How to Set Up a Holding Company in Singapore (With FAQs)
Having a holding company confers many advantages to businesses, but like owning any other company, also results in many regulatory requirements to comply with.
This article provides an overview of the benefits of setting up a holding company in Singapore, how you should go about doing it, and what you would have to take note of after the company has been set up. It will cover:
- What is a holding company?
- The benefits of setting up a holding company
- Why you should set up a holding company in Singapore
- How to set up a holding company in Singapore
- The compliance requirements after setting up a holding company in Singapore
- FAQs about holding companies
What is a Holding Company?
A holding company is a company that controls:
- The composition of the board of directors of another company (also known as the subsidiary company); or
- More than half of the voting power of the subsidiary company.
An ultimate holding company is a holding company that is not itself a subsidiary of any other company.
In the example above, Companies A and B are holding companies whereas Company C is not a holding company. Additionally, Company A is an ultimate holding company, whereas Company B is not.
What is the difference between a holding company and a parent company
The legal definitions of a holding company and a parent company are similar, but they are not identical. This means that a company might be a holding company but not a parent company and vice versa.
Under the Companies Act (CA), a parent company refers to a company that is required under the Accounting Standards to prepare financial statements in relation to a group (referring to the parent company and its subsidiaries). Thus, if a holding company is legally required to file the financial statements of the group, then the company would also be a parent company under the accounting definition.
Accounting standards are a set of principles governing various financial transactions in a particular jurisdiction. In Singapore, the applicable accounting standards are known as Singapore Financial Reporting Standards, which companies have to comply with when preparing their accounting records and filing their financial statements.
Apart from their legal definitions, holding companies and parent companies can be differentiated by their functions. The common understanding is that holding companies are set up for the sole purpose of controlling other subsidiaries and do not have their own operations. On the other hand, parent companies typically carry out day-to-day operations on top of owning and controlling subsidiaries.
What are the Benefits of Setting Up a Holding Company?
There are a few benefits of setting up a holding company. The top four benefits will be highlighted and summarised below.
Setting up a holding company allows you to protect your assets and reduce the risk of losing those assets should anything go wrong. This is possible because the holding company is treated as a separate legal entity from the subsidiary/subsidiaries.
Therefore, one common scenario is that a holding company will be formed to hold the valuable assets of a business, whereas the subsidiary will take on the operations of the business. Since the assets are held by the holding company, they are protected from any creditors of the subsidiary, or from any other liabilities that the subsidiary might incur. This minimises the risk of losing the assets when the subsidiary faces problems like debt or insolvency.
Setting up a holding company for your business might allow you to enjoy financial advantages. This is because the holding company would most likely be in a better financial position than the individual subsidiary company, either because it owns more assets or otherwise. This financial strength makes it more likely for the holding company to be able to obtain loans at a lower interest rate. The holding company can then distribute the funds obtained to the subsidiary company.
However, do note that in this case, the holding company itself is liable to repay the loans instead of the subsidiary company.
Depending on the tax regime applicable in the country in which your business is operating, setting up a holding company might allow you to reduce your tax obligations.
On one hand, it might be possible to set up your holding company in a country that has lower corporate tax rates. Another way could be for the holding company to file a single tax return. This means that if there are multiple subsidiary companies, the losses of one subsidiary can be offset against the profits of another subsidiary. Thus, the collective taxes payable by all of the companies in the group might be lower than if each individual subsidiary company handled its own taxes.
If you’re thinking of setting up a holding company specifically in Singapore, then you may want to find out more about Singapore’s tax benefits below.
By setting up a holding company, you might also be able to consolidate and streamline the management of your subsidiary companies. Individual subsidiaries can have their own independent management structure, but which is integrated into the management structure of the holding company. For example, directors of the holding company can concurrently hold positions on the boards of the subsidiaries, and provide their input on the operation of the subsidiaries where necessary.
This allows for the individual subsidiary companies to have the flexibility to operate independently, while also making it easier for the holding company to set policies that will apply to and benefit the whole corporate group.
Why Set Up Your Holding Company in Singapore?
Apart from the general benefits of setting up a holding company described above, you might be wondering why you should set up a holding company in Singapore specifically. To help with your decision-making, you can consider the following three advantages of setting up your holding company in Singapore.
Attractive tax regime
First, Singapore has an attractive tax regime for companies, so setting up your holding company in Singapore might allow you to leverage on the available tax incentives to optimise your tax liabilities.
For example, Singapore has a single-tier corporate tax system. This means that corporate profits are taxed only once. Thus, taxes are not imposed on dividends or interest paid from the subsidiary to the holding company.
Additionally, Singapore does not have capital gains tax. Therefore, if you set up a holding company in Singapore, and you are selling off your assets or even your stake in a subsidiary company, the sale proceeds will not be taxed.
If you are considering setting up your holding company in Singapore, you should engage a corporate service firm for advice on any other tax incentives that could apply to your business.
Additionally, there are no limitations on the domiciliation of assets in Singapore. This means that if you set up a holding company in Singapore, your subsidiaries and assets need not be held in Singapore. As a result, you can structure your business more flexibly and operate anywhere else in the world where your customer base is, or where your investors might be.
Ease of compliance
Furthermore, it is relatively simple to comply with the regulations of setting up a holding company in Singapore. Regarding the ongoing compliance obligations of maintaining a holding company in Singapore, you have to fulfil just two main obligations:
- The usual tax filing obligations; and
- Financial reporting obligations.
Under the financial reporting obligations, holding companies in Singapore have to submit the consolidated accounts of the holding company and its subsidiaries and a balance sheet for the entire group at the financial year end of the company. These financial statements will have to comply with the Singapore Financial Reporting Standards.
The simple compliance processes makes it easy to not only set up, but to also maintain a holding company in Singapore. These processes will be further elaborated on in a later section.
How Do You Set Up a Holding Company in Singapore?
Setting up a holding company in Singapore is largely identical to registering or incorporating any other company in Singapore.
Before registering your company, you need to take note of the following matters, which apply whether you are a local or a foreigner trying to set up a holding company in Singapore:
- Your company must have at least 1 resident director. This resident director can be a Singaporean citizen, Singapore PR, Singapore EntrePass holder, or someone with a valid Employment Pass and a Letter of Consent. Once this requirement is fulfilled, you can appoint as many non-resident directors as you need.
- Your company must have a minimum of SGD 1 worth of issued share capital.
- You must appoint a qualified resident company secretary within 6 months of setting up the holding company.
- You must also have a local Singapore address that can be provided as the registered address of the company. This address must be a physical address and not a P.O. box.
If you meet the above requirements, there are only two steps to setting up your holding company. This incorporation is done through the BizFile+ website using your identification number and SingPass. Alternatively, if you do not have SingPass, you can engage the services of a registered filing agent (e.g. law firm, accounting firm or corporate services firm) to complete the company registration on your behalf.
- The first step is to choose a name for your company and get it approved by ACRA.
- The second step is to have on hand the following information and documents for your company registration. These include:
- Company name;
- The company’s registered address;
- Company constitution;
- Identification and residential address details of the shareholders, directors, and company secretary;
- A signed consent from each nominated director to act as a director; and
- A signed consent from the appointed company secretary to act as a company secretary.
The registration fee is SGD 315. Once the fee has been paid, the company registration will usually be completed in under an hour. You will then have set up a holding company in Singapore!
What are the Compliance Requirements After Setting Up Your Holding Company in Singapore?
After setting up your holding company in Singapore, you will have to abide by some compliance requirements, which are imposed on all Singapore companies under Singapore law. You may refer to our article on compliance requirements in Singapore for more information. The main ones to take note of include:
- Complying with Singapore accounting requirements, including keeping of proper accounts and records;
- Filing annual returns with ACRA;
- Pay corporate tax yearly; and
- Holding an Annual General Meeting (AGM) every year.
Additionally, one other compliance requirement that is specific to holding companies pertains to membership of the holding company. Namely, a subsidiary company cannot be a member of a company that is its holding company. Any transfer of shares in the holding company to a subsidiary company shall be rendered void.
To illustrate using the example of companies A and B above, company B, being the subsidiary of company A (the holding company), cannot be a corporate shareholder of company A.
Therefore, you should ensure that your holding company’s register of members does not include any subsidiary company as a corporate shareholder. Neither should any shares in the holding company be transferred to any subsidiary company after the holding company has been set up.
FAQs About Holding Companies
1. Can a holding company operate under a different business name from its subsidiary companies
Yes, a holding company can definitely choose to operate under a different business name from its subsidiary companies. However, as mentioned above, you will need to get ACRA’s approval for the chosen business name for your holding company. ACRA may reject an application for a certain name if the name is already in use by another business.
2. Can a subsidiary engage in different business activities from the holding company
Yes, definitely. This would actually be one of the strengths of setting up a holding company – being able to consolidate and manage different subsidiaries engaging in different business activities under one corporate structure.
3. Can a holding company be 100% foreign-owned?
Yes, a holding company can be 100% foreign-owned. However, if you are a foreigner looking to set up a holding company in Singapore, there are few things that you would have to take note of:
- Your company will need to have a registered physical office address in Singapore
- At least 1 of the directors of the company must be locally resident in Singapore
- As the entire application process is completed on BizFile+ with SingPass, you will need to engage the services of a registered filing agent to submit the application on your behalf
These three matters have also been noted in the above sections of this article.
4. Must a holding company register for corporate tax?
All companies incorporated in Singapore, including holding companies, are automatically registered for corporate income tax with Inland Revenue Authority of Singapore (IRAS) upon incorporation.
5. What is the tax rate for holding companies in Singapore?
Companies in Singapore are subject to a flat corporate tax rate of 17% on all taxable income. If the holding company’s annual turnover exceeds SGD 1 million, it is also subject to 8% Goods and Services Tax (GST) on most goods and services supplied.
Like all Singapore-incorporated companies, holding companies may also be eligible for certain tax benefits and exemption schemes. You may wish to refer to our articles on corporate tax in Singapore and tax exemptions for Singapore start-ups for more information.
6. Can the holding company receive profits or capital from the subsidiary company
Yes, a holding company can receive any profits or capital from its subsidiary company, subject to capital return requirements under the CA. For example, a private company that meets the solvency requirements may reduce its share capital by passing a special resolution.
7. What will happen to the holding company if the subsidiary company becomes insolvent
As mentioned above, the holding company and the subsidiary company are separate legal entities. Therefore, if the subsidiary company goes insolvent, the holding company is not liable for creditors’ claims against the subsidiary. The result of this is that the assets held by the holding company are insulated and protected from the creditors of the subsidiary.
However, if it is the holding company that becomes insolvent, the liquidator may choose to sell off the subsidiary or to liquidate the subsidiary’s assets to pay off the debts of the holding company. This is because the holding company has ownership of the subsidiary.
If you are a business owner looking to set up a holding company in Singapore, either because of the advantages mentioned above or otherwise, you should consider engaging a corporate services firm to help you with the setting up of the holding company.
Apart from assisting you to register your holding company, a corporate services firm can also help you meet the post-incorporation compliance requirements explained above, so that you can focus on maximising the growth of your business.
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