• Business Structures in Singapore

Foreign companies expanding to Singapore need to make a crucial choice of their legal structure for their Singapore business expansion. There are different types of business structure in Singapore, namely:

  • Branch

  • Subsidiary

  • Representative Office

  • Related Company

To start off, we need to first understand the differences among the 4 business structures.

What is a Branch?

A branch is an extension of the foreign head office company, and it can engage in core activities like sales and contracts.

  • Branch office can carry out the same activities performed by the head office company
  • However, it is not a separate legal entity from head office company. This means that the foreign company’s head office bears the ultimate responsibility for any liabilities arising due to the acts of commission or omission of the Singapore branch office.

  • Parent company of a branch office entity is completely accountable for the welfare of the branch office.
  • It is set up in a location separate from that of head office, in various locations around the world.

What is a Subsidiary?

A Singapore subsidiary company is a private limited company whose majority shareholder is a foreign company.

  • After the subsidiary is formed, the parent company controls its subsidiary in terms of the influence and direct the financial and operating policies of the subsidiary.
  • A Singapore Subsidiary Company can have the full ownership of the foreign company and is considered as a separate legal entity.
  • The subsidiary company doesn’t have any liability to the foreign company as its liability is limited to the share capital it has subscribed.

What is a Representative Office?

A Representative Office (RO) is a temporary set-up with no legal status so it cannot engage in any trading or business activities which yield a profit. Generally, the purpose of the representative office is to perform liaison services and establish business contacts, often as a precursor to the commencement of full-scale business activities in Singapore.

This is the most common type of structure for sole business owners. For example, Jane can be the sole director and shareholder of her company in Singapore. In expanding to Malaysia, she can decide to set up a related company which is a separate legal entity whereby she is also the director and shareholder.

  • Both companies can operate under the same brand and services as per the sole owner’s discretion.
  • This set up allows more flexibility for change in individual entities. For example, if there were new investors for the Singapore company, the shareholdings of the Singapore company would change and the Malaysia company would not be affected.

How do I know which one to choose?

After understanding the different types of business structure, we can now take a closer look at the deciding factors:

  • What is the liability impact?

  • What is the tax implications?

  • What is the commercial impact?

  • Is the business structure easy to set up?

Factors

Subsidiary

Representative office

Branch

Related Company

Suitable For For local or Foreign Companies that wish to expand their operations in SingaporeFor Foreign Companies that wish to set up temporary vehicle in Singapore to conduct research and act as liaison officeFor Foreign Companies that wish to expand their operations in SingaporeSole owners expanding their businesses overseas
Liability Separate Legal EntityNot Separate Legal EntityNot Separate Legal EntitySeparate Legal Entity
Tax treatmentTaxed as Singapore resident entity, local tax benefits available.Not applicableTaxed as non-resident entity, local tax benefits not available.Taxed as Singapore resident entity, local tax benefits available.
Tax benefitsA subsidiary company, with at least one individual shareholder with minimum of 10 percent shareholding, is entitled to local tax incentives and rebatesNo Corporate tax. Employees have to pay personal taxPartial tax exemptionEntitled to local tax incentives and rebates
Commercial ImpactBusiness parties might be less willing to work with RO as it is not a legal entity in Singapore.
Minimum Setting up RequirementMin One shareholder, that can be an Individual or corporate (100% local or foreign shareholding allowed). Must have at least one resident directorMust appoint a Chief Representative who will relocate from headquartersMust have two Singapore Resident AgentsMin One shareholder, that can be an Individual or corporate (100% local or foreign shareholding allowed). Must have at least one resident director

With the above factors in mind, we are one step closer to our final decision on the type of partnership for your business. Let us break it down for you:

Why choose a Branch?

  • Administratively easier to maintain than a company.

  • Easier to close than liquidating a company.

  • Liabilities of a branch extend to its head office. A branch having a registered office in Singapore means that its head office (foreign corporation) can be served with legal process in Singapore. Another disadvantage is that the accounts of the head office must be lodged with the ACRA and they are available for public inspection.

Why choose a Subsidiary?

  • Benefit of several tax exemptions as it is considered as the local company. Further, it will not implicate the head office with legal or financial problem as it is considered as a legal entity.

  • Required to be audit yearly and will increase the compliance cost.

Why choose a Representative Office?

  • Less cost compared to other type of entity in Singapore.

  • Legal status hence it cannot perform any sales activity and go to any contract signing.

Why choose a Related Company?

  • More flexibility in making decisions in each jurisdiction as each entity operates separately

  • Higher legal risk because owner’s name receives more exposure compared to if using a corporate vehicle with more layers

Conclusion

The features of different business structures result in very different business operations and planning. If you are unable to pinpoint your needs or you require tax planning advice, approach Paul Hype Page. We have offices in multiple locations across South East Asia. Cross border incorporation and planning is our expertise. See you soon!

FAQs

What is the history of Singapore’s corporate tax rate?2020-07-03T14:26:23+08:00

Singapore’s corporate tax rate has fallen dramatically over the past two decades. After peaking at 26%, the Singaporean government enacted many reductions to the corporate tax rate in the ensuing years. Today, Singapore’s corporate tax rates stands at just 17%.

Why are sole proprietorships and partnerships unable to claim tax exemptions?2020-07-03T14:26:05+08:00

Due to the unique characteristics of sole proprietorships and partnerships, IRAS does not consider them to be companies. Therefore, they are ineligible to receive any tax exemptions.

Why do three different types of partnership exist in Singapore?2020-07-03T14:25:33+08:00

Ordinary business partnerships, limited partnerships, and limited liability partnerships differ in fundamental ways. The methods in which they are to be run contain significant differences. Therefore, these partnerships have to be classified separately.

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