Expanding into Singapore presents an excellent opportunity for businesses aiming to establish a foothold in Asia while benefiting from Singapore’s own highly skilled talent pool and developed local consumer market. However, for those wishing to administer all local operations by themselves, figuring out how to set up a subsidiary in Singapore requires a thorough understanding of legal, financial, and operational requirements in order to work long-term.
With these difficulties in mind, this guide provides a comprehensive overview of what a subsidiary is, why Singapore is an attractive destination, and the alternatives available.
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What is a Subsidiary?
In the simplest terms, a Singaporean subsidiary is a company owned or controlled by another company (typically from abroad, though this isn’t necessarily the case) known as the parent company. The subsidiary company in Singapore operates as an independent legal entity in the local market but remains under the full control of its parent company. This structure allows the parent company to expand into new markets without any involvement from other parties while handling all financial and operational risks through limited liability.
Definition and Key Characteristics of a Subsidiary in Singapore According to Local Laws
Under Singaporean law, a subsidiary is defined specifically as a private limited company with full operational rights in the country where the majority or sole shareholder is another corporate entity. This structure is intended to provide companies with flexibility, legal protection, and financial benefits.
Key characteristics of subsidiaries in Singapore include:
- Separate Legal Entity Status – Unlike a branch office or similarly restricted company structure, a subsidiary is legally distinct from its parent company. This means that any liabilities, debts, or legal issues incurred by the subsidiary remain confined to the subsidiary and do not extend to the parent company.
- Limited Liability – The parent company’s financial liability is limited only to its investment in the subsidiary, meaning it’s protected from financial exposure beyond its committed capital.
- Local Compliance – As a Singaporean company, the subsidiary must adhere to all elements of Singaporean tax, employment, and corporate regulations as a local company, including meeting reporting and audit requirements.
- Tax Residency – If the subsidiary is managed and controlled in Singapore, it qualifies as a tax resident and is, therefore, eligible for local tax benefits and burdens. This includes access to Singapore’s extensive network of Double Taxation Agreements (DTAs) as well as incentives designed to boost local companies.
- Flexibility in Business Operations – Unlike a branch or similar, which are generally restricted to a set range of activities within the parent company’s core business activities, a subsidiary can engage in a wider range of commercial activities by itself, offering flexibility and greater earning potential.
How Subsidiaries Differ from Branches and Representative Offices in Singapore
Understanding the differences between business structures is crucial when expanding into Singapore, as choosing the wrong structure can leave companies facing dead-ends or legal issues later on as operations need to expand or adapt:
- Branch Office – A branch office set up in Singapore is an extension of the parent company and does not have a separate legal status in the local market. As a result, the parent company bears full responsibility for any liabilities incurred by the branch. While it allows businesses to operate in Singapore without incorporating a separate entity, it does not provide tax benefits and has limitations on certain business activities outside the range of the activities performed by the parent company.
- Representative Office – A representative office is a heavily restricted structure serving only to allow companies to perform market research, liaison activities, or promotional work. It cannot engage in commercial activities or generate revenue in Singapore, meaning it is best suited for companies that are just evaluating the Singaporean market or deciding on a strategy before looking at how to make a formal entry.
While the above are typically quicker and easier to set up in Singapore, offering lower-cost ways to test the waters in the market, companies considering long- or even mid-term future prospects will likely find themselves overly restricted by the range of activities and rights offered.
What is a Foreign Subsidiary?
A foreign subsidiary is a specific type of subsidiary company incorporated in a different country from its parent company. In Singapore, where the option for 100% foreign ownership of a business entity exists in most sectors.
Exceptions remain in those sectors pertaining to national or civic interest, as well as broadcasting, newspapers, real estate, finance, and the legal profession, where additional licenses, partnerships, and vetting are required), a foreign subsidiary is simply a private limited company where a foreign corporate entity holds the majority of shares and the company meets the general requirements for subsidiaries (as detailed below).
This structure allows international businesses to operate within Singapore’s regulatory framework while maintaining a level of financial and operational independence. It offers access to Singapore’s pro-business policies, strong legal protections, and a thriving economic environment.
Why Should You Create a Foreign Subsidiary in Singapore?
Singapore is a strategic gateway to Asia, offering numerous advantages for businesses seeking regional expansion:
- Pro-Business Environment – Singapore consistently ranks among the easiest places in Asia to do business due to its highly codified and transparent legal system, business-friendly policies aimed at encouraging international investment, and streamlined incorporation processes.
- Strategic Location – Situated at the heart of Southeast Asia with numerous sea and air connections to the biggest players in Asia, Singapore provides access to key markets and serves as a convenient hub for trade and investment.
- Tax Benefits – Singapore’s competitive corporate tax rate of 17% is complemented by tax incentives, exemptions, and an extensive network of DTAs, reducing tax burdens on cross-border transactions.
- World-Class Infrastructure – The country boasts excellent telecommunications, logistics, and financial services alongside air and seaport structures, making it an ideal location for businesses requiring strong infrastructure.
- Strong Intellectual Property Protections – Singapore has a robust legal framework for protecting intellectual property rights and digital privacy in the form of the PDPA, ensuring security for businesses operating in knowledge-intensive industries.
Legal and Regulatory Requirements for Subsidiaries in Singapore
To establish a subsidiary, businesses must comply with several legal requirements:
- At least one local director – Though it’s not necessary to have a Singaporean citizen be in control, at least one director must be either a Singaporean citizen, permanent resident, or EntrePass holder.
- A registered Singaporen address – A physical office address is required to register the subsidiary.
- A company secretary (within 6 months of incorporation) – The company must appoint a qualified secretary to oversee compliance matters, though this doesn’t have to happen immediately.
- Minimum paid-up capital (of S$1) – While the requirement is minimal, companies may need more capital depending on industry-specific regulations.
- Annual tax filings and compliance with the Companies Act – Companies must file annual returns and comply with accounting regulations as part of a standard local tax and payroll process.
- Submission of financial statements and adherence to ACRA guidelines – Companies must maintain proper financial records at all times and submit audited statements if they exceed certain revenue thresholds (generally income in excess of S$10 million or employing 50+ workers).
- Registration with the IRAS for corporate tax purposes – Tax compliance includes payment of CIT and Goods and Services Tax (GST) registration, if applicable (generally meaning revenue or expected revenue of more than S$1 million in a 12-month period).
Evaluating the Pros and Cons of Subsidiaries in Singapore
Key Advantages of Establishing a Subsidiary
Tax Incentives and Market Opportunities
Singapore offers a range of tax benefits, including exemptions and reliefs for newly incorporated companies. Qualifying subsidiaries can enjoy tax exemptions on the first S$100,000 of chargeable income for the first 3 years of operations, offering a good start for local operations. Additionally, Singapore’s DTA network reduces withholding taxes on foreign income, facilitating cost-effective cross-border operations for multinationals.
Enhanced Local Presence and Brand Recognition
Operating as a locally incorporated entity enhances credibility among customers, partners, and investors due to the impression of long-term local interests. It also allows businesses to bid for government contracts and access a range of local funding opportunities. This is especially advantageous in regulated industries such as finance, healthcare, and technology or those where having access to local networks comes in handy.
Challenges and Drawbacks of Setting Up a Subsidiary
Despite its advantages, setting up a subsidiary involves challenges:
- Compliance Burdens – Regular filings, audits, and corporate governance obligations require significant administrative effort, meaning hiring local administrators or drawing resources away from other projects.
- Operational Costs – Hiring or transferring local employees in Singapore, leasing office space, and managing regulatory fees all contribute to ongoing overhead costs.
- Management Complexity – Understanding local employment laws, business culture, and tax regulations can be challenging for foreign companies, with language skills and local best practices adding new layers of complication.
- Longer Setup Time – When setting up a new business in Singapore, incorporation, bank account opening, and obtaining regulatory approvals can take several weeks or longer (especially if any mistakes are made during the process).
Financial Implications of Subsidiary Ownership in Singapore
Establishing and managing a subsidiary involves a number of considerable financial burdens, including:
- Initial costs and fees – Incorporation fees, legal consultations, and setup expenses
- Ongoing expenses – Employee salaries, rental costs, taxes, and compliance fees
- Currency risks – Exposure to fluctuations in exchange rates when repatriating profits
- Regulatory and administration fees – Paperwork and industry-specific licensing costs and required insurance policies
Exploring Alternatives to Setting Up a Subsidiary in Singapore
Leveraging an Employer of Record for International Hiring
An Employer of Record (EOR) in Singapore provides an alternative and efficient solution for hiring employees in Singapore and operating locally without establishing a new legal entity.
By using an EOR in Singapore, businesses can outsource payroll, tax compliance, and HR management to local experts while maintaining operational efficiency. This localized support reduces administrative burdens and ensures compliance with Singaporean labor laws.
Simplifying Expansion with INS Global
While setting up a subsidiary in Singapore offers numerous benefits, the complexities of regulatory compliance, financial management, and operational oversight can be overwhelming. Instead of navigating these challenges alone, businesses can leverage INS Global’s Employer of Record (EOR) services to grow quickly, effectively, and without fear of compliance errors.
INS Global simplifies market entry by managing employment contracts, payroll, and compliance, allowing businesses to focus on growth. With our expertise, companies can access Singapore’s opportunities efficiently and risk-free.
Contact INS Global today to explore a streamlined approach to international expansion.
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