Foreign Subsidiary Incorporation in Singapore
What is a Subsidiary Company
There are numerous business structure that one can incorporate in Singapore. A subsidiary company in Singapore is usually a private limited company. The majority shareholder is a corporate entity, and it is not the same as a branch office. The shareholders can be either a local or foreign company.
A Singapore subsidiary is the most favored form of business registration for small to medium size foreign companies keen to establish their presence in the Republic.
The subsidiary company is a separate legal entity altogether and it doesn’t have any liability to the foreign company as its liability is limited to the share capital it has subscribed to.
The subsidiary company gets the benefit of several tax exemptions as it is considered as the local company.
The name of the subsidiary can be different from that of the parent company and is subject to approval by the Registrar of Companies. The Companies Act requires the appointment of one or more directors. At least one director must be a Singapore resident.
Challenges That Might Occur While Opening a Subsidiary Office
Setting a realistic expectation to our future and existing clients is what we are always fondly remembered for.
Unlike other corporate service providers, we have set a benchmark, in accordance with the local law and regulations, when it comes to giving you the best service possible.
Before opening your subsidiary office, please allow us to guide you through the challenges you might face.
Know Your Customer (KYC)
KYC information comprises the facts about our customer that should enable one to assess the extent to which the customer exposes it to a range of risks. These risks include money laundering and terrorist financing.
Organizations need to ‘know their customers’ for various reasons which includes:
- to comply with the requirements of relevant legislation and regulation,
- at the time the due diligence is carried out, to be reasonably certain that the customers are who they say they are, and that it is appropriate,
- to provide them with the services requested,
- to guard against fraud, including impersonation and identity fraud,
- to help the organization to identify the behavior of the customers,
- if unusual events do not have a commercial or otherwise straightforward rationale they may involve money laundering, fraud, or handling criminal or terrorist property
- to enable organization to assist law enforcement, by providing available information on customers being investigated following the making of a suspicion report to the relevant authorities.
Since a subsidiary office is a totally separate entity on its own, it will be considered a new company incorporation.
That being said, every directors and shareholder of the subsidiary company will be subjected to the KYC process.
Bank Account Opening
Opening a corporate bank account for a subsidiary office is easier than opening than a branch office, however, the formalities will be the same.
Like mentioned in the topic above, banks will also conduct a KYC checklist on the on every directors and shareholder of the subsidiary company.
With the 2018 1 Malaysia Development Berhad (1MDB) case that shook the world, banks are looking to safeguard themselves more, therefore the KYC process will be more tedious.
The criminal breach of trust offense by banks has resulted in many outcomes, with the recent one being the closure of Switzerland’s BSI Bank in Singapore, fined banks DBS and UBS.
We are still fond of anyone setting up a foreign subsidiary company. Although the set up may seem tedious, it is still easier than setting up a foreign branch office.
However, if you want a simpler solution, you can either set up a Family Trust for a company or open a related company, whereby with a common shareholder and director will allow the KYC process to be reduced significantly.
Things You Must Know Before a Foreign Subsidiary Incorporation
Filing Annual Returns of a Local Company
All locally incorporated companies are required to hold their Annual General Meeting (AGM) and file their annual returns under S175, S197, and S201 of the Companies Act.
At the AGM, directors shall present a true and fair view of the company’s accounts to their shareholders.
The Companies Act does not prescribe the minimum level of qualifications for the person preparing the accounts. However, it will be the responsibility of the directors to appoint individuals with the required level of expertise for the preparation of such accounts.
When to Hold an AGM and File Annual Return?
|Annual General Meeting (AGM)||1. A company is required to hold its first AGM within 18 months after its incorporation.|
2.Subsequent AGMs must be held every calendar year and the interval between AGMs should not be more than 15 months.
|Audited/Unaudited Accounts||The Annual Return must be filed with the Registrar within one month after the AGM.||Section 197|
|For a public company listed or quoted on a securities exchange in Singapore:Accounts presented at the AGM shall be made up to a date not more than 4 months before the AGM.|
In the case of any other company: Accounts presented at the AGM shall be made up to a date not more than 6 months before the AGM.
Tax Exemption Scheme for New Start-Up Companies
Under this scheme, a newly incorporated subsidiary company that satisfies the qualifying conditions can claim for full tax exemption on the first $100,000 of normal chargeable income* (excluding Singapore franked dividends) for each of its first three consecutive YAs.
The exempted amount for each YA summarized :
|Year of Assessment(YA)||Exempt amount for new start-up companies|
|2005 to 2007||First $100,000 Profits @ 100% (Tax Free) = $100,000|
|2008 onwards||First $100,000 Profits @ 100%(Tax Free)= $100,000 Next $200,000 Profits @ 50% (Tax Free)= $100,000 Total $300,000 Profits (Tax Free)= $200,000|
To qualify for the tax exemption for new start-up companies, your company must:
- Be incorporated in Singapore (other than a company limited by guarantee**);
- Be a tax resident* in Singapore for that YA;
- Have no more than 20 shareholders throughout the basis period for that YA where all of the shareholders are individuals beneficially and directly holding the shares in their own names; OR
- Have at least one shareholder who is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company.
* A company is resident in Singapore if the control and management of its business is exercised in Singapore.
** With effect from YA 2010, the scheme will be extended to companies limited by guarantee, subject to the same conditions imposed on companies limited by shares.
A company is taxed at a flat rate on its chargeable income regardless of whether it is a local or foreign company.
The tax rates and tax exemption/rebate for each Year of Assessment (YA) :
|Year of Assessment(YA)||Tax Rate||Tax Exemption/Rebate|
|Partial tax exemption and tax exemption scheme for new start-up companies|
|Companies will continue to enjoy the partial tax exemption scheme and tax exemption scheme for new start-up companies as provided in YA 2008 and YA 2009.|
|In addition, with effect from YA 2010, the tax exemption scheme for new start-up companies will be extended to include companies limited by guarantee, subject to the same conditions.|
Key Facts to take note about a Singapore Subsidiary
The parent company can own 100% of the shares of the Singapore subsidiary.
A Singapore subsidiary must appoint at least one director. A natural person who is local resident in Singapore i.e. a Singapore citizen, a Singapore permanent resident, or an Employment Pass holder. Directors must be at least 18 years of age and must not be an undischarged bankrupt or convicted for any malpractices. Foreign companies that plan to relocate their staff from head office to Singapore can apply for their employment pass after the subsidiary has been registered.
The minimum paid-up capital for a Singapore subsidiary company is S$1.
Local Registered Address
A Singapore subsidiary company must have a registered office in Singapore. The registered address can be a commercial office (if you plan to rent one) or a home office. No P.O. Box will be accepted.
After incorporation, the directors must appoint a person who is ordinarily resident in Singapore as company secretary.
An auditor must also be appointed within three months from the registration date of the Singapore subsidiary company. In this instance, Paul Hype Page & Co can serve as your auditor.
Documents Required for Incorporation
- Certificate of incorporation of the parent company
- An extract from the Registrar of Companies that shows the current registered address and directors of the parent company
- A corporate resolution authorizing a specific individual to sign necessary subsidiary documents on behalf of the parent company
- Passport particulars and residential address details of individuals who will act as directors of the Singapore subsidiary company
- Signed Consent to Act As Director by each proposed director
- Registered address details of the Singapore subsidiary company
- Memorandum & Articles of Association for the Singapore subsidiary company
All documents must be in English and any non-English documents must be translated into English. Any professional corporate services provider that you engage may require additional documents as applicable.
If my company has one director and one shareholder left, is it compulsory to amend my M&AA?
While the law do not mandate a company to amend its M&AA to cater to one director company, you may wish to examine your own M&AA to determine if it contains any provisions that will not be operatable if the number of directors is reduced to one individual. Every company can draft its own set of M&AA and need not rely solely on the provisions in Table A of the Companies Act.
In this regard, please refer to section 4 and 184 of the Companies Act.
What are the criteria for being appointed as a manager?
At least one manager must be ordinarily resident in Singapore. All managers appointed must be natural persons and above the age of 18. The manager of the LLP must not be:
- an undischarged bankrupt (unless he has obtained Leave of the High Court or the written permission of the Official Assignee);
- disqualified as an unfit manager of insolvent LLPs under section 34 of the LLP Act;
- disqualified as a manager of a former LLP wound up on grounds of national security or interest and disqualified to act as a manager;
- disqualified as a person who was convicted of offences involving fraud or dishonesty, or other offences connected with formation or management of an LLP;
- disqualified under Sections 149, 149A or 154 of the Companies Act.
Can a foreigner be appointed as a local manager?
Yes. Provided he has an Employment Pass or a Dependant’s Pass.
Are the duties of a nominee manager the same as a manager?
There is no such position as a nominee manager in an LLP. Anyone who is named as the manager will have to perform the duties and carry out the obligations of a manager as is stated in the LLP Act.