With Singapore’s long-standing reputation as one of the globe’s best places to do business, world-beating effective corporate tax rates of 0% to 17%, as well as many attractive government incentives, there has been a continuous influx of foreign investors considering starting a business in Singapore.
Whether you wish to run your Singapore business from overseas, or are contemplating an extended stay for a more hands-on approach, this guide looks at the three main options available to registering a foreign company in Singapore; thus allowing foreign investors to start a business.
Starting Up a Company in Singapore
First and foremost, one would need to choose the business entity to incorporate. As a foreign investor starting a business in Singapore, you would need to engage the services of a professional corporate searvices provider, as the application for incorporation is submitted via the Accounting and Corporate Regulatory Authority’s (“ACRA”, the national Company Registrar) electronic portal. To do so, one would require a SingPass, which can only be obtained by Singapore citizens, Singapore Permanent Residents and those who have been issued a FIN number alongside with their employment pass.
Singapore’s business incorporation process is one of the fastest in the world and takes an average of just two-and-a-half days to complete, assuming that ACRA and any other relevant government bodies that oversees the industry that your business wishes to enter in, do not object to your application. A good professional corporate services provider will advise you how to start a business in Singapore based on what information is required for the application process, which includes the following:
- Business Name
- Proposed Principal Activities of the Business
- Minimum paid-up capital of S$1.00*
- Local registered office address
- Name and relevant details of one shareholder
- Name and relevant details of one resident director
Unlike various European countries, one would note that the requirement for the minimum paid-up capital is nominal and this does not have to be evidenced by a bank statement. Rather, corporate bank accounts are typically opened as part of the post-incorporation process. However, foreigners who are applying for the EntrePass will need to show that their Singapore company has a paid-up capital of at least S$50,000 by showing a bank statement.
It should be noted that it is a statutory requirement that a company incorporated in Singapore has a local registered office address, as well as a director who is ordinarily resident in Singapore. Individuals who are deemed to be an “ordinarily resident” would have their usual place of residence in Singapore and Singapore Citizens, Singapore Permanent Residents, EntrePass holders or Employment Pass holders with local residential addresses can be accepted under this definition.
Incorporating a Company and Relocating to Singapore to Run Your Business
In order to relocate to Singapore, one would need an Employment Pass or EntrePass, which can be applied for once the company is incorporated. Thereafter, the foreign entity can choose, from the following options, to set-up its operations in Singapore:
Option 1: Private Limited Company + Employment Pass
This first option would mean that the foreign corporation incorporates a wholly-owned subsidiary company that is limited by shares and its employee would hold an Employment Pass, which is discussed in the next section of this article.
Option 2: Private Limited Company + EntrePass
This second option would mean that the foreign corporation incorporates a wholly-owned subsidiary that is limited by shares and the employee holds an Entre-Pass, which is discussed in detail in the next section of this article.
For both Options 1 and 2, it should be noted that a local resident director is still required for the incorporation process; hence, a nominee director may be engaged for the purpose of fulfilling this statutory requirement whilst the employee’s Employment Pass or EntrePass is in the process of being approved.
Alternatively, one can choose the third Option 3, appointing a nominee resident director to satisfy this statutory requirement as long as the company carries out its operations in Singapore. This does away with the need to relocate a foreign employee to Singapore.
Application for EntrePass vs Employment Pass
In a nutshell, an Employment Pass may seem easier to obtain, as most of its eligibility criteria is contingent on the individual applicant, instead of the business. That said, with the government’s recent clamping down on foreign labour, many market analysts have noted that it is becoming increasingly difficult to obtain an Employment Pass. Hence, engaging a good employment agency who can advise you on the application process, as well as assist you in liaising with the Ministry of Manpower (“MOM”) can be helpful. In addition, a licensed employment agency will be able to submit your application via MOM’s electronic portal, which is much faster than going by the manual route.
For an Entrepass, it is evident that one needs extensive preparation, particularly with the requirement of submitting the 10-page business plan that details the business goals and objectives. It would be very useful to first research on the industries that are well established in Singapore, as well as the growing industries that are being supported and encouraged by the government. Naturally, industries in their infancy with high value, or show potential to grow (such as the IT industry) will be able to benefit from more government incentives and are more likely to receive support from recognised research institutions or government-approved incubators. Given that most of Singapore is very technologically savvy, reaching out to venture capitalists or incubators via email or Skype is a fairly easy process.
Another aspect of the EntrePass is the requirement to progressively hire locals. While Singapore has an industrious, skilled workforce, their expectations are significantly higher than their peers in the nearby neighbouring countries. In a recent survey conducted by one of the largest job banks across a variety of academic disciplines in local tertiary institutions, it found that one in five graduates expect no less than S$4,000 for their starting pay . Naturally, for the business owner who is struggling with keeping costs low, this requirement may eventually become a burden.
Most importantly, as reflected above, one can apply for the Employment Pass once incorporation of the company is complete and the processing time is much faster than the EntrePass, which must be applied for within six months of incorporation. Hence, if one intends to apply for the EntrePass, do have your documents ready so that application can be made as soon as possible within the six month window.
Incorporating a Company and Running Your Business from Overseas
If one does not intend to relocate to Singapore, a nominee resident director can be appointed to satisfy the statutory requirement.
Option 3: Engaging a Resident Director
For foreign investors who wish to run their business from an overseas location without relocating any employees, one option is to engage a local resident director. This person may either be one of your local contacts whom you have established a relationship of mutual trust and understanding with, or a nominee director can be appointed. Typically, any corporate secretarial service provider would be able to provide you with contacts for a nominee director.
One essential thing to note is that the duties and responsibilities of a resident director are relatively onerous and the director will be held responsible if the company does fail in its statutory obligations, such as the late filing of its annual returns, or even the employees’ failure to make payment of taxes to the Inland Revenue Authority of Singapore (“IRAS”). Hence, many locals are often unwilling to undertake the role, due to the perception that being a resident director is not worth the trouble. Most local residents and nominee directors may require an advance deposit to safeguard against the risks that they may face, particularly if they are not directly involved in the day to day operations of the company.
A resident director should also fulfil the following requirements as stipulated under the Companies Act:
- A natural person of sound mind over 18 years of age (i.e. corporations cannot be a director)
- 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
- Has not been adjuged guilty of three or more offences within the last five years in relation to the requirements of the Companies Act
- Is not subject to a disqualification order under section 34, 35, 36 of the Limited Liability Partnerships Act
Another important thing to note is that maintaining a good relationship with the resident director is essential. In the event that the resident director refuses to sign documents, such as the company’s financial statements, or directors’ resolutions in writing (“DRIW”), this may pose difficulties to the company, as documents such as DRIW are essential for corporate transactions, such as the opening of a bank account, entering into agreements, etc. In addition, if the relationship sours and the resident director chooses to resign, the company will have to scramble and appoint a new resident director before the previous resident director resigns, to remain compliant under the Singapore Companies Act.
In summary, most foreign entrepreneurs feel that Option 1 is the most preferred option, for several reasons. First of all, the application process for an Employment Pass is less onerous than that of an EntrePass and the obligations required are also less stringent. However, when engaging for an internal employee to undertake the role of a director, the company should ensure that the employee is adequately informed of his or her responsibilities. Alternatively, the company should ensure that it engages a reputable professional corporate services firm like Rikvin to assist the company and its directors with complying with all the statutory requirements.