Quick Guide for Setting Up Foreign Companies in Singapore

Foreign companies are finding it increasingly attractive to operate in Singapore. The reasons for their relocation include the city-state’s stable political climate, excellent infrastructure, efficient administration, attractive corporate tax arrangements, and strategic geographical location.

There are four types of business structures for foreign firms intending to set up an office in Singapore. Of the four entry options available, the Subsidiary Company structure is the most commonly used. Redomiciliation is also gaining popularity due to the Variable Capital Company framework launched by the Monetary Authority of Singapore in 2019.

Key differences of business structures for foreign companies

There are 4 entry options for foreign companies.

1.     Representative Office
2.     Redomiciled Office
3.     Subsidiary Company
4.     Branch Office

Here are the key differences for each structure:

(1) Representative Office

• a temporary arrangement for foreign companies to conduct market research in Singapore only; no profit-earning activities allowed
• licence must be renewed yearly with a maximum lifespan of 3 years
• bears no legal or tax status, thus all liabilities are born by parent firm

(2) Redomiciled Office

• status is similar to that of a local Singapore company once redomiciled
• subject to Singapore tax rates and enjoys other benefits available to a local entity

(3) Subsidiary Company

• a Singapore-incorporated entity of which its shares are held by the parent foreign company
• subject to Singapore tax rates and benefits from local tax exemptions/incentives
• a standalone entity which frees the parent company from its liabilities

 (4) Branch Office

• an extension of the parent foreign company, thus it is not a separate legal entity
• does not enjoy tax benefits as it is a non-Singaporean entity
• its liabilities extend to its parent company

Representative Office

A Representative Office (RO) is the first route foreign entities can pursue when intending to set up shop in Singapore. It allows one to perform exploratory activities, feasibility studies or market research. Since it has no independent legal status and is only a temporary arrangement (1- to 3- year term), no profit-generating activities or contract signing are allowed via this structure.

Statutory requirements

• Sales turnover of the foreign entity must be above US$250,000.
• Proof (documents) that the foreign company is at least 3 years old.
• The name of the RO must match its parent firm’s and notify International Enterprise Singapore of its office address and contact details.

Business activities

• None are allowed.

Liability holder

• Parent company is responsible for all acts and omissions of the RO.

Capital and revenue

• None.

Taxes and incentives

• The RO is not liable or eligible for both.

Manpower matters

• A parent firm is to appoint a Chief Representative who will be based at the RO.
• The RO can have a maximum of 5 employees including the Chief Representative.

Annual compliance requirements

• RO registration must be renewed annually.
• After 3 years, it must be upgraded to the Branch Office or Subsidiary Company.
• An RO has no filing obligations to the Accounting and Corporate Regulatory Authority (ACRA)or annual returns with Inland Revenue Authority of Singapore (IRAS).

How to register

• Register with International Enterprise Singapore online and pay the registration fee.
•  If the RO’s operation is in the finance, banking or insurance industry, it has to be registered with the Monetary Authority of Singapore (MAS).
• Engage a local corporate service provider to facilitate document preparation, follow up with approval and other ongoing compliance obligations.

Redomiciled Office

Redomiciliation is simply a process whereby a foreign company transfers its registration from its current original jurisdiction to that of Singapore. Everything else, such as its corporate history and branding, remains intact after it becomes a Singapore entity.

Governing laws

• Just like any Singapore-incorporated firm, a Redomiciled Office must adhere to rules by the Singapore Companies Act, Ministry of Manpower (MOM), ACRA and IRAS.

Business activities

• All remain the same as it has been practising in its country of origin.

Liability holder

• Debts, liabilities and legal proceedings are not affected by the redomiciliation process. All of these remain with the company.

Capital and revenue

• It must have a minimum initial S$1.00.
• 100% Foreign shareholding is permitted either as an individual or a corporate entity.

Taxes and incentives

• It enjoys the low Singapore corporate tax rate as well as business incentives offered by the government.

Manpower matters

• At least one agent who is ordinarily resident in Singapore is to be appointed. He or she can be a Singapore citizen, permanent resident or employment pass holder.

Subsidiary Company

Most foreign companies choose this option because of its flexible shareholding structure. This structure permits the parent firm to be the sole shareholder, or an individual or corporation of private limited corporations to be shareholder as well.

It is essentially a separate legal entity from its headquarters thus it can bear a different name and carry out business activities that are different from its HQ.

Governing laws

• It operates like any other local Singapore company, so it is regulated as such by the local laws, i.e. Companies Act. However, its parent company is regulated by the law of its home country.
• It must adhere to the rules of the Ministry of Manpower (MOM) for the local manpower hired.

Business activities

• It may engage in different business activities from its parent company.

Liability holder

• As a separate entity, it bears its own debts and liabilities which do not flow to the HQ.

Capital and revenue

• Profits and capital can be repatriated to the parent company subject to capital return requirements under the Companies Act.

Taxes and incentives

• Since it is considered a local entity, it enjoys the low Singapore corporate tax rate as well as business incentives offered by the government.

Manpower matters

• It must have at least one director who is a Singapore citizen, permanent resident or employment pass holder.

Annual compliance requirements

• Must prepare annual financial statements.
• File its annual returns and tax returns to IRAS.

How to register

• • Appoint a local company secretary at a corporate services provider to assist with incorporation and have a local registered office address. The corporate services provider will provide advice and assistance for the registration process.
  • Alternatively, register online on BizFile+ then set up a corporate bank account. Corporate income tax is automatically registered with IRAS upon incorporation.

Branch Office

Being an extension of the parent foreign company, it lacks the liability protection, local tax rate and government incentives available to Subsidiary Companies. As such, its structure and activities must conform to the parent firm’s constitution. This means it cannot perform business activities which differ from its HQ’s and it must have the same name as the HQ.

Governing laws

• It is registered with ACRA and governed by the act, but it is also liable to the parent firm’s corporate practices.
• It must adhere to MOM rules for the local manpower hired.

Liability holder

• All debts and liabilities are passed on to the parent firm. However, if there were to be any legal disputes resulting from this Branch Office’s activities, all court proceedings must be heard in Singapore.

Taxes and incentives

• It is not eligible for any offered by the Singapore government since it is not a local company.

Manpower matters

• At least one agent who is ordinarily resident in Singapore is to be appointed. He or she can be a Singapore citizen, permanent resident or employment pass holder.

Annual compliance requirements

• Submit its own annual audited accounts as well as that of the head office’s to ACRA and IRAS.

How to register

• Hire a local corporate services firm to register the Branch Office with the Accounting and Corporate Regulatory Authority (ACRA).
• Register a local address in Singapore but it cannot be a PO box.

General Guidelines for Foreign Companies

These are some steps to be taken before the incorporation of any business structure in Singapore.

1. Apply for an employment pass (E-Pass) or entrepreneur pass (EntrePass)

This is the very first step before registering a company in Singapore. Requirements for either pass include:

• Has started or will start a private limited company which must be registered with ACRA
• Has a business proposal showing good investment track record or innovative nature

2. Apply for the SingPass

After the E-Pass or EntrePass is obtained, investors must apply for a Singapore personal access password (SingPass). This enables them to access and perform online transactions with e-government services.

3. Reserve a company name

This is done by submitting the name via BizFile+ (the e-filing system for tax and business requirements). The cost is only S$15 and the name will be reserved for 120 days within which the rest of the incorporation process must be completed.

Special Programmes

1.  Variable Capital Company framework (VCC)

The VCC is a new legal entity structure for investment funds. As such, foreign firms set up as funds can be re-domiciled as a VCC in Singapore. The benefits of this arrangement are:

• Improved operational and tax efficiency
• Privacy for financial statements
• Use for a variety of investment strategies
• Use as pooling and investing vehicle with a multi-tiered fund structure

Requirements for incorporation as a VCC are:

• Capital of the VCC to be equal to its net assets
• A Singapore-based licence or regulated fund manager
• At least one Singapore resident director for non-authorised schemes and at least three directors for authorised schemes
• Have a registered office in Singapore
• Appointed a Singapore-based company secretary
• Adhere to regulations and submissions for auditing and financial statements

2.  Global Trader Programme (GTP)

The GTP offers a concessionary tax rate for a 5-year renewable period to foreign entities which earn income from qualifying commodity derivatives or freight derivatives. To qualify, a company has to fulfil these requirements:

•       Worldwide networks and a good track record;
•       Conduct substantial international trading activities;
•       Incur a significant amount of directly attributable local business spending;
•       Employ a commensurate number of experienced trading professionals, with key decision-making power in Singapore;
•       Utilise Singapore’s banking and financial services;
•       Utilise Singapore’s ancillary services such as trade and logistics etc.; and
•       Contribute training and development of trading expertise in Singapore.

3.  Regional Headquarters Award (RHA)

This programme was created to incentivise foreign entities which choose to operate its regional headquarters in Singapore. Those who opt for the Subsidiary or Branch Office structure may be able to participate in this programme.

Companies which qualify for the RHA will enjoy a concessionary tax rate of 15% for 3 years and other benefits. The complete list of RHA requirements that must be fulfilled are available here.

Wrap up

Each entry option mentioned in this article has its own purpose as well as advantages and disadvantages. The correct choice would depend on the foreign firm’s objectives and capabilities, as well as stage in development. For example, a Representative Office provides a simple structure for those which are unsure of whether Singapore is the right location, and merely wish to explore opportunities.