Navigating tax and accounting challenges in family offices

As accounting regulations and standards for family offices in Singapore continuously evolve, regulatory scrutiny is expected to increase. Majority of accounting and tax compliance issues are often misunderstood which leads to significant risks as family offices grow and mature. This makes it crucial to address unresolved gaps proactively to mitigate potential risks and stay resilient.

Family offices often encounter challenges in maintaining compliance due to the complexities of their operations. Here are some common issues and actionable strategies to navigate them.

Disorganised records hinder regulatory reporting (i.e., delayed tax filings) and exposing family offices to penalties, as seen in cases where reconstructing past financials became a cumbersome and time-consuming process.

Strategies:

• Work with an accounting expert who can help you develop standard processes and robust bookkeeping practices for family offices; implement the financial reporting frameworks and standards which covers operations to ensure consistency and comparability of financial data. Ensure that your accounting expert is equipped with the right accounting software to help you achieve your goals.
• Develop a comprehensive calendar that aligns financial reporting deadlines across jurisdictions with local filing requirements, including those of ACRA and IRAS, to ensure timely submission of financial statements and tax filings.
• Conduct periodic internal audits to identify and address gaps in bookkeeping to prepare for external audits or regulatory submissions.

Missing or incomplete records or supporting documents lead to scrutiny during audits, particularly for cross-border investments.

Strategies:

• Leverage document management systems to create a centralised, secure repository for transaction records. This allows easy retrieval and prevents loss of critical documents.
• Implement a checklist that specifies the required supporting documents for various types of transactions. This ensures completeness and reduces the likelihood of scrutiny during audits.
  

Strategies:

• Seek expert advice from accounting and tax professionals on the accurate classification of expenses, income and investments for both financial reporting and tax purposes (i.e., the misclassification of investments under FRS 109 – Financial Instruments will create both accounting and tax irregularities and complications. IRAS requires all companies to adopt FRS 109 for accounting purposes and the tax treatment of financial assets and liabilities on revenue account will generally follow the accounting treatment).
• Create a structured framework and establish clear policies for income, expense and investment classification based on the financial reporting standards and tax laws. Integrate these policies into the accounting manual and ensure periodic updates.

Failure to stay updated with accounting and tax changes, such as recent amendments to fund tax incentive schemes and Section 10L of the Singapore Income Tax Act 1947 (“ITA”) lead to significant tax exposure and penalties.

Strategies:

• Collaborate with tax consultants to keep track of updates to the ITA and fund tax incentive schemes such as Sections 13D, 13O, and 13U, enabling proactive implementation of compliance measures.
• Adopt a governance framework to oversee compliance activities and ensure accountability across all levels of the organisation. This should include a response protocol to rectify non-compliance issues effectively.
  

To overcome the common accounting and tax challenges in family offices, it starts with establishing a proper framework and process. PwC provides an adaptable suite of support tailored to your business needs, to enhance operational efficiency and allow you to concentrate on strategic growth and other core business activities.

1. Fund accounting services

• Comprehensive fund accounting and financial reporting, including bookkeeping, NAV calculations, and preparation of financial statements tailored to your fund’s requirements.
• To prepare and support your filing of annual returns to relevant authorities (Singapore, BVI and others).

2. Tax advisory and compliance services

• Preparation and filing of corporate income tax computation and income tax returns, FATCA/CRS, GST returns, dealing with queries raised by IRAS and if necessary, providing advice to optimise tax structures to meet regulatory obligations and achieve tax efficiency.
• Assistance with regulatory compliance, including review of annual declarations to be submitted to MAS, review of items from the perspective of “specified income” and “designated investments” classification, maintaining adherence to local and international standards to ensure smooth operations.

For more information, please visit our AWMS website.