A Guide to Starting a Business in Singapore
Setting up a business in Singapore, or anywhere for that matter, is no cup of tea. There are many considerations and obligations that one has to take into account. This article specifically focuses on the legal considerations you should be aware of before starting a business in Singapore and covers the following aspects:
Deciding Your Business Structure
Before registering a business, it is necessary to decide on the type of structure for your business. Examples of such business structures include sole proprietorships (usually a business run by a sole owner), partnerships (e.g. a law firm), limited partnerships, limited liability partnerships, or companies (e.g. Amazon, McDonald’s). This is a crucial first step, as each business structure will have its own separate set of legal requirements.
For instance, while a company is legally required to hire a company secretary within 6 months of incorporation, this requirement is not present for other company structures. Ultimately, there are different pros and cons with each business structure, and this decision is largely dependent on your objectives. For instance, while setting up a company is relatively more expensive compared to other business structures, the members of the company have the benefit of not being personally liable for the debts and losses of the company. In contrast, while other business structures enjoy a lower initial start-up cost, its members are unable to avoid personal liability.
The various differences between the business structures have been summarised by ACRA here. You may also refer to our other article detailing the differences between a sole proprietorship and a private limited company.
Registering Your Business
The next step for you is to formally register your business. This is a legal requirement in Singapore – section 5 of the Business Names Registration Act (BNRA) calls for the mandatory registration of all types of businesses with the Accounting and Corporate Regulatory Authority (ACRA), which is a government regulator of business registration (among other functions). To register your business, you may complete an online application via the BizFile+ website. To fill up the application, you are required to provide information such as your SingPass login credentials, your business entity information, business activity, and business address.
Note that there are different registration requirements for different business structures. For instance, sole proprietorships do not require any documents that detail any agreement between its members. In contrast, partnership agreements and company constitutions are required for registering a partnership and a company respectively.
Additionally, there are a few exemptions to the mandatory requirement of registration. For instance, you are not required to register your business if you intend to carry on your business as an individual under your full name, or if your income is tax-exempt under the First Schedule to the Income Tax Act.
For more information on the registration process, as well as the relevant exemptions from registration, you may refer to this article on registering a business.
Obtaining Licences and Permits to Run Your Business
Certain businesses may require various licences or permits to operate in Singapore. There are many regulatory requirements surrounding many different industries. For instance, if you are looking to start an F&B business, you would normally require a Food Shop Licence, as well as a Liquor Licence should you wish to serve alcohol to your customers. Alternatively, you would require Halal Certification should you wish to serve food to Muslim customers due to religiously prescribed requirements on the food they consume.
Examples of other industry-specific licences include:
- Supermarket Licence – to operate a supermarket business
- Pharmacy Licence – to operate a pharmacy
- Hotel Keeper’s Licence – to operate a hospitality business
- Arts Entertainment Licence – to host art events conducted indoors or outdoors as part of your business
- Public Entertainment Licence – to organise events and entertainment that the public can access for free or if the events provide free admission
Additionally, certain businesses also require permits to operate in Singapore. Critically, permits are required for specific goods that businesses may wish to sell. For instance, the importing of goods from overseas requires a government permit that one may apply for via TradeNet. On top of that, controlled goods require further authorisation from Competent Authorities before they may be imported into Singapore. Examples of such goods include chewing gums, firecrackers and telecommunication equipment. Separately, if a business wishes to export its goods out of Singapore, it must also go through the above process to obtain an export permit.
Notably, it is best to ensure that your licences and permits correspond with the nature of your business, as failure to apply for the proper license or permit can lead to serious fines, disbarment, and even shutdown of the business.
Funding Your Business
A business requires funds at its disposal. The purchase of equipment, rental costs, start-up costs, and production costs all translate into financial costs which must be met for a business to operate smoothly.
A business may either raise capital by issuing shares in return for shareholder capital, or by borrowing from creditors. These two options have their respective pros and cons. For instance, raising debt capital is relatively cheaper to obtain in comparison to share capital, as the latter requires listing costs and other expenses.
On the other hand, raising share capital may prove a less harsh arrangement financially for a business. This is because although shareholders who provide capital are entitled to be paid dividends (i.e. a cut of the company’s profits), these dividends can only be paid out of the company’s profits. This requires the company to be profitable before any dividends may be issued, which means that a company need not worry about issuing dividends should it not be making profits. Debt interest, however, is payable irrespective of whether the business is profitable.
It is also worth noting that start-ups in Singapore have access to a wide array of government grants. For instance, the Enterprise Development Grant covers up to 50% of costs for projects relating to a business’ core capabilities, innovation and productivity, and market access. On the financing aspect of things, companies can also utilise the Enterprise Financing Scheme to secure loan facilities at significantly favourable terms.
Even for non-startups, a wide array of financial schemes are available – such as the Double Tax Deduction for Internalisation (DTDI) scheme. Under the DTDI scheme, you may benefit from a tax deduction on eligible expenses for international market expansion and investment development activities, thus freeing up more of your assets for allocation to other purposes.
You may refer to our other article for more examples of such government grants for start-ups.
On a more legal aspect, it is usually commonplace for creditors such as banks to require a form of security in finance agreements when offering financial facilities. Companies can put up their assets, for example, office machinery or shares, as security.
However, once such assets are put up as security, that asset can no longer be used in a company’s day-to-day activities or dealt with by the company as it is under a fixed charge (i.e., a form of security interest – charge – secured over permanent assets like machinery and shares). You would need the creditor’s consent to do so. You may wish to contact a Banking and Finance lawyer for professional advice and help on such matters.
Taxation and Accounting Obligations Your Business Must Comply With
Singapore boasts one of the most attractive corporate tax rates at 17% on chargeable income. That being said, there are certain obligations that businesses must meet in order to operate in Singapore. For starters, as corporate income tax is assessed on a preceding year basis, the business’ tax obligations will be based on the chargeable income of the business earned in the 12-month period preceding the business’ Financial Year End (FYE). A business’ FYE is determined entirely by the business itself based on what best suits its business operations. That being said, should you wish to change your business’ FYE, the change must be filed with ACRA . Following which, the Inland Revenue Authority of Singapore (IRAS) will update its records based on the information filed with ACRA.
Briefly, businesses are to file 2 Corporate Income Tax Returns with IRAS – Estimated Chargeable Income (ECI) and Form C-S/ Form C-S (Lite)/ Form C. Briefly, these filings declare the company’s taxable income for a financial year to the government, with the former being an estimate and the latter being an accurate assessment. This is to be done every FYE. More information on the filing of these two forms can be found here. Alternatively, you may wish to delegate this task to a corporate secretarial firm to manage your business’ obligations in this aspect. Failure to file a business’ income tax returns on time is an offence, and you will be liable to pay a 5% late payment fee or even face legal action should your business repeatedly fail to settle the payment.
For more information, you may refer to our other article which discusses in depth the filing processes for corporate tax in Singapore as well as the penalties for late or non-payment of corporate tax or inaccurate tax filings.
Hiring Employees For Your Business
Finally, as a business owner, you would likely have to hire employees. As an employer, the broad considerations you would likely have to take into account are largely detailed in the Employment Act – the key legislation governing the employer-employee relationship. Examples of such considerations include the nature of employment (i.e. part-time or full-time), payment of CPF contributions, as well as considerations for any potential work injuries, as all these would factor into your variable costs incurred when running your business.
It is therefore critical that you have in place a well-drafted employment contract that clearly sets out these obligations. This could mitigate any potential litigation exposure in the future. Additionally, a general obligation when hiring employees is that you generally owe your employees a duty of trust and confidence. This duty entails not engaging in conduct that undermines the employer-employee relationship.
You may wish to refer to our other article for a more detailed overview of the obligations an employer owes an employee at law.
Separately, should you wish to hire foreign workers for your business, you must also obtain work permits for these employees. The permits required for the foreign workers you intend to hire are dependent on the skill level of your workers. For instance, a skilled worker who earns at least $3000 a month requires an “S” pass, whereas other workers may only require a normal work pass. In that respect, do refer to this detailed step-by-step guide for hiring employees in Singapore. Alternatively, you should approach an employment lawyer for further advice.
To sum it up, the actual registering of your business is merely the first step when starting a business in Singapore. Taxation obligations, financing options and hiring considerations must all be fulfilled before your business can run smoothly. As discussed in earlier sections, should you require legal advice on setting up a business in Singapore, it is advisable to consult an experienced lawyer who would be able to guide you through the above-mentioned processes, as well as assist with obtaining the necessary licences or approvals.
For employment law-related matters, you may wish to contact an employment lawyer for guidance and advice where necessary.
For more information, do refer to our list of articles on setting up a business.
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