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Foreign company business structure in Singapore

01 August, 2018 By Dhruti Thakkar

As per the ACRA records, there is an increasing trend of incorporating foreign companies in Singapore. Reasons for relocation probably include Singapore’s stable political climate, strategic geographical location and attractive corporate taxation. A foreign investor who wants to establish a company will have 4 options – branch company, asubsidiary company, representative office and re-domiciliation.

  1. Branch Company

The first option to enter the Singapore market is to set up a branch company. This company is considered as an extension of the parent company and doesn’t possess a separate legal entity. This legal structure is not considered as a residential entity in Singapore and thus, will not be entitled to some of the tax exemption provided to resident companies. This company is restricted to conduct business activities within the scope of the parent company and needs to file their audited financials to head office.

The name of the branch company must be the same as that of the parent company. This company should appoint at least one local representative who is either Singapore Citizen, an Entry Pass holder or a Permanent Resident.

  1. Subsidiary Company

The second and the best option to enter Singapore market is to set up a subsidiary company. A subsidiary company is a locally incorporated company of which the shareholders can be a foreign corporate entity.

Unlike branch office, subsidiaries are considered as a legal entity different from the parent company. This means the parent company has limited liability and is not liable for the acts of their subsidiaries. Moreover, a subsidiary is treated as a local tax resident company which can avail tax exemptions and other incentives as a local company. This company can also engage in the activities that are different from its parent company.

Similar to a branch company, a subsidiary company needs to have at least one authorized local representative. The name of this company can be the same as the parent company or can be different.

Most of the time, foreign companies prefer to set up a subsidiary company over other options due to limited liability protection and tax benefits. For investors who are planning to conduct their businesses in Singapore for the long term, shall incorporate a subsidiary company.

  1. Representative office

The third option to enter the Singapore market is to set up a representative office. This concept is totally different from branch and subsidiary as it doesn’t possess a legal personality.

A representative office is just a sole extension of its parent company. Due to this feature, it restricts representative to conduct trading activities, to enter into contracts or to engage in any profit-making activities.

As the representative office is not involved in profit making and is not allowed to generate revenue on its name, it will not possess any tax residency status. The scope of the activity is promotion of its parent company, market research and feasibility studies. As this company is non-incorporated bodies, they have less due diligence requirement in comparison with branch and subsidiary companies.

A representative office doesn’t require an authorized representative who is resident in Singapore. However, a representative from the parent company has to relocate to Singapore for overseeing the business activities. These offices are permitted for three years and need to be renewed before expiry. Thus, for those companies who want to gather market intelligence before incorporating the company or those who are involved in non-profitable, a representative office is an ideal choice.

  1. Re-domiciliation

When a company changes its jurisdiction, it is called re-domiciliation. This is completely different from setting up a subsidiary, branch or representative office.

Advantages of re-domiciliation
  • Allows the company to continue the business
  • Can avail tax advantage of Singapore
  • Allows the company to obtain to leverage on Singapore’s Free Trade Agreement memberships

Any company who intends to re-domicile should fulfill three criteria:

  • Total assets worth must be over S$10 million
  • Annual revenue should be over S$10 million and
  • Must have at least 50 employees.

If you are looking for re-domiciliation of the group, then it has to meet group size criterion.

 

Business setup in Singapore

Each option has its own pros and cons. For the businesses to choose the best option, they have to consider their business objective, duration, tax considerations, business liabilities and scope of activity under each entry option. All of the above should be carefully thought through before a foreign company decides to establish in Singapore.

 

For business relocation advisory, contact our experts on incorporate@nrdoshi.ae .

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