Two of the ways in which a foreign company may carry on business in Singapore are by registering a branch office and by incorporating a limited liability company in Singapore. We set out below a brief comparison of the major differences between a branch office and a subsidiary in Singapore.
A branch office is a considered an extension of the parent company and is not considered a separate legal entity. Hence, its liabilities extend to the parent company, meaning the parent company can be sued in Singapore.
A local subsidiary is a separate legal entity from the foreign company even if the latter may be its only shareholder and will maintain control over its board of directors. This means that the foreign company does not have to bear the losses and liabilities of the local subsidiary.
The branch office must also submit its own accounts, as well as the parent company’s accounts, must be filed annually. Some parent companies choose the subsidiary company option to avoid this.
Continuing from the above point, since subsidiary companies have their own legal status, liabilities, debts or legal claims against the Singapore subsidiary is not passed on to its owners. This means the personal assets of the shareholders are always safe and their liability is to the extent of their capital investment in the company. On the other hand, branch offices do not offer the same protection to their owners as they are simply a legal extension of the head office. Hence any legal claim against the Singapore branch can be directly passed on to the parent company located overseas.
Activities conducted by the branch office must be similar to that of the parent company as it is merely an extension, while the subsidiary company is allowed to undertake activities which is different from the parent company.
In both cases, the parent company can retain 100% of all profits.
Singapore subsidiary companies need to appoint at least one local resident director in their company. They must also appoint a local resident company secretary. As far as branch offices are concerned, they must appoint at least two local agent who will represent the foreign company or the branch in front of government agencies in Singapore.
Singapore subsidiary companies need to submit their own books of accounts, profit or loss statement and balance sheet when filing annual returns in Singapore. However, branch offices may be required to submit the audited accounts of the parent company as well since it is simply an extension of the foreign head office.
A branch office is not considered a local tax resident and is not eligible for tax rebates offered to subsidiary companies, which are considered. This is because management and control of a branch office lies outside of Singapore.
However, subsidiary companies are taxed as local resident entities and are eligible for local tax benefits.
In summary, a branch office is preferred by multinational corporations (MNCs), banks and insurance companies that want to use the brand name and finances of the parent company to secure licenses and business contracts, while a subsidiary company is favored by many foreign companies when establishing a presence in Singapore because subsidiaries enjoy local tax treatment and a separate legal identity.
Both options serve as credible options for foreign firms which want to expand operations in Singapore or use the island state as a springboard into the Asia Pacific region and tap into the ample opportunities which are present there.
Comparison of Main Features between a Branch and a Subsidiary Company in Singapore
|Singapore Branch||Singapore Subsidiary|
|Legal Type||Not a separate legal entity but an extension of the parent company||Separate legal entity distinct from its parent company|
|Liabilities||Liabilities extend to parent company||Liabilities limited to subsidiary|
|Entity Name||Must be the same as the parent company||Can be the same or different from parent company|
|Allowed Activities||Must be the same as the parent company||Can be the same or different from parent company|
|Validity Period||Registered forever until closed||Registered forever until closed|
|Taxation||Taxed as non-resident entity, local tax benefits not available||Taxed as Singapore resident entity, local tax benefits available|
|Annual Filing||Must file branch office as well as parent company’s accounts||Must file accounts of the Singapore subsidiary|
|Bank Account||Can open bank account in Singapore||Can open bank account in Singapore|
|Staff Hiring||No restrictions on hiring local or foreign staff||No restrictions on hiring local or foreign staff|
|Appointment of Officers||Must appoint at least two locally resident persons||Must appoint at least one local resident director|