We will analyse the 3 types of companies, which are usually used for setting up the presence of the foreign business in Singapore, by such criteria: legal status, taxation, liabilities, filing requirements, hiring policy, allowed activities and so on.
- Subsidiary is a detached legal entity that is responsible before the law in its own name.
- Branch Office hasn’t its own legal entity. Being the foreign company’s extension, it shares the same entity with it.
- Representative Office doesn’t imply any legal entity as it is not a company in its traditional meaning but a temporary administrative formation.
- Subsidiary’s liabilities are limited with its share capital, and, therefore, the parent company doesn’t bear any responsibility in case of debts or legal issues.
- Branch Office exposes the parent company to risks as it is liable for all its Branch’s mistakes.
- Representative Office’s activity is also fully within its parent company’s liability.
- Subsidiary’s name must be unique in Singapore and sound non-vulgar.
- Branch’s name can copy the parent company’s name (though it is not mandatory) and must be unique and non-vulgar in the same time.
- Representative Office’s name must copy its parent company’s name and contain the phrase “Representative Office”.
- Subsidiary can trade, buy property, conclude contracts, incur debts, sue and be sued in its own name.
- Activity of the Branch is totally controlled by the parent firm, and the office isn’t empowered to buy property or make contracts. Any legal prosecution against the Office automatically impacts the foreign parent company. The Branch is allowed to profitable activity.
- Representative Office is designed for the “representative” non-profitable activity only (market study, building connections, and so on). Prohibited activities are trading, consultancy, advertising, supervising, mediating between the overseas parent company and clients, and renting.
Share/Paid-up Capital and Members
- Major part or 100 % of the Subsidiary’s shares belong to the parent company. The Subsidiary can have up to 50 members, but their membership doesn’t define the Subsidiary’s existence. Even after some of the members resign, sell their shares or become bankrupt, the company continues to operate with its active shares. Membership can be changed by selling the shares.
- Branch fully belongs to the parent company, and it forms the Branch’s paid-up capital (if any).
- Representative Office fully belongs to the parent company which contributes costs on the Office’s bank account (used for the expense centre operations only).
- Subsidiary must pay the Singapore’s corporate tax as a tax resident – at the rate of 17%. The new Subsidiary can benefit from the tax incentives: 0% for the first revenue of 100,000 SGD and 8.5% tax rate for the next 200,000 SGD. The Subsidiary can also expect to get tax exemptions: from the first 10,000 SGD earned, 75% of income is exempt from the corporate tax and from the rest of the income only 50% is taxed (provided that the total income isn’t more than 300,000 SGD).
- Branch isn’t the Singapore’s tax resident, and, therefore, its profits earned abroad aren’t taxable. Only if the profit was made inside the country, a corporate tax is imposed. Local tax incentives aren’t applied.
- Representative Office doesn’t pay taxes at all as it doesn’t make profits.
- Subsidiary is obliged to file its audited accounts and tax returns annually.
- Branch Office must file not only its own audited accounts but also its parent company’s ones.
- Representative Office has neither to handle annual filing nor to maintain statutory documentation.
- Subsidiary must get a local director (adult Singaporean/PR) appointed at the very beginning of the incorporation. Later, this nominee can be replaced by the real foreign director if he decides to shift to Singapore using either the Employment Pass or the EntrePass.
- Incorporation of the Branch implies appointing 2 Singaporean agents.
- Representative Office must be led by the Representative sent by the foreign company.
- Subsidiary can hire locals and foreigner without any limitations (for foreigners limitations can be set by their working passes).
- Branch Office can also hire local and foreign manpower using special Singapore work visas.
- Representative Office is allowed to hire the maximum of 5 local employees (it is considered that such number is sufficient for the representative activity).
- Subsidiary is a permanent business formation that can operate until being would up.
- Branch is also a permanent formation that can function until its closure.
- Representative Office is a temporary formation that is established only for 3 years without an option of extension. During this 3-year period, the Office must be renewed annually. In 3 years, the parent company must upgrade the Office to another profitable business formation.