How to Start a Singapore Holding Company
3 min Read
Over the years, many large corporations have built their holding structures in Singapore. The country, in fact, has numerous characteristics that make it one of the best places to form a holding company, such as strategic geographic location, economic connectivity, world-class infrastructure, presence of international financial institutions, robust legal framework, international reputation, open immigration policy, simple tax system, competent workforce, and neutral political relationship with neighbors.
This article explains the advantages of forming a Singapore holding company, how you should go about doing it, and what you should keep in mind after the company has been set up.
What is a Singapore holding company?
A holding company is a legal entity that owns and controls other firms, with its subsidiary companies doing the majority of the entity’s business operations. The fundamental goal of a holding company is not to complete commercial activities but to lessen the risks that business owners face by limiting their liabilities to the shares or assets associated with the subsidiary in which the holding company invests.
There are only two categories of holding companies in Singapore: investment and finance. They have their own registration requirements, but in terms of taxation, there aren’t much of a difference:
- Investment holding company: This is the standard structure for businesses that aren’t in the financial, banking, or insurance industries.
- Financial holding company: This is the type of structure that is used to own subsidiaries in the finance, banking, and insurance industries.
Like any other company, a Singapore holding company can own assets, such as property, stocks, patents and trademarks, intellectual property, other companies, and so on. When a holding company owns another business, the owned business is referred to as a “wholly-owned Singapore subsidiary,” and the holding company is called the “parent company” or “umbrella company.”
An example of a holding company includes Johnson & Johnson (J&J), which holds several Singapore-based subsidiaries and has Singapore as its regional center for the Asia-Pacific region. Neutrogena and Ethicon are two J&J subsidiaries. Other well-known brands with holding companies in Singapore include Singtel, Alphabet (Google), DBS Group, and Berkshire Hathaway.
The benefits of setting up a Singapore holding company
When it comes to desirable countries for holding corporations, Singapore is undoubtedly at the top of the list. There are numerous benefits to forming a holding company in the city-state, and here are a few of them:
1. Ease of incorporation
A Singapore holding company can come under different types of companies. However, a private limited company is mostly preferred by entrepreneurs. The reasons are its separate legal status, its members’ limited liability, and its eligibility for many tax-cut schemes.
A private limited company can be simply formed online in a matter of days. You just need to furnish the appropriate information and papers with the assistance of a reliable service provider. The application will be filed on your behalf by the service provider, and you will be notified of the outcome through email.
2. Single-tier corporate tax system
The income of a Singapore corporation is only taxed once. The received dividends will not be taxed to the company’s shareholders. This implies you will not be taxed on the profits you get from your Singapore holding company.
The corporate tax rate is currently set at 17%. However, due to numerous tax deduction schemes, the tax that your holding company in Singapore must pay might be significantly reduced. Your holding company may be eligible for the following benefits under the partial tax exemption scheme:
- A 75% tax exemption on the first $10,000 of income, and
- An additional 50% tax exemption on the next $190,000 of income.
Under the partial tax exemption scheme, the effective income tax rates are only 4.25 percent on the first $10,000 and 8.50 percent on the next $190.000. Moreover, your holding company may also be eligible for a yearly tax rebate. The amount will be calculated and automatically refunded by the local tax authorities. Before implementing those plans, your Singapore holding company can reduce its assessable income by taking advantage of specific expense deductions.
3. No capital gains tax
On the selling of shares in Singapore, there is no capital gains tax or transfer tax. This means that the sale of assets or shares by a parent business is not a taxable event at the subsidiary or holding company level.
However, when capital gains are the source of the company’s income, or if a sold asset’s holding period is short, they are classified as ordinary income and are liable to income tax. It’s also worth noting that capital losses aren’t deductible.
4. Foreign income tax exemption
Singapore, interestingly, levies a tax on income earned from foreign sources, but only when it is received in the country. This means that when your Singapore holding company earns money from international subsidiaries, it may be liable to local tax (dividends, for example).
However, your holding company can be exempt from foreign-sourced revenue if it meets the following criteria:
- The income has already been subject to tax in the foreign jurisdiction;
- The headline tax rate in the foreign jurisdiction is at least 15% when the income is received in Singapore; and
- The local tax authority is convinced that the exemption is beneficial to Singapore tax residents.
These provisions can help reduce, and in rare cases eliminate, the tax burden carried by the company structure.
You can learn more about corporate tax exemptions in Singapore here.
5. Avoidance of double taxation
Singapore has established a network of more than 80 double-tax treaties around the world. When income is transferred between Singapore and a signed country, these tax agreements result in lower tax rates or even tax exemptions.
When your Singapore holding company earns dividends, interest, or royalties from a subsidiary in a country with which Singapore has a tax treaty, it may pay less or no tax. Therefore, if you want to set up a holding company in Singapore, consider creating subsidiaries in countries where you may take advantage of Singapore’s tax treaty network.
Refer to this article for more information about Singapore’s double tax treaties.
6. Risk minimization & better funding arrangements
A holding company’s structure considerably minimizes the likelihood of a whole business’ systemic failure, cutting the whole industry’s risk and lowering the cost of capital. Holding companies can obtain better overall funding arrangements compared to a single company structure. Moreover, they can assist their subsidiaries in obtaining better financing conditions for their projects by providing downstream guarantees and lowering the capital expenses of the Singapore subsidiary.
Furthermore, holding company structures are also designed to keep capital-intensive subsidiaries (those with a lot of debt) isolated from operating subsidiaries. When a Singapore subsidiary company runs into financial difficulties, the company’s troubles are limited within the company. It will not affect or carry over to the parent company’s many subsidiaries. This attracts bankers and other financial institutions to both the parent firm and its subsidiaries.
7. Asset protection
When holding businesses transfer ownership to their subsidiaries, they can shield their assets (patents, trademarks, intellectual property, and so on) from legal challenges. This type of structure also makes it simple for holding firms to buy and sell patent portfolios.
High net worth individuals (HNWI) who use a Singapore holding company will have their assets protected. This is because their assets are technically held by the corporation and insulated from lawsuits, financial obligations, and other risks.
Assets are segregated into multiple subsidiaries, making transactions for these assets simple. Since the accounts are kept independently, you can sell the subsidiary as a separate entity without reorganizing the firm or participating in lengthy accounting audits and reviews to persuade the buyer of the traded entity’s value. In addition, holding companies have complete control over the acquisition and disposition of assets held by subsidiaries.
The requirements for registering a holding company in Singapore
Setting up a holding company in Singapore is similar to establishing or incorporating any other business. You must meet the following requirements before registering your firm, whether you are a local or a foreigner attempting to establish a holding company in the city-state:
- At least one shareholder (this can be an individual or a company)
- At least one local director (must be a resident of Singapore and be over 18 years of age)
- At least one resident company secretary
- Minimum initial paid-up capital of S$1
- A local registered physical address for official communication
- A corporate bank account
How to register a holding company in Singapore
According to the Accounting and Corporate Regulatory Authority (ACRA), entrepreneurs, especially foreigners, who wish to register their companies in Singapore, should engage a corporate service agent. Biz Atom can help you with the whole incorporation process, from registering your company name and obtaining your Unique Entity Number (UEN) to becoming your company secretary and opening a bank account.
The registration procedure can take up to three business days to complete. In some cases, it might take longer if ACRA submits the registration application to other agencies for further vetting. You can read up on our comprehensive guide to company registration in Singapore here.
Taxes for holding companies in Singapore
Section 201(3A) of the Singapore Company Act mandates the directors of a holding company to present two reports at the end of the financial year at its Annual General Meeting:
- A consolidated account of the company and its subsidiaries
- A balance sheet dealing with the state of affairs of the holding company
All financial statements must adhere to the International Financial Reporting Standards (IFRS) and present an accurate and fair picture of the company’s financial situation.
Setting up a holding company in Singapore can give you flexibility and other advantages. Tax optimization, risk minimization, and asset protection are just a few benefits.
If you are a foreign investor who needs to establish a holding company in Singapore within a certain timeframe, you may need to hire a corporate service provider. Our experts at Biz Atom will walk you through the eligibility criteria, assist you in preparing the required documents, and communicate with ACRA and government organizations so you can save time and focus on building your company.
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