How to Set Up a Subsidiary in Singapore?

A company that is majority-owned or the composition of the board of directors (the authority to appoint or remove a majority of all directors) is being controlled by another company, which is known as a subsidiary. In this article, we will go into detail on how to set up a subsidiary in Singapore.

A company is a subsidiary when another company holds at least 51% of its shares. The latter company is also the parent, holding or controlling company. The parent company can be a local or a foreign company.

What are the benefits of setting up a subsidiary?

A subsidiary is a separate legal entity. This means that the controlling company will not be directly liable for any debts or legal actions against the subsidiary.

Therefore, if the subsidiary becomes insolvent or bankrupt, the parent company can limit its liabilities and risks to prevent creditors from making a direct claim.

Singapore-incorporated subsidiaries will be considered as Singapore tax residents if the management of the company is local. As such, foreign companies can take advantage of the competitive corporate tax schemes here in Singapore (please read below).

How can I set up a subsidiary?

You can register a subsidiary online through Singapore’s Accounting and Corporate Regulatory Authority (ACRA).

To register, the following is required:

• Name of your subsidiary
• Description of business activities
• Shareholders’ particulars and information
• Directors’ particulars and information
• A Singapore registered address
• Company Secretary’s Particulars
• Company constitution

The requirements and procedures for registering a subsidiary in Singapore are similar to that of an exempt private limited company. Please refer to our other article on registering a company in Singapore for details.

If the parent company is a foreign company or any directors or shareholders of the subsidiary is/are foreigners, you should engage a registered filing agent in Singapore like us to help with the registration. This is because as foreigners, they do not have a SingPass account and SingPass is required for all shareholders and directors to accept their appointments.

If the registration is successful, you will receive an official email and a business profile for free with details of the newly incorporated subsidiary and details of all of its officers and shareholders from ACRA.

What is next?

The new subsidiary exists as a separate legal entity after incorporation. We recommend that you open a separate corporate bank account under the subsidiary’s name for accounting purposes.

Besides that, the new subsidiary may have to apply for a licence again, in order to operate in some industries, for example, the restaurant industry. The subsidiary has to apply for the licence under its own company name.

The parent companies may apply for the respective employment passes or permits if there is a need to transfer foreign staff to work in the new subsidiary in Singapore.

Needless to say, the new subsidiary must comply with the relevant authorities’ ongoing regulatory requirements. Do refer to our article on compliance requirements in Singapore for details.

Questions and answers (Q&A)

1. Can a subsidiary operate with a different company name from the ‘parent company’?

Yes. Should you choose to, you can operate under a different business name from the parent company. The names are subjected to approval by ACRA. ACRA has the authority to reject an application if the chosen name is inappropriate.

Refer to this article on the selection of a business name to find out more.

2. Can a subsidiary do different business activities from the ‘parent company’?

Yes. A subsidiary can do that.

3. Can a subsidiary be 100% foreigners owned?

Yes. A subsidiary can be fully foreign-owned.

4. Do you need to be physically present in Singapore to incorporate a subsidiary?

No. You need not be physically present in Singapore. Registered filing agents in Singapore like us can assist in the application online. You can find out more about services here.

However, you may need to visit Singapore to set up a corporate bank account. Most Singapore banks will ask for a face-to-face interview with the company’s shareholders and directors. Remote calls can be an option sometimes in certain circumstances.

5. Does the subsidiary need to file corporate tax?

A subsidiary has enrolled automatically for corporate income tax with the Inland Revenue Authority of Singapore (IRAS) after successful incorporation.

A subsidiary will have to register for Goods and Services Tax (GST) with IRAS if its turnover per annum is more than SGD $1 million.

6. How much is the tax rate for a subsidiary?

A subsidiary is subjected to a flat corporate tax rate of 17% on all taxable income. Subsidiaries can be eligible for some tax benefits and exemptions like all Singapore incorporated companies.

Some of the benefits include (for Year of Assessment (YA) 2010 to 2019):

• For the first 3 YAs, full tax exemption on chargeable income for the first S$100,000. An additional 50% tax exemption on the subsequent chargeable income of S$200,000.
• Thereafter, the first chargeable income of S$10,000 enjoys a tax exemption of 75%. The next chargeable income of SGD $290,000 will enjoy a further 50% tax exemption.
• Reduction or full exemption of tax on foreign-sourced income from countries that have signed Double-Taxation Agreements (DTAs) with Singapore, such as China and Japan.

These benefits are available by fulfilling certain conditions only. You can refer to this article on corporate tax in Singapore for details.

7. Can the subsidiary repatriate its capital or profits to the ‘parent company’?

Yes. Subjected to under the Companies Act capital return requirements, a wholly-owned subsidiary will be free to send any capital or profits it has back to the parent company in general.

8. If the ‘parent company’ becomes insolvent, what happens to the subsidiary?

The parent company will be shielded from liabilities against its subsidiary’s creditors in the event it becomes bankrupt or goes under insolvency. However, the reverse is not true as the parent company has controlling ownership of the subsidiary.

Thus, if the parent company goes under, the liquidator can sell off part or all of the subsidiary’s assets to pay off the debts of the parent company.

Incorporating a subsidiary is a fairly fast and straightforward process with plenty of benefits. It can be useful for a Singaporean company to limit its liabilities and risks, or for a foreign-owned business to have a presence in Singapore.

Get in touch with us today

If you need assistance in incorporating a subsidiary, please do not hesitate to get in touch with us.

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