The inward re-domiciliation regime was introduced in Singapore via the Companies (Amendment) Act 2017 that was passed by the parliament on 10 March 2017. The inward re-domiciliation regime was proposed after the review of Companies Act by the Ministry of Finance (MoF) and Accounting and Corporate Regulatory Authority (ACRA) and introduced after a public consultation on the proposal. The regime is expected to be in force by the first half of 2017.
The legislation sets out the procedure for migration/relocation of a foreign entity to Singapore through the transfer of its registration to the registrar of Singapore. The procedure is for the most part akin to the registration procedure of a subsidiary but the key advantage of re-domiciliation is that the entity can conserve its corporate history and branding after it morphs into a Singapore entity.
Re-domiciliation is a process whereby a foreign corporate entity transfers its registration from its original jurisdiction to a new jurisdiction. With the coming into effect of this regime foreign corporate entities that wish to be registered in Singapore and wish to be headquartered or based out of the city-state for whatsoever reason may choose to re-domicile instead of registering a subsidiary. This will cause minimum operational disruption to the company. The following is an overview of the rationale for re-domiciliation, its applicability, and requirements.
Related Article: Key amendments to companies act effective 31 march 2017
Why companies re-domicile?
Companies generally choose to re-domicile from the original jurisdictions for reasons such as
- Political stability
- Economic resilience
- Pro-business legislation
- Competitive tax regime
- Proximity to markets or suppliers
- Better access to capital markets or finances
- Better patent and research ecosystem
Thus companies that are stuck in jurisdictions that are mired in political and economic instability or slapped with unfavorable legislative changes or tax regimes in an original jurisdiction may choose to re-domicile to a jurisdiction that allows for such a migration. Foreign entities generally prefer Singapore for its political and economic stability, pro-business regulatory and tax regime and its proximity to the burgeoning Asian markets. More importantly, the enterprise ecosystem is mature with the sophisticated capital market and enterprise financial services.
Applicability:
In order to re-domicile, foreign entities must be corporate bodies that can adapt their legal structure to the companies limited by shares structure under the Companies Act. The original jurisdiction of the foreign entity must allow outward re-domiciliation. The foreign entity can register using the name used in its original jurisdiction but it must first reserve and apply for its intended name. The provisions relating to name reservation in the Companies Act will apply.
From the responses of the MOF and the ACRA to feedbacks received from public consultation, it is evident that some minimum size criteria would be proposed. Indicatively, the criteria for a small company as set out in 13th schedule of the Companies Act would likely be adopted as the minimum size criteria. In that case, in order to fulfill the minimum size requirement, a foreign entity must satisfy any two of the following criteria in the two financial years immediately preceding its application –
(a) revenue of the company for each financial year exceeds $10 million;
(b) a value of the company’s total assets at the end of each financial year exceeds $10 million;
(c) it has at the end of each financial year more than 50 employees.
The registrar has the power to refuse or revoke the registration of a re –domiciled foreign entity either on grounds of non-compliance or if the nature and purpose of the entity are illegal or in conflict with the interest of Singapore. However, the company may appeal to the Minister for Finance to review the registrar’s decision.
Registration Requirements:
- a certified copy of the charter, statute, constitution or memorandum or articles or other instrument constituting or defining its constitution (if any), in its place of incorporation;
- the constitution by which the foreign corporate entity proposes to be registered;
- such other documents as may be prescribed; some of the documents that would likely be required are some form of solvency statement, financial statement etc.
- the prescribed fee.
Post Registration Obligations:
- Any pre-existing charges on the entity must be registered within 30 days from the date of registration.
- Must complete and have ready for delivery share certificates to all persons registered as holders of existing shares or debentures within 60 days from the date of registration.
- Must submit to the registrar the proof of de-registration at its original jurisdiction within 60 days from the date of registration. An appeal for an extension of time may be submitted to the registrar if the proof cannot be submitted within the prescribed time.
Effects of re-domiciliation:
Re-domiciliation does not affect the continuity of the company as a legal entity or its assets. It does not result in the creation of new entity but merely leads to the continuation of the company in Singapore. It does not effectively impair any claims, obligations, liabilities, rights, judgments or proceedings in favor or against the company or its members or officers or agents.
Post re-domiciliation, a foreign company will become a Singapore company and must comply with the Companies Act like any other Singapore company.
Key Considerations
The criteria for qualification are still evolving and would become clear only when the regime is fully implemented.
The foreign entity must verify if the original jurisdiction allows for such re-domiciliation and check if the company is qualified for re-domiciliation.
It is good to ensure that the shareholders of the company are fully aware and in agreement of company re-domiciliation; obtain necessary consent or waivers allowing for the re-domiciliation.
The foreign entity must clearly evaluate the tax and legal implications of the re-domiciliation.
Singapore allows only inward re-domiciliation so it is a one-way road without an option to reverse the decision if the arrangement does not serve the original intent of the company.
Presently, Australia, Canada, New Zealand and British Virgin islands are some of the jurisdiction where re-domiciliation regime already exists. With the introduction of the regime, Singapore’s position as a competitive business hub is further reinforced. Foreign entities eyeing the Asian region would have greater flexibility in organizing their business structure.
The regime is timed well when companies are facing organizational dilemmas over the evolving tax reforms influenced by Base Erosion and Profit Shifting (BEPS) action plan. However, the tax should not be the only reason for relocation; the company must evaluate the strategic and operational benefits of changing its domicile.
Read more: Base Erosion and Profit Shifting: Potential Impact for Singapore »
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