Why and How to Set Up a Subsidiary in Singapore (with FAQs)
For a company to be considered a subsidiary, at least 51% of its shares must be owned by another company. The controlling company (also known as a “parent company”) can either be a Singapore or foreign company.
Why Set Up a Subsidiary?
A subsidiary is a separate legal entity from the parent-company. This also means that the parent-company is not directly liable for the subsidiary’s debts or any legal actions taken against the subsidiary.
Hence, in the event the subsidiary becomes insolvent, parent-companies can limit their liabilities and risks to the subsidiary’s assets, and prevent creditors from directly claiming from them.
Finally, Singapore-incorporated subsidiaries are also considered local tax-residents if their management takes place locally. This means that foreign companies will be able to take advantage of the competitive corporate tax regime in Singapore by setting up subsidiaries in Singapore (see below).
How to Set Up a Subsidiary
Registration of a subsidiary in Singapore is done online via the BizFile+ portal managed by the Accounting and Corporate Regulatory Authority (ACRA).
To register a subsidiary in Singapore, the following information is required by ACRA:
- Name of the subsidiary
- Brief description of business activities
- Shareholders’ particulars
- Directors’ particulars
- Registered address
- Company secretary’s particulars
- Company constitution
The general requirements and procedure to register a subsidiary in Singapore is the same as that of a private limited company. You may refer to our article on company registration in Singapore for more information.
However, you may need to engage a registered filing agent in Singapore, such as a law firm or corporate services firm, to assist with registration if the parent-company is a foreign company, or if any of the directors or shareholders of the subsidiaries are foreigners.
This is because the shareholders or directors are required to accept their appointment as shareholder or director via SingPass, and foreigners do not have a SingPass account. Hence, the filing agent may have its own documentary requirements or procedures for you to comply with.
Upon successful registration, ACRA will provide an official email certifying the incorporation and a free business profile containing the particulars of the newly-incorporated subsidiary.
What Should I Do After Setting Up a Subsidiary?
After incorporation, the new subsidiary will exist as a separate legal entity from its parent-company. It is therefore recommended to open a new corporate bank account in the subsidiary’s name for proper financial accounting.
Furthermore, the new subsidiary may be required to apply for a licence to operate in certain industries, such as in the restaurant industry. The subsidiary must apply for the licence itself, under its own name.
Foreign parent-companies may also wish to apply for the relevant employment passes or permits if they wish to transfer foreign employees to work in Singapore under the new subsidiary.
Information on the different types of employment passes or permits may be found on the MOM website.
Please also note that the new subsidiary must comply with the ongoing regulatory requirements of Singapore. You may refer to our article on compliance requirements in Singapore for more information.
Frequently Asked Questions
1. Can a subsidiary operate under a different business name from the parent-company?
Yes, a subsidiary can choose whether to operate under a different business name from its parent-company. However, business names are subject to approval by ACRA, which may reject an application if the name chosen is already in use by another business.
You may refer to our article on selecting a business name for more information.
2. Can a subsidiary engage in different business activities from the parent-company?
Yes, a subsidiary may engage in different business activities from the parent-company.
3. Can the subsidiary be 100% foreign-owned?
Yes, subsidiaries can be 100% foreign-owned in Singapore.
4. Do you need to come to Singapore to apply to set up a subsidiary?
There is no need to come to Singapore to incorporate a subsidiary since all registration is done online on BizFile+. Many filing agents in Singapore also offer incorporation services online or through email.
However, you may need to visit Singapore to set up a corporate bank account since most banks in Singapore will require a physical interview with the company’s directors or shareholders. Remote calls are available at a fee of S$500 per call.
5. Must the subsidiary register for corporate tax?
Subsidiaries incorporated in Singapore are automatically registered for corporate income tax with Inland Revenue Authority of Singapore (IRAS) upon incorporation.
However, the subsidiary may need to register separately for Goods and Services Tax (GST) with IRAS if its annual turnover exceeds S$1 million.
6. What is the tax rate for subsidiaries?
Subsidiaries are subject to a flat corporate tax rate of 17% on all taxable income. Where the subsidiary’s annual turnover exceeds S$1 million, it is also subject to 8% GST on most goods and services supplied.
Like all Singapore-incorporated companies, subsidiaries may also be eligible for certain tax benefits and exemption schemes.
Some of these benefits include (from YA2020 onwards):
- For the first 3 YAs, 75% tax exemption on first S$100,000 of chargeable income and a further 50% tax exemption on the next S$100,000 of chargeable income.
- Thereafter, 75% tax exemption on first S$10,000 of chargeable income and a further 50% tax exemption on the next S$190,000 of chargeable income.
- Reduction or full tax exemption on foreign-sourced income from countries that have signed Double-Taxation Agreements (DTAs) with Singapore. These include major jurisdictions such as Japan and China.
The above benefits are subject to certain conditions. You may wish to refer to our article on corporate tax in Singapore for more information.
7. Can the profits or capital of the subsidiary be repatriated to the parent-company?
Yes, a wholly owned subsidiary is generally free to repatriate any profits or capital it holds to the parent-company, subject to capital return requirements under the Companies Act.
8. What will happen to the subsidiary if the parent company becomes insolvent?
A parent-company is shielded from claims against its subsidiary if the subsidiary becomes insolvent. However, the reverse is not necessarily true, since the parent-company has ownership of and control over the subsidiary.
Therefore, if the parent-company becomes insolvent, the liquidator may choose to sell off the subsidiary or to liquidate its assets to pay off the parent-company’s debts.
Incorporating a subsidiary in Singapore is a quick and straightforward process, with many benefits when structured properly. It may thus be a decision worth considering, both for a Singapore company seeking to limit its risks and for a foreign company seeking to establish a local presence.
Should you require assistance in setting up a subsidiary, please feel free to get in touch with us.
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