SINGAPORE (Reuters) - Billionaire Australians buying exclusive condominiums. Germans moving money from Swiss accounts. Secretive banking laws. Asia’s premier wealth management centre. Low tax rates.
As Singapore revels in its reputation as an open economy with the world’s highest concentration of millionaires, the tiny island of 5.3 million people is also accused of being a magnet for tax evaders - an image it is vehemently seeking to banish.
Amid German concerns that its wealthy citizens are moving funds from Switzerland before a new German-Swiss tax treaty takes effect next year, Singapore and Germany said on Sunday they had agreed to bolster their double-taxation agreement with internationally agreed standards on information sharing.
“Banking secrecy will not constitute an obstacle to exchanging information,” said the joint statement, which came at the end of German Finance Minister Wolfgang Schaeuble’s weekend visit to Singapore.
Media reports have put the amount of German money moving to Singapore in the double-digit billions.
“The perception is that Swiss banks have concluded Switzerland is unlikely to remain a tax haven for much longer and Singapore is the new place to do business,” said Ronen Palan, a professor at City University London who has conducted numerous studies on offshore finance.
Swiss banks could see assets from Western European clients fall 28 percent to 623 billion Swiss francs ($668 billion) by 2014 because of the deals to tax undeclared accounts, the Boston Consulting Group said in a report in May.
Singapore and its rival Hong Kong look set to benefit.
Together, the two Asian hubs manage $1 trillion in offshore funds, with about 75 percent of that coming from within the region. But Singapore and Hong Kong may overtake Switzerland - now the largest offshore wealth centre with assets of about $2.1 trillion - in 15 to 20 years, Boston Consulting said.
Singapore, with tax rates that top out at 20 percent and no capital gains tax, is already synonymous with wealth. BMW and Mercedes were the top two brands among all cars sold in the first eight months of this year, bestsellingcarsblog.com says.
Safe and clean, the city-state bills itself as a tropical refuge with exclusive residential enclaves, a marina for super-yachts, two casinos, fine dining, high-end boutiques and an annual Formula One race that brings in the global jet-set.
Rich residents include Eduardo Saverin, the co-founder of Facebook, who has called Singapore home since 2009.
Brazilian-born Saverin, who renounced his U.S. citizenship this year, was in eighth spot on a Singapore rich list published by Forbes Magazine with an estimated net worth of $2.2 billion.
Locals who made fortunes in real estate, finance and trading figured prominently but the list also included New Zealand-born investor Richard Chandler with $2.9 billion and China-born property developer Zhong Sheng Jian with $1.4 billion.
A 10 percent property duty imposed on foreigners, part of efforts to cool the housing market, has done little to dissuade the ultra-wealthy - many of them Chinese, Indian, Malaysian and Indonesian - from ploughing money into Singapore real estate.
Australian mining tycoons are also moving in. Gina Rinehart reportedly paid S$57 million ($46.7 million) for two units at Seven Palms Sentosa Cove, a luxury beachfront condominium, while Nathan Tinkler recently moved his family to Singapore.
But authorities bristle at any suggestion of tax dodging.
A short paragraph on page 17 of an Indian government white paper on “black money” was inflammatory enough to prompt Singapore’s prime minister, Lee Hsien Loong, to make a formal complaint in July to his Indian counterpart Manmohan Singh.
The paper did not directly call Singapore a tax haven but suggested figures showing it accounts for nearly 10 percent of foreign direct investment in India could be due to Indian nationals routing money through the city-state to avoid taxes.
“We have demarched the Indian government on this matter to put this record straight and explain why this is not true and it has been mistaken,” Lee said during a visit to New Delhi.
Over the past three years, Singapore has upgraded half of its 70 tax treaties with other countries to make it easier to exchange information on possible tax dodgers.
From next year, bankers who help clients evade tax risk ending up in court on money laundering charges.
The new rules are part of “efforts to protect the integrity and reputation of Singapore as a trusted international financial centre,” the Monetary Authority of Singapore (MAS), the central bank and financial regulator, said last week.
The first stage of a peer review by the Organisation for Economic Co-operation and Development in 2011 found Singapore had most of the agreed standards in place but needed to continue to update and expand its information exchange pacts.
Thomas Eigenthaler, chairman of the German Tax Union, welcomed an upgrade to Germany and Singapore’s “rudimentary, fragmentary” tax agreement but said “the decisive thing will be how it is actually implemented.”
Palan at City University London said trying to assess the city-state’s credentials is tricky, partly due to difficulties getting detailed information about its offshore finance sector.
“We cannot get any access to Singapore and that for us does raise flags,” he said. “It’s easier to do research on Jersey or Switzerland but in Singapore it’s almost impossible.”
Before the start of the global financial crisis in 2008, most questions about Singapore’s offshore role focused on the billions of dollars kept in the city-state by rich Indonesians.
Now, as cash-strapped Western governments ramp up their efforts to improve tax collection and Swiss banks are forced to open up their books, Singapore is facing renewed accusations that some of the funds flowing in may be illicit.
Lawyers say much of the recent inflows reflect the growing number of Asian millionaires, the region’s strong growth and the fact that some legitimate funds are choosing to abandon offshore centers with less savory reputations in favor of Singapore.
As more tax-paying millionaires want to get exposure to Asian growth, they say, Singapore must do all it can to show it will not tolerate black money.
“Singapore stands to gain a lot from proactively embracing the move towards global tax transparency,” said Dawn Quek, a senior associate at law firm Baker & McKenzie, Wong & Leow.
The MAS is pushing banks to toughen scrutiny of clients with plans to designate a variety of serious tax crimes as predicates for money laundering offences from July 2013.
In 2010 and 2011, a total of 44 people were convicted of money laundering offences in Singapore, mostly related to fraud, and close to S$130 million ($106.5 million) was seized or frozen, the Commercial Affairs Department said.
“Singapore has always taken a tough enforcement approach against money laundering and our authorities will not hesitate to pursue and prosecute such cases,” MAS told Reuters.
Additional reporting by Gernot Heller and Michelle Martin; Editing by Raju Gopalakrishnan