Should I Incorporate a Subsidiary, Representative Office or Branch Office?
Singapore has been established as a reputable financial and regional trading hub. Investors are drawn to its strategic location, pro-business environment, competitive workforce and forward-looking economic policies, which make the city-state a natural launch pad to the Asia Pacific region.
Foreign entities must register an entity in Singapore before commencing business activities here. They may consider three types of company structures when expanding their business here: A subsidiary, representative office or branch office.
Regulatory requirements will vary depending on the type of structure you choose. A key distinction is that representative offices are only allowed to conduct market research and liaison activities. To conduct business activities in Singapore, you may consider registering for a branch office or subsidiary. As representative offices are non-revenue generating, they do not require to file financial reports or conduct audits.
The purpose of a branch office is to facilitate the operations of a foreign parent company registered outside of Singapore. Branch offices are allowed to conduct any type of business activity that falls within the scope of its parent company and can repatriate its income.
Branch offices will only be taxed for the income derived in Singapore. For tax purposes, branch offices are viewed as non-residents and are subject to non-resident tax rates. As non-residents, branch offices are not eligible for tax incentives and exemptions. As a result, this corporate body may be less tax-efficient.
The parent company of a branch office will also be legally liable for all the debts and liabilities of the branch office. This means that legal action can be directly taken against the foreign parent company in a Singapore court.
Branch offices must appoint at least one local authorised representative, who is either a Singapore citizen or permanent resident, or an employee holding an employment pass. The shareholders, structure of company and its activities can be directed by the parent company. A local business address will also be required.
Branch offices are generally suitable for medium to large businesses with specialised operations worldwide, and that wish to conduct a wide range of business activities in Singapore.
A subsidiary company is a private limited company. Companies in Singapore can be fully foreign-owned, which allows foreign parent companies to incorporate a subsidiary company and own 100% of its shares.
A subsidiary company is considered a separate entity (from its parent company) and is treated as a local Singapore company. Unlike a branch office, the parent company and its assets cannot be held for the debts and liabilities of the subsidiary. A subsidiary company’s liability is thus limited to the share capital of the subsidiary.
Another advantage of subsidiaries is that they can perform business activities beyond that of their parent companies. It is also not necessary for subsidiaries to file the financial accounts of their parent companies. However, subsidiary companies are subject to much stricter rules, such as the filing of the firm’s audited/unaudited accounts yearly.
As subsidiary companies are regarded as tax residents, they are allowed to enjoy tax treaties, government incentives and tax exemptions. This makes subsidiaries more tax-efficient for small to medium-sized foreign parent companies who would like to reach the Asia-Pacific market. With a subsidiary company being a legal standalone entity, the parent company can protect its assets from losses associated with business risks.
A representative office is meant to be a temporary set-up and not intended to last more than 3 years. After the 3 years, the representative office must convert into either a subsidiary or branch office. This option is meant to help foreign companies explore the market in Singapore without conducting any profitable business activities. Instead of ACRA, most representative offices are registered with Enterprise Singapore. They must also state that it is a representative office in all their communication materials.
Since representative offices have no legal status in the eyes of the law, representative offices cannot sign contracts or trade either directly, or on behalf of their parent companies. However, the office must inform the authorities of any changes in representatives, address or registered activities. Parent companies are also liable for the acts, debts and activities of their representative offices in Singapore.
Representative offices are suitable for foreign companies that wish to study the business environment in Singapore before committing large-scale investments, explore opportunities in the region, or to manage non-core activities here. Enterprise Singapore. Parent companies must have a sales turnover of more than US$250,000 and must have been established for 3 or more years.
|Branch Office||Subsidiary Company||Representative Office|
|Legal Type||Viewed as an extension of the parent company (i.e. not a separate legal entity||Viewed as distinct from the parent company (i.e. a separate legal entity)||No legal status (i.e. a temporary non-income generating set-up)|
|Liabilities||Liabilities extend to parent company||Liabilities limited to subsidiary||Liabilities extend to parent company|
|Entity Name||Must be the same as the parent company||Can be the same or different from parent company||Must be the same as parent company and include ‘Representative Office’|
|Allowed Activities||Must be the same as the parent company||Can be the same or different from parent company||Can only conduct market research or feasibility studies|
|Validity Period||Perpetual (unless deregistered)||Perpetual (unless deregistered)||Has to be renewed every year up to a maximum of 3 years|
|Registration Process||1-2 days||1-2 days||3-5 days|
|Taxation||Taxed as non-resident, cannot enjoy local tax benefits||Taxed as resident, can enjoy local tax benefits||Not applicable (no legal status)|
|Annual Filing Requirements||Must file accounts of branch office & parent company||Must file accounts of subsidiary only||Not applicable (no legal status)|
|Staff Hiring:||No restrictions on hiring local or foreign staff||No restrictions on hiring local or foreign staff||Maximum of 5 local employees|
|Appointment of Officers:||Must appoint at least one local authorised representative||Must appoint at least one local resident director||Must relocate a representative from parent company|
Corporate Services Provider
Foreign companies that intend to set up a presence in Singapore are advised to engage the services of a professional corporate services firm to remain compliant to the various local regulatory requirements. Besides leaving you with more time and resources to focus on your core business, this ensures that your start-up would never miss a submission or statutory filing.
Corporate Services Singapore offers a complete suite of solutions, from company registration and corporate secretarial services to outsourced accounting, audit, tax and other professional corporate services. To set up your local entity in Singapore or find out more, give us a call at 6602 8286 or email us at firstname.lastname@example.org to get started today.