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Singapore is a favorable location for many oversea companies to start and develop their business in the region, as Singapore is the junction between east and west. Singapore serves as the entrance to the regional market, with unlimited market potentials. Singapore is also one of the most business friendly country in the world and being officially voted as the world’s easiest place to do business with.
There are some options for Foreign companies to setup their presence in Singapore. A foreign company can choose to register a Subsidiary, a Branch Office, or a Representative Office. The registration must accomplish by a Singapore professional company.
This article gives an overview for different kinds of setup options a foreign company can choose. Depending on specific business structure and strategic goals may vary which type of business entity is more suitable.
Option 1: Singapore Subsidiary Company
A subsidiary company is a locally registered private limited company that is owned or controlled by another company. Singapore is able to grant 100% foreign ownership. Hence, an offshore company can incorporate a local private limited company and own its 100% shareholding.
A subsidiary company is the most favorable choice of option for small to medium size foreign businesses who want to setup their presence in Singapore. It is considered as a local company which entitled to Singapore tax benefits; and also a separate entity from the foreign parent company. The parent company will not be extended to the liabilities from the subsidiary company.
Option 2: Singapore Branch Office
A branch office in Singapore is a registered legal entity acting as an extension of the overseas company. The overseas company has to bear the responsibility for the Singapore Branch Office since it is an extension of the parent company. As a branch office is not considered as a resident entity, it will not receive any Singapore taxation benefits. Therefore, it is not preferred by small to medium size companies.
The name of the branch office must be certified before the registration and also must correspond to the name of the parent company. If the name has been registered by an existing company, the company registrar may disapprove the registration. Under the Singapore Companies Act, the branch needs at least 2 local agents who are Singapore residents (citizen, permanent resident, or employment pass holder) and accept services of process and notices. A registered office is needed in Singapore for a branch office in Singapore.
A Singapore branch office should only conduct business activities in the scope of its head company and only the earnings from its Singapore operations will be accounted to the local tax rates.
Option 3: Representative Office
Foreign companies usually set up a representative office in Singapore for the purpose of exploring the market or establishing a presence in Singapore without conducting any business or profiting activities. It is a temporary setup without a legal entity on it’s own and cannot enter into any business contract, issuing of invoices, or open letter of credit, etc.
The overseas company bears implicit liability for the activities of the Singapore representative office. A representative office may engage a sum of not more than 5 local employees as support staff but must assign representative from the foreign company’s head office. The foreign company needs to register with the Monetary Authority of Singapore (MAS) if it is in banking and insurance sector.
Which Option to Choose?
A Singapore subsidiary company is considered as a separate legal entity when the parent company bears no responsibility for the subsidiary and is treated as a local Singapore company. The parent company is protected when the subsidiary has financial problems and also it is an easier way to monitor the operations in the subsidiary company. A subsidiary company will enjoy its local status and receive the benefits of Singapore’s tax treatment.
A Singapore branch office is considered as an extension to its parent company when the parent company bears all responsibilities for the branch office. The branch office needed to have its own audited accounts and also its head office. It is said to be fairly difficult to securing its investment as branch office tends to have less commitment and lack of long term vision. The control and management of the branch office is from the parent company, so it is considered as a foreign entity, non-resident company and some of the tax exemptions will not be available to branch office.
A representative office is a temporary arrangement which does not have any legal entity but is administrative and designed for non-commercial activities such as gather market research or feasibility studies. As the representative office does not have any earnings, it acts as a cost center. Foreign companies who want to study the Singapore business environment can set up a representative office which only last for three years before establishing a legal entity in Singapore.