Allowing Singapore Law Practices more flexibility to grow and enhance international competitiveness
31 May 2012 Posted in Press releases
In February 2012, the Ministry of Law (MinLaw) announced that a package of measures would be implemented in the second quarter of the year to give Singapore Law Practices (SLPs) greater flexibility to develop and grow their capabilities, and collaborate with Foreign Law Practices (FLPs), to enhance their competitiveness.
The legislative changes to give effect to these changes will come into effect on 1 June 2012. They are summarised below:Collaborations between SLPs and FLs/FLPs
SLPs which employ Foreign Lawyers (FLs) in their local practices. FLs employed within an SLP will now be able to take a greater profit and equity share of up to a maximum of one-third (33 per cent) in the SLP, beyond the 25 per cent permitted under the previous framework.
SLPs which tie up with FLPs based overseas. FLs within an overseas FLP will now be able to take a greater profit and equity share of up to a maximum of one-third (33 per cent) in the SLP, beyond the 25 per cent permitted under the previous framework. An FLP based overseas will now also be able to directly take profit and equity share in the SLP up to the same one-third cap. Lawyers who are partners in the respective practices involved in the tie-up will be able to hold concurrent partnership positions in the practices.
SLPs which tie up with FLPs based in Singapore
Formal Law Alliance (FLA). SLPs and FLPs based in Singapore will have increased scope for collaboration within an amended FLA framework. The FLA enables the SLP and FLP to collaborate as two freestanding firms with the benefit of co-branding and billing, and sharing of office premises, resources and client information. The framework will be enhanced to enable SLPs and FLPs which collaborate through an FLA, to share the profit and equity of the SLP, at both individual and entity level, up to the one-third cap, and to allow concurrent partnerships between their partners.
Joint Law Venture (JLV). The JLV framework will be enhanced to allow all lawyers (FLs and Singapore Lawyers (SLs)) to hold concurrent partnerships in the JLV and the constituent SLP. Previously, only SLs of the constituent SLP were permitted to hold concurrent partnerships in the JLV. Profit-sharing and holding of equity in the constituent SLP, by the JLV, will now be allowed at both individual and entity level under the enhanced framework, of up to the one-third cap. Under the previous framework, JLVs were permitted to share up to 49 per cent of the profits in the constituent SLP, but only in the “permitted areas of legal practice”. (Under the new framework, JLVs may still, if they wish, arrange to share up to 49 per cent of the profits of the constituent SLP in the “permitted areas”, but this will be subject to the overall one-third cap.)
Qualifying Foreign Law Practices (QFLPs). QFLPs are now permitted to form FLAs or JLVs, and retain their QFLP licence. Previously, QFLPs were not permitted to form FLAs or JLVs.
To ensure that SLPs entering such arrangements continue to be effectively controlled and managed by SLs, all the arrangements described in paragraphs 2.1 to 2.4 will be subject to the SLP fulfilling certain minimum criteria. 1
SLPs wishing to enter such tie ups or augment existing arrangements to benefit from the changes will need to apply and seek approval from the Attorney-General.
SLPs employing corporate structures. SLPs, whether structured as a sole-proprietorship, partnership, Limited Liability Law Partnership or Law Corporation, will be able to form one related law corporation and benefit from various incentives, including tax incentives which are only available to companies. In this regard, two tax incentives SLPs can benefit from are:
The Development and Expansion Incentive (DEI) which aims to encourage law practices to do more international legal services work from Singapore. The DEI is administered by the Economic Development Board (EDB) and is open to law practices incorporated as companies in Singapore. Law practices awarded the incentive will enjoy a 10 per cent concessionary tax rate for up to five years on their qualifying income derived from the provision of international legal services in Singapore (please refer to Annex A (0.1MB) for details); and
The Tax Incentive for International Arbitration with Hearings in Singapore (IArb incentive), which seeks to encourage law practices to increase the provision of legal services rendered for international arbitration with substantive hearings held in Singapore. Law practices awarded the incentive will enjoy a 50 per cent tax exemption for a period not exceeding five years on their qualifying income exceeding a base amount, derived from international arbitration cases which culminate in hearings held in Singapore within the incentive period. With effect from 1 July 2012, enhancements will be made to the IArb incentive to extend it to all qualifying income arising from arbitration cases so long as the work is substantially done in Singapore and cases which, if not for the case having been settled, would have been heard in Singapore. The IArb incentive is also administered by EDB and is available to both partnerships and law corporations
Changes have also been introduced to allow SLs working in a SLP to hold executive appointments in companies set up by the SLP for related activities, for instance, where the SLP wishes to establish a company to offer patent agent and other IP related services. Previously, SLs were prohibited from doing so under the Legal Profession (Professional Conduct) Rules.
An information brief outlining the key legislative provisions which will apply to collaborations between SLPs and FLPs, as well as SLPs which wish to employ corporate structures, can be found in Annex B (0.17MB). The relevant implemented legislation can be found in Annex C (0.1MB).
 Which can be summarized as follows: -
- SL: FL ratio of at least 2:1.
- SL partner: FL partner ratio of at least 2:1.
- The Managing Partner(s) must be an SL, and at least 2/3 of the voting rights in a management/executive committee or equivalent, if any, must be held by SLs.
- At least 2/3 of the equity share of the firm must be held by SLs.
- At least 2/3 of the voting rights in the firm must vest in SLs.
- The cumulative amount of payment out of profits by the SLP during any financial year of that SLP to all FLs and/or FLPs shall not exceed a third of the profits of that SLP during that financial year.
Last updated on 25 Nov 2012