Outline
Choosing the right legal structure is crucial for foreign companies expanding to Singapore. Decide between a branch or subsidiary for business expansion, considering their impact on customer base, accessibility, and distribution speed. Make an informed choice for success.
To answer this question, the foreign company needs to understand the following:
Let’s start off with the fundamental question of: “What is a branch?”
Definition of a Branch Office
A branch serves as an extension of the foreign head office company, allowing engagement in core activities like sales and contracts. Furthermore, the branch office can perform the same activities as the head office but is not recognized as a distinct legal entity.
Consequently, any legal contract signed by the branch company legally binds the head office, even if it was not entered into by a representative or with the permission of head office management.
As such it is common business practice enforced by the head office that the branch has limited access to their bank account and performs implementation-related tasks without having any individual business discretion.
Therefore, unlike a subsidiary company, the 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 the head office, in various locations around the world to increase customer base, accessibility, and speed of distribution of goods and services.
Why Companies Setup a Branch Office in Singapore
One of the strategies firms use to expand the scope of their business operations and internationalise them is to set up branch offices in various places.
Branches constitute a component of the parent organization, established to execute identical business operations. Additionally, as these branch offices are situated in various locations, they expand the corporate reach of the parent company, thereby augmenting its profits.
From the definition above, we can understand the HIGH risk involved but many foreign companies still choose to incorporate a branch due to the following:
Due to the above reasons, foreign company would incorporate a branch and implement control to reduce the risk such as no local bank account and or insist all signing of document by head office directors.
How to Register a Branch Office in Singapore?
Ensure You Fulfil the Requirements – Step 1
Before registering a Singapore branch office, we advise you to contact us to ensure a smooth registration process. Moreover, all foreign companies planning to register a Singapore branch office must follow regulatory requirements.
Prepare the Necessary Documents – Step 2
In cases where the parent company is relatively new and there are no annual reports and audited accounts, the needed information can be self-declared. You can use supporting details such as company brochures to bolster the application.
Note :
- All documents must be in English or officially translated in English.
- All copies of documents must be certified true copies by a notary public, or you must bring the originals to our office for sighting.
- If you are overseas, you can email us the scanned copies of documents so we can proceed with preparing the necessary incorporation documents. However, we must receive the certified true copies (or sight the originals at our office) before we can incorporate the branch. Our compliance department may ask for additional information if necessary.
Register as a Branch with the Accounting and Corporate Regulatory Authority (ACRA) – Step 3
After Completing Registration with ACRA, the Branch Office will Attain the Status of a Legal Entity – Step 4
Although the registration itself typically takes less than a day, the entire process can take up to a week to complete. This is because completing the signing of registration documents, name reservation, and client due diligence processes are all necessary.
- The company’s representatives DO NOT need to visit Singapore for branch office registration. This is because Paul Hype Page can work and communicate with you via email or other online methods.
- Branch offices set up by foreign small and medium-sized enterprises (SMEs) are rare. Thus, foreign SMEs tend to set up subsidiaries. This is due to the fact that subsidiaries usually have greater business flexibility, more tax advantages, fewer liabilities, and fewer obligations related to financial accounts.
Corporate Taxation for Branch in Singapore
The head office needs to understand where the majority of their worldwide profits and taxation rates of each jurisdiction. In Singapore, the governing body for taxes is Inland Revenue Authority of Singapore (IRAS).
Therefore, the head office needs to decide what the best worldwide tax exposure approach on branch incorporation decision.
Compliance for Branch Offices in Singapore
Different business structures will lead to different accounting approaches. The head office has to decide what kinds of yearly or monthly compliance they are willing to consolidate. For example, accounting, tax and audit matters.
- As a branch is not a separate entity, it may not require multiple government registrations or need to maintain a minimum level of capital. It is also likely to face less stringent local regulations and annual reporting requirements.
Normally, branch office has a lesser compliance issue compared to a subsidiary.
Taxation of a Singapore Branch Office
Singapore taxes a branch office at the standard corporate tax rate of 17% annually. Unlike Singapore-registered companies, branch offices do not qualify for tax incentives as they are classified as non-tax residents.
Branch offices do not qualify as tax residents because their control and management occur outside Singapore. The term “control and management” pertains to decisions concerning corporate and strategic matters, typically made by the company’s board of directors during meetings.
Whether your company is a tax resident or non-tax resident, Paul Hype Page & Co guarantees to minimize your tax liability within Singapore’s legal framework. Our tax planning team will work to reduce your tax burden as much as possible.
The parent company must appoint a local agent to handle tax matters for the branch office, as it is located outside Singapore.
The parent company sends documents to its Singapore branch, but the branch doesn’t need to file all the accounting documents:
The parent company must send all the paperwork no later than two months after its annual general meeting (AGM).
The branch office must also submit an ECI form, which details the income generated in Singapore. Additionally, a chartered accountant must audit the accounts of the Singapore branch office. Singapore branch offices must file a tax return annually.
Singapore Branch Office Annual General Meetings
Every company in Singapore must conduct an annual general meeting (AGM), including foreign branches. Shareholders review financial statements during the AGM, where they can inquire about the business’s current state.
The meeting’s chairperson leads AGMs and typically doubles as the board of directors’ chairperson. In the absence of a chairperson, any other member may assume the role. Before commencing an AGM, the company secretary must prepare all necessary documentation.
In certain cases, foreign companies may struggle to hold AGMs within the allowed timeframe. However, they can request a one-time, two-month extension from ACRA to address this issue. Yet, not all foreign companies can request an extension.
Companies needing to prepare head office financial statements but not required to present them at an AGM can request this extension. They must submit applications before the annual filing deadline and pay a S$200 fee.
FAQs
Yes, the accounts of the head office must be lodged with ACRA.
Yes, as long as the foreigner has an Employment Pass or a Dependent Pass.
Singaporean citizens, Singapore permanent residents (PRs), Employment Pass Holders, and Dependent Pass Holders are locally resident.
While the law does not compel a company to amend its memorandum and articles of association (M&AA) to cater to a one-director company, you may wish to examine your own M&AA to determine if it contains any provisions that will not be operable if there were just one director. 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. For further information, refer to section 4 and 184 of the Companies Act.
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We want to setup a office branch in Singapore
Dear Shubham
A branch of the foreign company that operates in Singapore is legally part of the foreign company and is not its own entity. This is an important point since it 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.
R. Paul