptly afterwards and entered into force on 19th October, 2009, which authorizes release of information to foreign tax authorities in certain circumstances – more on that later.

Around that time, Singapore made the interesting announcement that instead of signing separate TIEAs (Tax Information Exchange Agreements) it was planning to amend its existing DTAs (double tax agreements) to include information exchange provisions. It’s important to understand the difference between these legal animals, and if you don’t I would urge you to go back to QWR 56 in the archives and read my article on this subject there. On 13th November 2009 – less than a month later – Singapore signed its twelfth protocol with a treaty partner and moved officially on to the white list.

The main change implemented in this law and the DTA protocols was that Singapore no longer limits exchange of information to cases where there is a domestic interest. This is actually a significant downgrading of banking secrecy.

Prior to these changes, Singapore’s position in its DTAs was that there would be no exchange of information where the information was not held for purposes of collection of Singapore’s domestic taxes. For example, Singapore does not tax bank accounts of non-residents and so Singapore tax authorities would not ordinarily hold any information on such bank accounts. Thus, Singapore would not have exchanged information.

The DTAs have now been updated and permit exchange of information where it is “foreseeably relevant” for the administration or enforcement of domestic laws concerning any kind of tax imposed by or on behalf of the contracting states. In other words, if the information is required by the other country for its domestic tax enforcement purposes, Singapore is now obliged to release the information. Although the Singapore tax authority would not typically have the information, they are obliged to seek it out on behalf of the treaty partner.

What if this information is held by a bank? Is it not protected then by Singapore’s banking confidentiality laws? Unfortunately not. International treaties always take precedence over domestic law, and the treaties provide that “in no case shall a contracting state decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or fiduciary capacity…”

There is, however, a bright side…

To read the rest of the article, and future articles we have planned covering Singapore residency, Singapore second citizenship (passports), Singapore companies and investor immigration services, please watch upcoming issues of The Q Wealth Report.

by Peter Macfarlane for The Q Wealth Report

Singapore is “a convenient destination to protect and add value to your international wealth” according to the website of one of the 205 banks operating in Singapore today. I couldn’t have put it better myself!

Singapore has developed in recent years into a sophisticated private banking and wealth management base for Asia. But besides targeting their traditional but fast growing market of wealthy entrepreneurs in Asia, the best offshore banks in Singapore today are also developing products and services tailored for North Americans, Europeans and Australians, including multi currency accounts.

If this sounds like you, read on to find out about some of the advantages and disadvantages of opening an offshore bank account in Singapore, and learn how to open an offshore bank account as a non-resident. Is Singapore the best offshore banking country for the new decade?

Typical investors from this latter group are looking for first-world banking services, delivered over the internet in English, in a country that is outside the zone of influence of the United States and the European Union.

One of the world’s most prosperous countries, Singapore today boasts a prominent financial centre and highly developed economy. Its flexible regulatory framework, independent judiciary and practical English-inspired legal system have become the foundations of the country’s success.

In common with most offshore financial centres, interest earned by individuals on bank deposits and foreign sourced income – including foreign sourced dividends received on non-Singaporeans securities – is exempt from Singapore taxes. Singapore also has no capital gains tax nor estate duty on bank deposits and investments.

Accounts can freely be maintained in all major currencies. These multi currency accounts provide an excellent hedge for those of us who foresee major devaluations of currencies like the dollar and the euro in the months and years ahead.

Accounts may also be opened in the name of foreign entities like corporations, trusts and LLCs, achieving even greater privacy and asset protection benefits, and sometimes legally sidestepping any requirement to report assets as personal holdings.

All these benefits are delivered in a strong bank secrecy regime, helping account holders to protect their investments from prying eyes inside or outside the country. Banking secrecy in Singapore is not just laid down by law, but is part of the national business culture. Indeed, tax authorities in Singapore are specifically blocked from having any access to individual bank accounts.

As in Asia in general, a lot of business in Singapore has traditionally been carried out in cash. This is epitomised by the $10,000 bill, the largest bank note in the world: at current exchange rates (January 2010) one of these bills is worth more than seven thousand US dollars. These days, however, as restrictions on cash are becoming tighter, sophisticated internet banking is becoming the norm.

So, if you are not resident in Singapore how can you access these banking services? Everything starts with opening a basic current, savings or checking account – the basis of your banking relationship.

One of the disadvantages of banking in Singapore is that you will need to go there to open an account. Banking regulations do not permit the opening of accounts by mail, unless the client is already known to the bank. The only possible exception to this is opening an account at one of the many banks in Singapore that send officers to visit their wealthier clients in their overseas homes, or have associated offices in other countries. HSBC clients, for example, may be able to open accounts at HSBC in Singapore via their local offices. The above process, however, is not advisable if banking secrecy is important to you – since it leaves permanent records of your accounts accessible in other jurisdictions. In any case I always recommend visiting at least once so you can get to know your banker personally.

Apart from that, opening your account should be relatively straightforward. There are few complications. If you choose one of the commercial banks such as DBS Bank or United Overseas Bank, a few hundred dollars will be enough to open an account. If you want a higher level of personal service and are prepared to make a higher deposit, let’s say over a hundred thousand dollars or equivalent (bank policies vary widely), contact one of the more discreet private banking operations. I recommend you go for one of the lower profile ones, since they tend to offer the best privacy protection.

A full list of banks operating in Singapore is available on Wikipedia, and you can contact them directly. It is always easier, however, if you have an introduction from a regulated professional who is known to the bank, such as a lawyer, accountant or company formation agent. My firm can help with that, for example, if you are a Q Wealth member. Membership costs just $87 so won’t break the bank!

In terms of documentation needed to open an offshore account, you will be expected to provide proof of who you are (a copy of your passport), where you live (such as a utility bill) and most importantly of all, proof that the funds come from a legitimate source. For example, if the funds you are depositing were obtained from a real estate sale or from an inheritance, you would show the relevant legal documents to prove this. Finally, it is advisable to take a letter of reference from your bankers at home, introducing you as a responsible account holder. This bank reference may be addressed ‘to whom it may concern.’

Note: Peter Macfarlane is editor of the Practical Offshore Banking Guide, an annually updated guide available free to readers of The Q Wealth Report. If you haven’t got yours yet, sign up today to access this information.