Company Setup Options for Foreign Companies
With its modern facilities and infrastructure, bilingual and well educated workforce, attractive government incentives and strategic location in the Asia Pacific region, Singapore is well positioned to be the regional headquarters for foreign corporate entities to expand their business operations in the region.
Depending on the anticipated extent and scope of operations, a foreign corporation has several options to choose from, when contemplating how it should set-up its operations in Singapore. This article provides a comparative analysis of the different types of business entities that foreign corporate entities can choose from, as well as a detailed guide on the difference between obtaining an employment pass for their employees and appointing nominees.
Foreign corporate entities that are considering setting-up in Singapore can choose from the following three options:
- Representative Office; or
- Branch Office; or
- Subsidiary Company (private limited company).
The table below presents a quick snapshot of the main differences between the three business entities:
|Representative Office||Branch Office||Subsidiary Company|
|Ownership||Intended as a temporary set-up by the foreign company. 100% owned by the foreign company||Treated as an extension of the foreign company. 100% owned by the foreign company||100% can be wholly owned by a foreign company|
|Business Operations||Not allowed to engage in any commercial revenue-generating activities||Can conduct business activities that falls within the scope of its parent company||Can conduct business activities|
|Revenue||N.A.||Can repatriate 100% of its earnings||Can repatriate 100% of its earnings|
|Employees||Limited to five employees||No restrictions||No restrictions|
|Statutory Requirements||Appointment of Chief Representative from main head office to relocate to Singapore||Registered office address in Singapore||Registered office address in Singapore|
|Sales turnover of foreign company must exceed US$250,000||Appoint two agents who are ordinarily resident in Singapore||Appoint at least one director who is ordinarily resident in Singapore|
|Documentary proof that the foreign company has been established for more than three years||Appoint a company secretary|
|Annual Compliance Requirements||Annual renewal of registration||Submission of audited accounts of the head office||Filing of tax returns|
|Mandatory to upgrade to a Branch Office or Subsidiary Company after three years.||Submission of audited accounts||Submission of audited accounts|
|Filing of Annual Returns|
Option 1: Representative Office
A representative office is the first possibility foreign companies can pursue when intending to set up in Singapore. Such setups are intended to be temporary and short-term, and cannot engage in any commercial activities that would otherwise generate revenue. Furthermore, at any one instance, the maximum number of employees that the office can have is five.
In order to successfully establish a representative office, the foreign company must meet a few statutory requirements:
- A Chief Representative from the head office to be appointed to relocate to Singapore
- The foreign entity’s sales turnover should exceed US$250,000
- Documented proof that the foreign company has been established for a period more than three years
In addition, the set-up must also meet some annual compliance requirements:-
- An annual renewal of its registration
- Upgrading to a Branch Office or Subsidiary Company after the initial period of three years
Option 2: Branch Office
Branch offices are extensions of the foreign company itself and thus allowed to conduct the relevant business activities that fall within its scope of business. Unlike a registered office, it is able to repatriate 100% of its earnings and revenue, and there are no limitations on the number of employees it can have.
In order to successfully register a branch office in the country, the foreign company must meet the following statutory requirements:
- The branch office must have a registered office address in Singapore
- Two agents who are ordinarily resident in Singapore are to be appointed
The branch office must also meet both of these annual compliance requirements:
- Submission of its own annual audited accounts
- Submission of annual audited accounts of the head office
Option 3: Subsidiary Company
A subsidiary company is essentially a private limited company with a corporate entity as the major shareholder. It can be 100% completely owned by the foreign entity. Not only can it conduct its relevant business activities here in Singapore, but also repatriate and account for all of its earnings made. There are no limitations on the number of employees it can have.
To register as a subsidiary company, the foreign company must meet the following statutory requirements:
- The subsidiary must have a registered office address in Singapore
- At least one director who is ordinarily resident in Singapore is to be appointed
- A company secretary to be appointed
Furthermore, the following annual compliance conditions must also be met:
- Submission of annual audited accounts
- Filing of Annual Returns to be completed
- Filing of tax returns to be completed
Looking at the choices: Which option is best for you and your company?
As seen from the section above, it is evident that a Representative Office should only be seen as a short-term solution and is recommended for foreign companies that only intend to explore the feasibility of conducting their business in the market. Particularly for foreign companies that intend to enter into highly competitive markets or a market that is currently monopolised, this may be a good strategy to build up networks and get a grasp of the market, before transitioning to a more flexible business structure, such as a subsidiary company. However, it should be noted that the restriction with regards to commercial revenue-generating activities extends to entering contracts, lease of any property etc., as the representative office is not considered a separate legal entity.
The key distinction of Option 1 is that there is no requirement for a Representative Office to engage any employees who are ordinarily resident in Singapore. For Options (2) and (3), however, they are required to engage employees who are ordinarily resident. A Singapore resident, Singapore Permanent Resident, or holders of an Employment Pass or Dependent’s Pass who have a registered address in Singapore can be said to be ordinarily resident. In the case of a Branch Office, this would be the requirement to have at least two agents who are ordinarily resident. Similar to the requirements for a director, each agent must be a natural person of at least 18 years of age and should fulfil the following criteria:
- Is not an undischarged bankrupt by a Singapore Court or a foreign court
- Is not an unfit director of an insolvent company
- Is not a director of a company which was wound up on grounds of national security or interest
- Has not been convicted of any offence involving fraud or dishonesty
- Has not been convicted in Singapore of any offence in connection with the formation or management of a corporation
For a Subsidiary Company, it is necessary to appoint at least one director who is ordinarily resident, and besides fulfilling the requirements as stated above, the director should be able to discharge the directors’ duties competently. There are no limits to the number of directors that a subsidiary company can have and foreign companies often choose to nominate at least one director from their head office to keep track of the local subsidiaries’ operations. The appointment of a foreign director can be effected whilst the foreign director is overseas.
Most importantly, a Subsidiary Company is a business entity that can enjoy the attractive incentives in place. In particular, foreign parent companies can look forward to enjoying the benefits from two specific schemes, the Global Trader Programme (“GTP”) and Regional Headquarters Award (“RHQ”).
Global Trader Programme (GTP)
The GTP targeted at encouraging investment from foreign corporations who earn income from qualifying commodity derivatives or freight derivatives, by offering a concessionary tax rate for a five-year renewable period. To qualify, a company would need to fulfil the following requirements:
- Worldwide networks and a good track record;
- Conduct substantial international trading activities;
- Incur a significant amount of directly attributable local business spending;
- Employ a commensurate number of experienced trading professionals, with key decision making power in Singapore;
- Utilise Singapore’s banking and financial services;
- Utilise Singapore’s ancillary services such as trade and logistics etc.; and
- Contribute training and development of trading expertise in Singapore.
Given that Singapore has already established itself as a frontrunner in Asia for its established and efficient ports and airports by sweeping up awards at the 13th Supply Chain Awards Asia 2014 , it would naturally not be difficult for companies to find opportunities and cost savings in engaging our local trade and logistics services.
Regional Headquarters Award (RHQ)
The RHQ on the other hand, is intended to incentivise foreign companies who choose to commence operations of a regional headquarters in Singapore.
Companies that qualify will enjoy a concessionary tax rate of 10%. The requirements that should be fulfilled by the entity are:
- Provides corporate support or headquarters-related services and business expertise on a regional or global expertise;
- Well established in its respective business sector or industry;
- Substantial level of approved headquarter activities;
- Personnel employed for headquarters operations is based in Singapore, which includes management, professionals, technical personnel and other supporting staff; and
- Business spending
Relocating Staff vs Engaging Nominees
As mentioned above, for foreign companies that choose either option (2) or (3), they are required to appoint an agent or director who is ordinarily resident in Singapore. Employment Pass holders or Dependent Pass holders can qualify for this role. However, as the approval of a Dependent Pass is contingent on an existing Employment Pass holder, this article will only cover the application process for an Employment Pass holder.
There are two ways to apply for an Employment Pass, (A) manual submission, or (B) electronic submission. The key difference in both applications is that (B) is considerably faster and takes a much shorter time to process than the manual method. However, to utilise the electronic submission portal of the Ministry of Manpower (“MOM”), one is required to possess a SingPass, as well as be a licensed Employment Agency, or be the authorised representative appointed by the locally incorporated company. The SingPass is an identification number that can be obtained by any Singapore citizen, Singapore Permanent Resident, or holders of an Employment Pass. In most cases, engaging an Employment Agency is the recommended route, as an Employment Agency would be very familiar with the procedures and documentation required; and would be able to assist you in liaising with MOM.
That said, an Employment Pass can only be applied for after the company has been incorporated. Hence, the foreign company may need to seek the services of a nominee agent or director in the interim for the incorporation process, before transitioning over once the Employment Pass has been approved and the employee has relocated to Singapore. The requirements to obtain an Employment Pass are set out below:
- A fixed monthly salary of at least S$3,300 for young candidates and fresh graduates (not that older applicants should command a higher salary commensurate to their experience)**
- Possess acceptable degrees, professional qualifications or specialist skills*
- Other relevant factors, such as work experience, job profile, track record, etc.
* Do note that certificates from India or China must undergo verification processes and be submitted together with the application. Do consult a professional employment agency, to avoid double payment of application fees, as no refunds are provided when an application is rejected.
**As a general guideline, the former Employment Pass categories and their corresponding qualifying salaries are as follows:
|Eligibility Requirements||Applicable for|
Generally, companies would choose individuals with whom they share a relationship of mutual trust and understanding with, to undertake the role of becoming the local agent or director. However, given that foreign companies may be new to the country and not have any contacts or network in place, it is possible to engage nominee services from a professional corporate services firm, to fulfil this statutory requirement. The benefit of engaging a professional nominee is that he or she is often very familiar with the statutory obligations of his or her role; and can assist in reminding the company on the statutory deadlines that should be met, as well as undertake the role of a liaison person, between the company, its local auditors, company secretary and bank officers.