What Must Be Done After Incorporation of a Foreign Subsidiary
After the subsidiary has been incorporated, there is still much to be done. At this point, the subsidiary exists as a separate legal entity from the company to which it is linked.
Benefits of Setting Up a Foreign Subsidiary in Singapore
Separate legal entities
There are several reasons why a foreign parent-company might choose to set up a foreign subsidiary in Singapore. Since a subsidiary and its parent-company are separate legal entities, the parent company will not be directly liable for any debts incurred by the subsidiary. It will also not be held responsible if any legal action is to be taken against the subsidiary.
If the subsidiary were to become insolvent, the parent-company may be able to reduce its liabilities to the subsidiary’s assets. It can also prevent these assets from being claimed by a creditor.
If the control and management of the subsidiary are in Singapore, a foreign subsidiary that has been incorporated in Singapore will be regarded as a tax resident of Singapore. This means that because Singapore’s corporate tax rates are among the lowest in the world. Therefore, the subsidiary will most likely be taxed less than it would have been if it had been operating from its home country.
Further Information About Singapore Foreign Subsidiaries
A subsidiary does not have to operate under the same name as its parent company. It may opt to operate under any name which has received approval from ACRA. It may also conduct business activities that are different from those conducted by its parent company.
Registration for subsidiary incorporation may be completed online at BizFile+. Therefore, one doesn’t need to go to Singapore to incorporate the subsidiary.
A foreign subsidiary may repatriate any of its capital or profits to its parent company. The Companies Act spells out any capital return requirements which may apply.
Tax for subsidiary
Just like any other company based in Singapore, foreign subsidiaries are taxed at the standard corporate tax rate of 17% on taxable income. Should the subsidiary’s annual turnover exceed S$1 million, the subsidiary will also be subject to a 7% Goods and Services Tax (GST) charge on most of the goods and services it supplies.
Subsidiaries are also eligible for some of Singapore’s tax exemption schemes and tax benefits. For the first three years of assessment (YAs), subsidiaries receive a complete tax exemption on the first S$100,000 of chargeable income and a further tax exemption of 50% on the next S$200,000. The subsidiary’s next S$300,000 of chargeable income will have its first S$10,000 given a 75% tax exemption and the next S$290,000 a 50% tax exemption. Subsidiaries may also receive tax reductions or exemptions on income from countries with which Singapore has signed Double Taxation Agreements (DTAs).
Subsidiaries that are incorporated in Singapore are automatically registered for corporate income tax after they have been incorporated. The Inland Revenue Authority of Singapore (IRAS) will be duly notified after the incorporation. Subsidiaries with an annual turnover of S$1 million or more will have to register separately for GST status with IRAS.