Private banks are considering using a unitised version of their discretionary mandate strategies as a means of overcoming the onerous reporting requirements of Indonesian HNWIs’ offshore assets, according to multiple sources.
Indonesia’s tax amnesty drew to a close in March, and it has since been revealed that Singapore accounted for more than half of all offshore assets declared. With these and other offshore holdings having been divulged to authorities, private banks must report on their Indonesian clients’ worldwide assets.
Sources say that this could require reporting for each individual transaction – a hefty burden to bear particularly for discretionary portfolio management (DPM) solutions.
“If we keep client assets in DPM, we may have to report all the individual lines of transactions,” one source told APB Mandate on condition of anonymity. “In order to simplify offshore reporting, we are thinking about providing a unitised version so that client reporting would only be required at the point of buying and selling the fund.”
But while this would simplify reporting, the source added that this could make DPM solutions less attractive for some Indonesian clients.
Although such an approach will not significantly affect clients seeking to enter and exit standard DPM solutions purely for performance, there are various nuances to consider for others that have more specific requirements. For instance, investors with unitised DPM strategies would not directly own the underliers, which would be of particular concern in the event that a client wants to sell only part of their portfolio.
Some private banks have already adopted such an offering, but not for tax reporting purposes. UBS, for example, has long had a unitised DPM strategy on its global product shelf.
“The mandate consists of a limited number of funds that are used to implement the strategic and tactical asset allocation guidance from our CIO,” says Mischa Eckart, head of client investment specialists APAC at UBS Wealth Management, adding that unitisation does not weigh on performance, relative to segregated accounts.
“This offering is available in our booking centres in Singapore, Hong Kong and Japan. It has enjoyed particularly strong success in Japan,” Eckart says.
The tax environment for Indonesians is tightening in the wake of the country’s tax amnesty programme and ahead of the implementation of the Common Reporting Standard (CRS) framework.
Under the current regime, Indonesians who stay in the country for more than 183 days in any 12-month period, or who are present in the country during a tax year with residency intentions, are considered to be resident taxpayers by law, meaning they are subject to taxes on their worldwide income, regardless of the source.