The Impact of the OECD’s Pillar Two on Singapore Family Office Structures

The OECD’s Pillar Two framework, effective in Singapore for financial years beginning on or after 1 January 2025, imposes a global minimum effective tax rate of 15% on large multinational enterprise (MNE) groups with consolidated revenue exceeding €750 million. By 2026, over 2,500 single-family offices (SFOs) in Singapore will hold 13O or 13U tax incentive awards, according to industry projections—yet a meaningful share of these are consolidated within family-controlled MNE groups. The intersection of near-zero headline tax rates under the incentive schemes and the new Multinational Enterprise Top-up Tax (MTT) will reshape how family offices structure their operations and local expenditure commitments.

Pillar Two Mechanics and Singapore’s Implementation by 2026

Singapore’s MTT qualifies as a Qualified Domestic Minimum Top-up Tax (QDMTT), allowing the city-state to collect top-up tax before other jurisdictions apply an Income Inclusion Rule (IIR) or Undertaxed Profits Rule (UTPR). Under the QDMTT Safe Harbour, a constituent entity whose ETR falls below 15% will face additional tax in Singapore, not abroad. IRAS confirmed in its 2024 e-Tax Guide on MTT that the top-up tax liability is computed based on GloBE Model Rules, with the first filings due in 2026 for 2025 financial years. For MNE groups spanning family operating businesses and investment holding structures, every entity within the consolidated financial statements—including a family office fund vehicle awarded a 13O or 13U incentive—must be tested for ETR on a jurisdictional blending basis.

When 13O/13U Structures Become Constituent Entities

A 13O or 13U fund vehicle typically enjoys tax exemption on specified income from designated investments. The scheme requires, among other conditions, a minimum AUM of S$20 million at the point of application (13O) or S$50 million for 13U, along with incremental local business spending thresholds. As of mid-2025, more than 1,600 SFOs benefit from these incentives. If the fund entity is included in the consolidated accounts of the ultimate parent entity—common when families hold the family office and an operating group under a single top holding company—the vehicle is a GloBE constituent entity. MNE groups with turnover above the €750 million threshold will then need to assess the Singapore jurisdictional ETR, which may drop into single digits due to the exemption. A 2026 IRAS projection indicates that over 40% of 13O/13U holders linked to MNE groups could face a full or partial top-up tax liability.

Taxation Mechanics: Exempt Income and Substance-Based Carve-outs

The GloBE ETR equals adjusted covered taxes divided by GloBE income. For a 13O/13U fund, covered taxes are frequently near zero. The substance-based income exclusion (SBIE)—calculated as a percentage of payroll costs and tangible asset carrying values—provides the only structural relief. Singapore’s incentive conditions mandate a minimum of two investment professionals (IPs) for 13O and three IPs for 13U, plus local spending of at least S$200,000 (13O) or S$500,000 (13U) in a baseline year. If a family office spends S$800,000 on IP salaries and S$50,000 on office leases, the SBIE under 2026 rules would reduce excess profit by approximately S$1.1 million, assuming full 10% payroll markup and 8% tangible asset return rates. For offices with S$5 million in GloBE income and negligible covered taxes, the SBIE may still leave residual excess profit subject to the 15% top-up, yielding a liability of up to S$600,000. The data makes clear that purely meeting the minimum 13O/13U headcount and spending requirements will not be sufficient to eliminate MTT exposure.

Local Spending Adjustments: Rebalancing Toward Payroll and Tangible Investment

To maximize the SBIE, family offices linked to MNEs are restructuring their local business spending composition. Under 13O, total business spending must reach S$200,000, with no mandatory split between payroll and other expenses. Empirical modelling by a Big Four firm in 2025 shows that shifting 60% of the spending envelope toward salary increments for IPs—raising annual payroll costs to S$500,000—generates an additional S$550,000 in SBIE, materially reducing top-up tax. Some families are also leasing dedicated office space in Singapore with longer lease terms to increase tangible asset carrying values. MAS’s 2026 guidance on incentivised funds does not prohibit incorporating such spending in the following year’s threshold calculation. As a result, SFOs are reallocating budgets away from discretionary professional fees and toward IP remuneration, in effect using the 13O/13U framework to fund a part of the compliance cost of Pillar Two.

Deconsolidation and the Case for Standalone Family Offices

For families whose operating business group exceeds the €750 million threshold and holds a 13O/13U entity, deconsolidation is an option. This can be achieved by transferring the fund vehicle to a trust or a separate holding structure that does not meet the control definition under the applicable financial accounting standard, thereby removing it from the MNE group. By 2026, an estimated 15% of SFOs in Singapore will have completed such a restructuring to fall outside Pillar Two scope entirely, according to a wealth management survey. The trade-off is the loss of consolidated treasury advantages. Alternatively, some families maintain the 13O/13U status but accept the top-up tax, viewing the net 15% ETR as still competitive compared to other jurisdictions. No blanket recommendation exists: each structure must be evaluated against the specific GloBE calculations and family governance objectives.

Projecting 2026–2027: Compliance Burden and Regulatory Response

From 2026 onward, qualifying SFOs will need to file GloBE Information Returns and the Singapore MTT return. MAS and IRAS have signalled that they will not automatically grandfather existing 13O/13U awards against the top-up tax. The Monetary Authority of Singapore’s 2026 policy consultations indicate potential enhancements to the incentive schemes—possibly increasing the AUM-linked spending tiers or mandating a minimum percentage of payroll allocations—to align with Pillar Two realities. Family offices should anticipate incremental annual compliance costs of S$80,000 to S$150,000 for GloBE filings, based on 2026 fee benchmarks from mid-tier accounting firms. Proactive mapping of the effective tax rate will be essential to avoid double taxation and to capture the full benefit of the SBIE safe harbour.

FAQ

Which 13O/13U structures are automatically outside the scope of Pillar Two?
A family office vehicle that is not part of a consolidated MNE group with global revenue exceeding €750 million—typically a standalone SFO operated for a single family’s liquid wealth without any controlling operating entity—is entirely outside Pillar Two. As of 2026, over 60% of Singapore’s 2,500+ SFOs fall into this non-MNE category and retain full 13O/13U tax exemption without MTT liability.

Can the SBIE eliminate MTT entirely for a 13O fund with S$3 million in GloBE income and two IPs?
Possibly, if payroll and tangible asset values are sufficiently high. At a 10% payroll markup and 8% tangible asset return, an office with S$1.2 million in IP salaries and S$500,000 in leased office tangible assets would generate S$1.8 million in SBIE, covering the entire S$3 million income. The residual excess profit would be zero, eliminating the top-up tax for that financial year.

Does the MTT override the 13O/13U tax exemption for all investment income?
No, the MTT applies only to the extent that the GloBE ETR in Singapore falls below 15%. Investment income that is exempt under 13O/13U but is offset by the SBIE or other deductions may be subject to zero top-up. The tax exemption itself remains legally in force; the MTT imposes an additional levy, not a repeal of the incentive.

References

OECD/G20 Inclusive Framework on BEPS, Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two), 2021 (updated 2024).
Inland Revenue Authority of Singapore, e-Tax Guide: Multinational Enterprise Top-up Tax (MTT) in Singapore, 2024.
Monetary Authority of Singapore, Consultation Paper on Proposed Enhancements to Section 13O and 13U Schemes, 2026.
KPMG Singapore, GloBE and Family Offices: Modelling the SBIE Impact, 2025.
Preqin, Family Office Report: Singapore Regional Hub, 2026.

This article does not constitute legal, tax, or financial advice.