1. A subsidiary company or a branch office
There are two ways in which a foreign company may carry on business in Singapore. The first is by registering a branch office and the second is by incorporating a limited liability company in Singapore. We set out below, for the general interest of our potential clients, the relevant issues to be considered in deciding whether to register a branch office or to incorporate a subsidiary of the Company in Singapore.
(a) Incorporation/Registration requirements
Only one subscriber share needs to be issued on incorporation of a company in Singapore. Bearer shares are not permitted. Subscriber shares are commonly issued at par value at S$1.00 each. As such, the issued share capital of a Singapore private company may be only S$1.00. There is no minimum issued share capital requirement except for the initial one subscription share. There must be at least one subscriber (initial shareholder/member) to the Memorandum and Articles of Association of the limited liability company, though there are no restrictions on foreign ownership and corporate shareholder is allowed. There must also be at least one director who must be resident in Singapore. An expatriate in Singapore on an employment pass would be acceptable for this purpose.
With respect to registration of a foreign branch in Singapore, there must be appointed at least two local Singapore resident persons to accept service of process and any notices required to be served on the foreign company.
(b) Recognition as a separate entity
A local subsidiary is a separate legal entity from the foreign parent company even if the latter may be its only shareholder and will maintain control over its board of directors. This means that the foreign parent company does not have to bear the losses and liabilities of the local Singapore subsidiary. On the other hand, the debts and other liabilities of a branch in Singapore would attach to the foreign company, as a branch, unlike a local subsidiary, is not a separate legal entity from the foreign company;
(c) Costs of incorporation/registration
The registration fee payable for the incorporation of a local subsidiary (a private company) is S$300 whereas the registration fee payable for the registration of a branch will depend on whether the foreign company is a company limited by shares or not. Hence, if the foreign company is a company limited by shares, the registration fee payable is S$300. Whereas if the foreign company does not have a share capital, the registration fee payable is S$1,200.
(d) Tax Consequences
There are also different tax consequences with respect to a branch and a local subsidiary.
Under Singapore law, the rate of tax applicable to both a branch of a foreign company and to a private company incorporated in Singapore is the same. Generally, the applicable tax rate is 17% (for year of assessment 2010 onward the applicable tax rate is 17%) of income in respect of “gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised”, accruing in or derived from Singapore, or received in Singapore from outside Singapore.
In the case of a foreign company that has a branch in Singapore, the foreign company is not taxed on income that is directly derived from or attributable to that part of its operations that is carried on outside Singapore. This exemption could be lost if such income is subsequently received in Singapore.
Accordingly, and from a tax perspective, the issue of whether business activities should be carried out in Singapore through the branch or through a local subsidiary will largely depend on the taxation system of the parent company’s home country. For instance, if the home country does not tax foreign income, whether carried out by a branch or a subsidiary, it should not make any difference whether a branch or a subsidiary is established. If, on the other hand, foreign income is taxed in the home country, either when it is earned or when it is remitted, then consideration must be given to the tax laws of the home country.
The following considerations are relevant:
(i) whether the home country will tax income which arises in Singapore, and if so, whether it makes a difference if such income is earned by a branch or a local subsidiary, and further, whether tax liability extends only to income that is remitted back to and received in the home country as against income that is kept outside of the home country;
(ii) whether losses incurred in Singapore (by a branch as against a subsidiary) would be allowed in the home country; and
(iii) whether dividends received from Singapore (from the locally incorporated subsidiary), which are already subject to tax in Singapore, would be subject to further tax in the home country.
Another significant factor in the choice of business form is withholding tax. If a payment made to a non-resident relates to interest or royalties, it would be subject to withholding tax. Since a branch is not a separate legal entity but is considered part of the foreign company, withholding tax is applicable. In practice, subject to certain requirements being satisfied, the Comptroller grants a waiver of withholding tax on such payments made to the branches.
We suggest that you obtain further advice from tax attorneys before making any decision in this regard. In any event, please let us know specifically if you require us to seek advice on tax issues, including the impact of any double taxation agreement.
The choice of business form will impact the residency of the entity for purposes of taxation under Singapore laws. In the case of a branch, where the control and management of the foreign company is not exercised in Singapore (which we assume is the case for you), its Singapore branch will be deemed a non-resident for tax purposes. Unlike a resident, a non-resident will not be entitled to either claim relief for tax suffered on income derived from countries with which Singapore has concluded double taxation treaties or to favorable withholding tax rates relating to certain categories of payment made to the residents of treaty countries.
(e) Technical Services
The tax treatment for payment of technical assistance fees for services performed outside Singapore and for technical assistance fees for services performed within Singapore is different.
Where the services are provided outside Singapore, it has been explained by the Ministry of Finance that Section 12(7) of the Income Tax Act is not intended to apply, even where such services or assistance are rendered on behalf of residents or permanent establishments in Singapore, provided that such alleged off-shore transactions are carried on at arm’s length and not with the intent of syphoning off Singapore income. Hence, payments in respect of such assistance and services are not taxable.
Where the services are provided in Singapore, the applicable tax rate is 20%.
Further, where technical services are performed, a payment is deemed to be derived from Singapore where it is borne by a person resident in Singapore or by a permanent establishment in Singapore (Section 12(7), Income Tax Act). Any income of a non-resident company which is deemed to be derived in Singapore will also be subject to withholding tax under Singapore laws, where the payer is under a legal obligation to withhold tax at the rate of 20% from all payments falling within the deeming provision made to the non-resident recipient.
There are no restrictions on hiring Singapore citizens or permanent residents as employees by a foreign company or branch office or a local subsidiary. Where foreigners are employed, whether by a branch office or a local subsidiary, each foreign employee will require an employment pass sponsored by a local entity. Both a branch and a subsidiary may act as the sponsor for their respective employees.
(g) Procedure and Costs of Incorporating a Company in Singapore
We set out briefly, the procedure for incorporating a company in Singapore, which requires one day, with the assumption that all pre-incorporation documentation has been approved / agreed by client.
Firstly, the proposed name of the limited liability company must be submitted to the Accounting and Corporate Regulatory Authority (“ACRA”) for its approval and a reply should be forthcoming within two hours. ACRA generally approves the proposed names, unless a name is identical or similar to an existing company name or that the name requires approval from some other departments.
After the name has been approved, ACRA will reserve it for a period of two months from the date of application. Should the need arise, the reservation may be renewed upon payment of a nominal fee, for another two months only, pending incorporation. The reservation may not be renewed subsequently; a new reservation must be submitted to ACRA.
During the reservation period, the Memorandum and Articles of Association of the company, which together set out the powers of the company, the liability of its members and the structure of its share capital, if any, and its internal regulations, must be lodged with ACRA (the “application”). Provided the application is in order, an email notification confirming the successful incorporation of the company should be received within one business day.
The following fees are payable to ACRA for incorporating the limited liability company:
(i) S$15.00 for the reservation of the proposed name.
(ii) Registration fee of S$300.00.
Unless the company is dormant or is a private exempt company with a turnover of less than S$2.5 million, a company secretary and an auditor will need to be appointed.
Please click here for a detailed Singapore company incorporation package.
(h) Procedure and Costs of Registering a Branch in Singapore
As with the incorporation of a local company, it is first necessary to clear the name and the same considerations as discussed above apply. No foreign company registered under the Companies Act shall use in Singapore any name other than the name under which it is registered in Singapore or in the country of incorporation.
(i) Every foreign company must, before it establishes a place of business or commences to carry on business in Singapore, lodge the following documents with ACRA:
(ii) a certified copy of the certificate of its incorporation or registration in its place of incorporation or origin or a document of similar effect;
(iii) a certified copy of its charter, statute or memorandum and articles or other instrument constituting or defining its constitution;
(iv) a list of its directors containing similar particulars with respect to its directors which are by the Companies Act required to be contained in the register of directors, managers and secretaries;
(v) where there is a local board of directors, a memorandum executed by or on behalf of the foreign company stating the powers of the local directors;
(vi) a memorandum of appointment or power of attorney, verified in the prescribed manner, stating the names and addresses of two or more natural persons resident in Singapore authorized to receive on its behalf service of process and any other notices required to be served on the company;
(vii) notice of the situation of its registered office in Singapore and its opening hours; and
(viii) a statutory declaration in the prescribed form made by the agents of the company.
The fees payable to ACRA for registering a branch office are as follows:
(i) S$15.00 for the reservation of the proposed name.
(ii) Registration fee of S$300.00 (if the foreign company is a company limited by shares) or S$1,200 (if the foreign company does not have a share capital).
Upon filing the above documents and on payment of the appropriate fee, the Registrar will register the foreign company under the Companies Act by registration of its documents. On the registration of a foreign company, the Registrar will issue a certificate in the prescribed form under his hand and seal, which certificate shall be prima facie evidence in all courts of the particulars mentioned in the certificate.
2. Post-incorporation/registration obligations
(a) Locally incorporated company
A limited liability company must have a registered office in Singapore upon incorporation and the directors must appoint a company secretary within six months thereafter.
Every company must prepare audited accounts each year (unless it is dormant or a private exempt company with an annual turnover of less than S$2.5 million) and hold a general meeting as its annual general meeting every calendar year at which the audited accounts are to be tabled. There should not be a period of more than 15 months between annual general meetings. However, the company’s first annual general meeting must be held within 18 months of its incorporation (subject always however to the rule that the audited statement of accounts of the company and the director report presented at the annual general meeting must not be more than six months old).
Unless the company is dormant or is a private exempt company with an annual turnover of less than S$2.5 million, the directors of the company must appoint auditors of the company within three months of its incorporation and fix the financial year of the company.
Shortly after incorporation, the directors of the company must pass resolutions addressing the following inter-alia:
(i) determining the financial year of the company;
(ii) adopting the common seal of the Company;
(iii) confirming the location of its registered office;
(iv) confirming the allotment of the subscriber shares and allot further shares if necessary; and
(v) convening a meeting of the company’s shareholders to authorize the issue of shares and establishing a bank account in the company’s name.
The directors must also perform certain fiduciary duties, which are listed in the memorandum attached herewith, in respect of the company.
(b) Branch office
A foreign company is required to lodge with the Registrar, within two months of its annual general meeting, a copy of its balance sheet made up to the end of its last financial year under the applicable law (section 373, Companies Act) and to conspicuously exhibit outside its registered office and every place of business in Singapore in Romanized letters, its name and the place where it was formed or incorporated (section 375, Companies Act). It is also required to include such information on all its billheads and letter paper and in all its notices, prospectuses and other official publications, and clearly indicate if the liability of its members is limited.
If a foreign company ceases to have a place of business or to carry on business in Singapore, it is required, within seven days after so ceasing, to lodge with the Registrar notice of that fact.
If the foreign company has a share capital and has any member who is resident in Singapore, it is required to keep at its registered office in Singapore or at some other place in Singapore, a branch register for the purpose of registering shares of members resident in Singapore who apply to have the shares registered therein.
The Companies Act requires every foreign company to notify the Registrar within one month when there is any change in its registered particulars. A return must be filed where any change or alteration is made in: –
(i) the charter, statutes, memorandum or articles of the foreign company or other instrument lodged with the Registrar;
(ii) the directors of the foreign company;
(iii) the agent or agents of the foreign company or the address of any agent;
(iv) the situation, address or designation of situation or address of the registered office of the foreign company in Singapore or the change in its opening hours;
(v) the address of the registered office of the foreign company in its place of incorporation of origin;
(vi) the name of the foreign company; or
(vii) the powers of any director resident in Singapore who are members of the local board of directors of the foreign company.