Comparing Singapore Business Entities: Choosing the Right Structure for Your Venture

Posted by Written by Ayman Falak Medina Reading Time: 4 minutes

Foreign companies can set up a variety of business structures in Singapore for their investments. Establishing a subsidiary, branch office, or representative office (RO) is some of the most popular options. Investors need to assess their specific business needs before deciding on a corporate structure to operate from.

Private companies limited by shares

A private company limited by shares, also known as a private limited company, is the preferred structure among small and medium-sized (SME) foreign companies for setting up a local business presence in Singapore.

A private limited company can benefit from tax incentives available to local companies. It is also a separate legal entity from its directors, shareholders, and officers of the company; this means that the foreign holding company cannot be held for the liabilities of its subsidiary. In addition, the holding company’s liability is limited to the share capital subscribed in its subsidiary.

Branch offices

Foreign companies can establish branch offices to conduct any business activity that falls within the scope of the parent company.

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Branch offices are not eligible for the tax exemptions and incentives available to local companies as ultimate branch control remains vested in the overseas parent company. As such, branch offices are regarded as an extension of the foreign holding company and are therefore taxed as a non-tax resident at the corporate tax rate of 17 percent.

The name of the branch office must be the same as the parent company and as a legal extension of the parent company. The parent company must bear ultimate legal responsibility for all liabilities.

Representative office

A representative office is a short-term, temporary arrangement with a limited purpose; however, it must be established for a maximum of three years, of which the RO status is subject to evaluation by Enterprise Singapore, the government agency under the Ministry of Trade and Industry, before the RO can be further renewed on an annual basis.

This setup is an ideal choice for foreign investors who are still researching their investment options before setting up a fully-fledged office in Singapore. Companies looking to set up an RO must have a sales turnover of at least US$250,000 and must be represented by staff from their own HQ or a Singaporean citizen.

ROs can be staffed by a maximum of five individuals, with the parent company bearing liability for the activities of the RO and responsible for financing its operations.

Comparison of Business Entities in Singapore

 

Private limited companies limited by shares

Branch office

Representative office

Legal type
  • Legal entity established as a regional holding company or subsidiary of a foreign holding company.
  • Can be wholly owned by a foreign individual and/or corporate investor.

 

Legal extension of a foreign holding company.

Short-term, temporary arrangement with a limited purpose.

Business activities

·       Business activities can be different from the parent company.

·       The company must obtain the relevant business licenses for its operations in Singapore.

Business activities, must be the same as the parent company.

The RO is confined to activities set out by Enterprise Singapore, which include:

·       Gathering of information on markets and potential clients.

·       Carrying out research to ascertain product/service information.

·       Developing trade contacts and manage product enquiries.

·       Participating in trade shows and exhibitions.

·       Gathering information on regulatory requirements for the set-up of a permanent entity.

Criteria for eligibility
  • At least one shareholder.
  • One resident director.
  • One company secretary.
  • Initial paid-up share capital of at least S$1 (US$0.74).
  • Registered address in Singapore.

 
  • At least one local representative (Singapore citizen, permanent resident of Singapore, or Employment Pass holder).
  • Registered address in Singapore.
  • Name of the branch office must be the same as the parent company.

 

·       The parent company has been established for more than three years.

·       The parent company has incurred an annual sales turnover of more than US$250,000.

·       The foreign chief representative is from its headquarters; alternatively, the RO may appoint a Singapore citizen to fulfil the role of the chief representative.

 

Liabilities

No liability by holding company of its subsidiary. Liability is limited to the share capital subscribed in the holding company’s subsidiary.

Parent company bears ultimate legal responsibility for all liabilities and must be registered with ACRA.

Parent company bears liability for the activities and is responsible for financing operations.

Tax treatment

Taxed at the flat corporate income tax rate of 17 percent.

Taxed at the flat corporate income tax rate of 17 percent.

Not applicable since a representative office generates no income.

Can the entity benefit from local tax incentives?

Yes

No

No

Staff hiring

Can hire local and foreign workers, with no restrictions.

Can hire local and foreign workers, with no restrictions.

·       The RO can only hire more than five employees; and

·       A Singapore citizen must fulfil the role of Chief Representative.

Annual filing

Only the accounts of the private limited company must be filed

The accounts of the parent company as well as the branch office must be filed

Not required.

Entity validity period

The company is registered until it is closed.

The company is registered until it is closed.

The RO can be established for three years. Furthermore, during the three years, the RO must be renewed each year.

Overview of advantages

·       Separate legal entity to the parent company.

·       Can undertake business activities that are different to the parent company.

·       Eligible for local business incentives.

Branch office is subject to the laws of the parent company

·       No corporate income tax.

·       Fewer compliance requirements.

·       Enables the parent company to establish a presence in Singapore with minimal costs.

Overview of disadvantages

Must adhere to local government compliance

Activities must be in line with that of the parent company; and

Unable to benefit from local business incentives.

 

Unable to benefit from local business incentives.

About Us

ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, in addition to Jakarta, in Indonesia. We also have partner firms in Malaysia, the Philippines, and Thailand as well as our practices in China and India. Please contact us at asean@dezshira.com or visit our website at www.dezshira.com.