By Michael Michaelides, Partner, Business Tax, Deloitte Cyprus
The creation of significant wealth can unlock new opportunities – and challenges – for individuals and their families. An important consideration is whether and when to establish a family office to oversee financial affairs.
A great starting point for families looking to set up a family office is the publicly available Deloitte Family Office Handbook. This handbook is designed to help wealthy families build on their understanding of what a family office is, consider factors that have contributed to the success of other family offices and formulate a plan that leads to the creation or expansion of their own family office.
Five Key Considerations
1. Objectives and scope: The cornerstone of a successful family office lies in clearly defined objectives. Families must identify their immediate and long-term goals, whether they focus on investment management, succession planning or philanthropic endeavours. Understanding the scope of services required will help shape the structure and scale of the family office.
2. Organisational structure: Choosing the right organisational structure is critical. This decision largely depends on the complexity and scale of the family’s assets and their desired level of control thereafter. A bespoke structure can optimise operational efficiency and support tailored wealth management strategies.
3. Tax and legal issues: Navigating the intricate web of tax and legal issues is paramount when establishing a family office. Families must consider the jurisdictional tax requirements, compliance obligations and estate planning strategies that align with their international footprint. The tax incentives that Cyprus offers attract High Net Worth Individuals (HNWIs) to take up tax residency in Cyprus and ultimately set up their family offices on the island.
4. Risk management and governance: Effective governance and risk management frameworks ensure that family offices operate to the highest standards of accountability and transparency. Establishing clear decision-making protocols, compliance frameworks and performance measurement systems are integral to risk minimisation and long-term sustainability.
5. Technological infrastructure: Family offices are increasingly adopting and embracing technology through improvements that impact operational effectiveness and data security. The adoption of new technologies is also impacting the skills required of family office personnel.
Top Trends
As part of our strong commitment to support family offices, Deloitte has released a comprehensive report, Defining the Family Office Landscape. The report outlines the results of a global survey of over 350 single family offices and 40 interviews with senior family office executives. Key trends that have emerged from the survey are:
1. Expansion: The number of single-family offices globally is increasing. In Cyprus, although there are no official statistics, we are witnessing a rising number of single-family offices, mainly driven by HNWIs relocating to Cyprus with their families.
2. Operational focus: Family office executives devote a large part of their time to portfolio management and direct investing. Private equity has surpassed public equity as the top asset class that family offices invest in.
3. Tackling cyberthreats: With over 40% of family offices having experienced a cyberattack over the last 12-24 months and 25% experiencing three or more attacks, having a cybersecurity strategy is crucial. Yet nearly one-third of family offices don’t have one in place.
4. Professionalisation: A trend towards professionalisation is emerging with over 40% of family offices looking to hire additional staff, opting toward professional (non-family) talent. Family offices in Cyprus have access to top talents that have accumulated valuable experiences working abroad before settling in Cyprus.
5. Outsourcing to scale up: More than one third of family offices are looking to rely more on third-party service providers this year to scale up their initiatives and gain added expertise. Family offices in Cyprus can attract high-quality professional services at competitive rates compared to other EU jurisdictions.
Cyprus as a Family Office Destination
Establishing a family office presents affluent families with a compelling opportunity to take control of their wealth management journey. By considering factors such as objectives, tax and legal considerations, governance and technology, families can build enduring legacies. HNWIs and family office executives are attracted by Cyprus’ vibrant lifestyle, safe environment, excellent educational system, reliable health sector, common law legal system and appealing corporate and personal tax incentives.
