In Asia, Singapore flaunts a reputation as a lucrative business hub and strategic gateway for foreign companies who wish to establish or consolidate their business in the region. While its strategic location, conducive environment, and highly developed infrastructure attract many foreign investors, the country has much more to offer.
One of the best reasons to establish a business in Singapore is its attractive tax regime (low corporate tax rates) and other business-friendly policies. What’s more, companies will benefit from the country’s heightened IP protection, efficient legal framework, and smart immigration systems. To add a cherry on top of all of these, companies will also get access to Singapore’s skilled multilingual workforce.
If you are a foreign company looking to explore your options in Singapore, you can consider the below company incorporation options:
- Subsidiary Company
- Branch Office
- Representative Office
While all of these will offer a surfeit of benefits that come with operating in Singapore, they are also quite different in terms of structure, incorporation process, benefits, etc. Continue reading to get an overview of each type.
What is a Subsidiary Company?
A subsidiary company is a locally incorporated private limited company. Another local or foreign company holds the majority of the shares of a subsidiary company. Thanks to Singapore’s business-friendly policies, it is permissible for companies to be completely foreign-owned. This means foreign companies in the country can incorporate a subsidiary company or own 100% of the shares.
As Singapore treats subsidiary companies as separate entities from the foreign parent companies, a subsidiary company will be treated the same as a local company. For this reason, foreign companies cannot be held liable for the debts and liabilities of the subsidiary. Local subsidiary companies are tax-efficient corporate entities. Due to their resident status, the companies are granted effortless access to government incentives, local funds, and beneficial tax treaties.
Usually, companies or individuals are recommended to set up subsidiary companies if they operate small to medium-sized companies.
Things to Consider Before setting up a Singaporean subsidiary company:
- The subsidiary company should have a registered physical address in Singapore and maintain legal documents of the business in the office.
- According to The Singapore Companies Act, at least one director should be appointed. One of the directors must be a Singaporean citizen, permanent citizen, or holder of an Employment Pass. There are no restrictions to hiring local or foreign staff.
- The subsidiary company does not need to have the same name as the overseas parent company. However, this name change requires approval by ACRA.
- Subsidiary offices in Singapore are taxed as a resident entity. Local tax benefits are available. The company qualifies for group relief and can also claim a foreign tax credit. Subsidiary companies with a minimum of one shareholder and 10% shareholding can enjoy tax incentives and local rebates. Unless exempted, subsidiary offices must file their audit reports annually.
- The normal registration time is about one hour.
What is a Branch Office?
A branch office is a registered legal entity that serves as an extended part of an international parent company. These businesses can conduct any kind of activities that are within the parent company’s realm. Branch offices can repatriate their earnings and capital and are strictly taxed for the income accrued from their business activities in Singapore.
The Singapore law considers branch offices as non-resident entities. Thus, the foreign company’s head office will be liable for their Singapore branch office’s wrongful omission or commission. The non-resident status also excludes branch offices from the tax exemptions that local companies and subsidiary offices enjoy. These offices get partial tax exemption but do not qualify for any foreign tax credit or group relief.
Medium to large-sized companies that have specialized overseas operations and wish to perform a range of business activities in Singapore are recommended to set up branch offices in the country.
A few things to consider before setting up branch offices in Singapore are:
- Branch offices must have a registered physical office address in Singapore.
- According to the Companies Act, branch offices require at least one authorized representative (who is a Singapore resident) to accept services of process and notices.
- The Singapore branch office’s name should resemble the head office name and it must be approved before branch registration.
- Registration takes only about an hour.
What is a Representative Office?
The Singapore Law refers to a representative office as a temporary entity that allows foreign companies to explore the Singapore market or manage company affairs in Singapore without handling any business profits. They are temporary vehicles that will not bring any direct revenue into the company.
An important attribute of representative offices is that they do not have any legal personas. As a result, representative offices cannot do certain business activities such as open letters of credit, sign contracts, lease warehouses, raise invoices, handle trades for the head office or directly. The overseas parent company generally bears all liability for the operations of its representative offices in Singapore.
Generally, companies or individuals are recommended to set up a representative office in Singapore if their prime goal is to assess the business environment before committing further investment. The same is advised to companies with a substantial amount of non-core activities to be taken care of in Singapore.
A few factors to note before opening a representative office are:
- A representative office cannot hire more than five local support staff. Additionally, it must have a representative staff from the overseas head office. Hiring a Chief Representative from the headquarters is also mandatory.
- Representative offices can only operate for a period of three years. After this period, the representative office will have to upgrade itself to another business structure such as a branch office or a subsidiary company.
- For representative offices in the finance, insurance, or banking sectors, it is obligatory to register the office with the Monetary Authority of Singapore (MAS). Representative offices in other industries or fields will need to register with International Enterprise (IE) Singapore. Registration can normally take between three to five days.
- No corporate tax applies to this business structure but employees will have to pay personal taxes.
Only foreign companies that completed more than 3 years of establishment and have a sales turnover of more than $250,000 can set up a representative office in Singapore.