In the first part of the series, we discussed the three most common business structures in Singapore, namely, Sole Proprietorship, Partnership and Private Limited Company. In the next three articles, we will introduce the three business structures that foreign individuals or foreign companies can incorporate in Singapore. These are Subsidiary Company, Branch Office and Representative Office. Let’s take a look at the Subsidiary Company here.
What Is A Singapore Subsidiary Company?
A Subsidiary Company is a Private Limited Company incorporated in Singapore that is wholly or partly owned by a local or foreign parent company that holds a controlling interest of more than 50% in the Subsidiary Company. Unlike a Branch Office, a Subsidiary Company is a separate entity with limited liability. This means that it can sue or be sued and own property in its name. It also has different corporate bank accounts and operating capital from its parent company.
Foreign companies that are making inroads into a new market usually like to set up a subsidiary-parent company structure as subsidiaries are separate legal entities, thus limiting the liability and legal risk of the parent company. In Singapore, a foreign parent company can have 100% ownership in a Subsidiary Company. The Subsidiary Company can also have the same or different business activities from those of the parent company.
A Subsidiary Company is treated as a local tax-resident in Singapore, which means that it is free to enjoy certain local tax benefits, incentives and assistance schemes offered by the authorities. Like any locally incorporated Private Limited Company, Subsidiary Companies in Singapore are exempt from the annual audit of its accounts if it qualifies as a “Small Company”.
Pros And Cons Of Singapore Subsidiary Company
- A Subsidiary Company with one or more shareholders with at least 10% shares can enjoy prevailing tax benefits, incentives and assistance schemes.
- Because it has a separate legal entity, the parent company is protected from liabilities and other legal risks incurred by the Subsidiary Company.
- Setting up a Subsidiary Company allows the parent company to raise additional capital by offering new stocks since it is a separate entity.
- A Subsidiary Company can also make full use of the branding or the strong reputation of its parent company, which can significantly increase its share of the new markets they are entering.
- The Subsidiary Company’s paid-up capital can be in the same currency as its parent company, which makes accounting procedures a lot simpler.
- To encourage foreign investment, Singapore allows free repatriation of entire profits and capital of the Subsidiary Company.
- Unless it is a fully-owned subsidiary, the parent company may not have full control of the subsidiary’s cash flow.
- To protect its brand and reputation, the parent company may still have to repay the subsidiary’s debts and liabilities even if it has no legal obligation to do so.
- If the subsidiary is a joint venture or is partially owned by another company, there may be complications when it comes to control and decision-making.
Setting up a Subsidiary Company is similar to setting up a Private Limited Company in Singapore. The compliance requirements are as follows:
- The Subsidiary Company must be partly or wholly owned by a local or foreign parent company.
- The Subsidiary Company Name (in English) must not be the same or similar to another business name or existing trademark or contain any offensive or vulgar words. Approval by the Accounting and Corporate Regulatory Authority’s (ACRA) is required before you can use your desired name (this can be done during the registration of the business).
- The minimum initial paid-up capital is SGD1. Additional capital can be injected anytime after the Subsidiary Company’s incorporation.
- It needs at least one Director who is a resident in Singapore and is at least 18 years old. If a foreigner wishes to be the local Director, the person must have a valid work pass.
- It needs to have a fiscal year period that is the same as that of the parent company. A fiscal year is a one-year (12-month) period that companies and governments use for accounting and financial reporting purposes. You also need to define it for financial statement preparation purpose. Fiscal years don’t have to correspond with the calendar year. This means that while you can have your company’s fiscal year from 1 January to 31 December, you don’t necessarily need to choose this period. Many companies start their fiscal years on 1 April, 1 July, etc.
- Upon incorporation of the Subsidiary Company, a Company Secretary must be appointed within six months.
- A Subsidiary Company in Singapore needs to have a registered office address. While it cannot be a PO Box, a virtual office is allowed.
- An auditor must be appointed within three months from the date of the Private Limited Company’s incorporation unless it is a Small Company.
For more information about how to register a business, please read our article How To Register A Business In Singapore.
Once the company is incorporated, annual filings to ACRA and IRAS is required. Please read our articles Filing Of Annual Returns – What Do I Need To Do? and All You Need To Know About Filing Annual Corporate Income Tax Returns for more information.