Owners of a foreign company should consider a re-domiciliation of their company to Singapore. It has a stable political scene, a pro-business environment, a competitive tax regime, and maintains strong economic ties to Asia and the rest of the world. It has potentially more advantages than the other methods of setting up, like setting up a Singapore branch of your foreign parent company or setting up a Singapore subsidiary. In this article, we will discuss the advantages of re-domiciling to Singapore, as well as the steps to doing so.

What is re-domiciliation?

When a company transfers its origin of incorporation from one country (jurisdiction) to another country, it is re-domiciliation. This is different from starting a branch office overseas or setting up a subsidiary in Singapore.

If the foreign company sets up a branch in Singapore, it is equivalent to carrying out business here. The foreign parent company is regulated by the jurisdiction of its home (original) country.

If the foreign entity incorporates a subsidiary in Singapore, they are two separate legal entities. The subsidiary has a unique legal existence from the foreign parent company and it can conclude contracts on its own. The corporate group needs to comply with the law of the country where the parent company resides and the Singapore law.

When you redomicile your foreign entity, you are converting the foreign-country-registered company into a company registered in Singapore. The foreign entity transfers all its rights and liabilities to the Singapore company. The redomiciled company in Singapore will be regulated by Singapore law from that effective date.

With effect from 11 October 2017, the Singapore government has allowed foreign companies to re-register as companies in Singapore under Part XA of the Companies Act (CA). The criteria to redomicile as a Singapore legal entity are detailed out further in the Companies (Transfer of Registration) Regulations 2017. We will discuss this in detail below.

Reasons for re-domiciliation to Singapore

Companies may redomicile for a variety of reasons – be it practical, business or legal.

Business continuity

Redomiciling can make sense from a business angle or decision. If a company changes its country of jurisdiction to Singapore, the company is effectively the same entity. Only the company’s country of incorporation changes to Singapore from a foreign country.

This will allow for complete continuity of the existing business. All track records, goodwill and credit ratings remain untouched. This is useful when the re-domiciled company seeks credit from Singapore banks or applies for certain licenses from the authorities.

In the case of subsidiaries, the foreign parent company acts as a guarantor for the loans undertaken by its Singapore subsidiary. It also undertakes to share its expertise and control all operations of the Singapore subsidiary.

Tax advantages

Singapore taxes corporations at a much lower rate than most developed countries. Foreign companies can take advantage of this by shifting a part of their operations to a subsidiary in Singapore.

Many countries have begun to tighten their laws on the taxation of cross-border corporate groups in order to reduce base erosion and profit shifting. This is when a company tries to shift the profits earned by the parent company to its subsidiary company. As a result, those profits will be taxed at the (cheaper) rate of the second country, for example, Singapore.

An example…

Let us look at an example. Australia introduced a Diverted Profits Tax (DPT) of 40% for Significant Global Entities (SGEs) recently. An SGE is usually a corporate group with some Australian business operations, with an annual income of over AUD $1 billion globally. Under this new DPT legislation, if the Taxation Office in Australia has reason to believe that profits earned in Australia have been sent out of the jurisdiction to another foreign-related company as a form of avoiding of taxes arrangement, it can cause the Australian entity’s profits to be liable for taxes twice (both in the destination country where such profits were diverted to and in Australia too).

In the case of re-domiciliation, the company will no longer be registered overseas. It subjects itself to Singapore law, instead of its original country of registration. The foreign company can avoid the liability risk of double taxation under tightened taxation legislation mentioned above.

If your company’s original country of registration imposes new regulatory requirements on your foreign company, like higher corporate tax, then redomiciling to Singapore can be an option to avoid such a situation.

Leveraging on Singapore’s numerous Free Trade Agreement (FTA) memberships

Redomiciling your operations to Singapore allows your company to take advantage of the multiple FTAs Singapore has with other countries. This can greatly boost your profits for the company by saving costs.

Committing to conducting business in the Asia-Pacific region

The irreversible process to redomicile here in Singapore (take note that no provisions are given for Singapore registered companies to redomicile to a foreign country), will send a critical signal to major clients and potential clients of yours, that your foreign company is genuine about concentrating on Singapore (or Asian) commercial activities.

All legal rights and liabilities will be transferred to the new Singapore company

From a legal point of view, redomiciling is more direct than setting up a Singapore subsidiary. Major contracts mostly have clauses for non-assignment. Although obtaining permission for assigning contracts within the same corporate group is fairly easy, re-domiciliation will simplify the entire process because all rights and liabilities will be transferred over to the Singapore entity, which is effectively the same legal entity as the overseas registered company originally.

Credit facilities from the original country of registration may be able to bring over to the redomiciled (Singapore) company but it is best to negotiate this directly with your company’s bank.

Eligibility for re-domiciliation to Singapore

Before your application to redomicile your foreign company to Singapore, you need to check if your company’s name is acceptable for incorporation in Singapore. Even though you will want to select the same company name as your foreign company, this could be impossible if there is an existing Singapore company name that is similar to yours.

Three criteria to check for eligibility are solvency, legality and size.

Solvency

Your foreign company must be capable of paying its debts when they are due over the next 1 year starting from the date of application for re-domiciliation. It cannot be in liquidation, or receivership or any other equivalent form of winding-up process.

Your company assets must be more than liabilities, which simply means your net asset value (NAV) must not be negative.

Legality

Next is legality. You must be in compliance with all relevant company laws in the original country of your registered company. Also, you are not looking for re-domiciliation in Singapore for some illegal purpose, for example, to defraud your creditors.

Most importantly, your country of registration must have the legal provisions in force for companies to redomicile overseas. Some countries allow two-way re-domiciliation, which means foreign companies can re-register as local companies, and vice versa again. These countries are mainly Canada, the British Virgin Islands (BVI), Australia and New Zealand.

Other countries such as Singapore, the United Kingdom and Hong Kong, only allows inward re-domiciliation. That means foreign companies can register as local companies, but once done, they cannot re-register as foreign companies.

Conversely, if your foreign company is moving from a common law judiciary system to another one, the basic company law structure will most likely be similar. Hence, concepts that you are familiar with, such as directors’ duties, will continue to be applied in some manner when your foreign company has been redomiciled as a Singapore company.

Size

Finally, your foreign company has to meet the size criteria. Your company must meet at least 2 out of the 3 following criteria:

• 50 employees minimally
• More than SGD $10 million in revenue per annum
• More than SGD $10 million worth of total assets

If you wish to redomicile the corporate group as a whole, then the group has to meet the size criterion.

How can I redomicile my foreign entity to Singapore?

In order to redomicile your foreign company to Singapore, you have to submit an application form for Transfer of Registration to the Accounting and Corporate Regulatory Authority (ACRA), which is the Singapore regulatory body for companies. Under the CA, your application must be accompanied with:

(1) A certified true copy of your Memorandum of Association (also known as Company Constitution) or equivalent company constitutional documents.

(2) A copy of the company constitution you plan to use when you have successfully redomiciled as a Singapore company.

Although you probably can adopt your existing company constitutional documents almost entirely if it was incorporated in some other common law judiciary system, there might be certain parts of the Singapore law that will mean additional clauses have to be added in.

An example would be all companies in Singapore must include an “objects clause” in their company’s constitution. This clause states the purpose of the company, meaning, all the proper areas of business. The existing foreign company’s constitution may or may not have this objects clause as certain countries have a default ruling that all companies have no restrictions.

(3) The relevant documents needed are:

• A certified true copy of your overseas certificate of incorporation or the equivalent
• A signed written document issued by all current company directors declaring that the foreign company fulfils the solvency criteria (as explained above)
• From each individual proposed director, a written declaration:
  • of his/her consent to continue as a director upon re-domiciliation
  • that they are not disqualified or barred from carrying out duties as a director in Singapore.
  • of their intention to take up a certain number of shares in the company after re-domiciliation, if they do not currently own any company shares
• A written consent from each proposed company secretary declaring:
  • their consent to act as the redomiciled company’s secretary
  • they are not barred from acting as a secretary
  • If the foreign company is planning to redomicile as a public company, they must have the required professional or qualifications to be a secretary of the redomiciled public company (usually a qualified lawyer, accountant, or a member of the Singapore Association of the Institute of Chartered Secretaries and Administrators [SAICSA])
• A confirmation statement from the lawyer or the filing agent handling the re-domiciliation process, stating the proposed director’s consent to act as the company’s director, and the proposed secretary’s consent to act as the company’s secretary.

(4) Fees.

Currently is SGD $1000 and also non-refundable.

What is next after re-domiciliation in Singapore?

After you have submitted your application, the next step is obviously either approval or rejection by ACRA.

Although it is fairly straightforward if you meet the criteria, ACRA does have a reserve power to reject applications for re-domiciliation on certain public policy grounds. If it happens, your company can appeal to ACRA and to Singapore’s Minister of Finance.

Once your application is accepted, your company is now a company registered in Singapore. It adheres to Singapore company law like any other company which has originally registered in Singapore. You have the duty to de-register your foreign company in its original country, not more than sixty days and submit such evidence to ACRA. A deadline extension can be obtained from ACRA, but it is best to resolve this matter as soon as possible.

Besides that, you also have a duty to make sure that all pre-existing charges are to be registered not more than 30 days from the date of re-domiciliation. If a bank has a floating charge over the assets of the company, this charge must be duly registered. Your company’s directors will be liable for punishments such as fines if this is not in compliance.

After completing all these steps, you can move on to the next phase and finally benefit from the new status as a registered company in Singapore.

Other factors

Re-domiciliation to Singapore is an irreversible decision. Currently, Singapore registered companies cannot redomicile overseas. As more countries introduce re-domiciliation schemes, companies have more options over which countries are more suitable for their business growth.

Re-domiciliation is a relatively new process. As such, foreign entities considering to redomicile to Singapore ought to consider carefully before actually doing so. Seek advice from lawyers and tax specialists in your original country of registration, to prevent possible liability to your company in terms of stamp duty if this amounts to a share sale in your local law. Likewise, it is prudent that you get advice from lawyers and tax specialists in Singapore.

Get in touch with us today!

To conclude, Singapore has an attractive business environment that overseas companies with operations in Asia can thrive in. If you like to commence your re-domiciliation of your company to Singapore, get in touch with us today!

 

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