Singapore is one of the most attractive destinations for setting up a holding company. A holding company acts as a parent company for other businesses, allowing for centralized management and ownership of subsidiaries. Whether you are an entrepreneur looking to expand your business or a multinational corporation looking for a strategic location for your holding company, Singapore is the place to be.
What is a Holding Company?
A holding company is a legal entity that controls other companies by owning their shares, while its subsidiary companies conduct the main business operations. A holding company, as defined in the Singapore Companies Act 1967, is a company that has control over other companies by owning a majority of their voting shares. It operates as a parent company, with the purpose of managing and coordinating its subsidiary companies. It is typically established to reduce the risk for the owners by limiting their liabilities to the shares or assets of the subsidiary in which the holding company has a stake.
Whether it is a foreign SME or multinational, setting up a holding company model in Singapore is considered one of the best set up due to its stable political environment, strong economy, and favorable tax policies. In this article, we will discuss the implications and factors to be considered if you are planning on setting up a holding company in Singapore.
Singapore has an attractive tax regime for companies, so setting up your holding company in Singapore might allow one to leverage the available tax incentives to adjust their tax liabilities. The following is a list of taxes applicable to a holding subsidiary company.
- Capital Gain Tax – Singapore has a 0% capital gains tax.
- Corporate Income Tax – Singapore has a flat corporate income tax rate of 17%.
- Dividends – In Singapore, all dividends paid by a company are exempt from tax in the hands of the shareholders.
- Interest: Companies are subject to tax on Interests as the same falls in the category of income accruing in or derived from Singapore and foreign income remitted or deemed remitted to Singapore. And hence the same is taxable at a rate of 17%.
Tax incentives for Startups in Singapore
- A newly incorporated company that satisfies the qualifying conditions (viz. be incorporated in Singapore, and must be a tax resident of Singapore and has no more than 20 shareholders of which at least one is an individual shareholder holding at least 10% of shares) will be taxed as follows:
- For each of its first three consecutive tax years – a corporate tax rate of 0% on the first S$100,000 of taxable income and approximately 8.5% effective tax rate on the next S$200,000 of taxable income. The taxable income above S$300,000 will be charged at the normal headline corporate tax rate of 17%.
- From the fourth tax year onwards – approximately 8.5% effective tax rate on taxable income of up to S$300,000 per annum. The taxable income above S$300,000 will be charged at the normal headline corporate tax rate of 17%.
- In addition, a low personal income tax rate, of 22%, attracts foreign talent to Singapore.
- Singapore has Double Taxation Agreements (DTAs) in place with over 80 countries and subsidiary companies located in some countries may benefit from the reduced tax rates or may even be entirely exempt from withholding tax obligations. Companies obtaining dividends from foreign-sourced incomes must be declared in Singapore and they will be taxed here. However, when the taxes for the respective dividends were paid in the foreign country they were obtained in, no additional taxes will be imposed in Singapore on the principle of the avoidance of double taxation.
Businesses are generally required to be audited unless they are sole proprietorships, partnerships, or Representative Offices. Under the Companies Act, dormant private companies and private companies meeting the ‘small company’ definition under the Act are exempted from audits.
Ease of doing Business
Singapore is second on the World Bank’s Ease of Doing Business global ranking. It fares particularly well in enforcing contracts, setting up a business, obtaining construction permits, protecting minority interests, and paying taxes—it is in the top 10 globally in these five categories. Furthermore, it is in the top 30 for obtaining credit, resolving bankruptcies, registering property, and getting electricity.
Singapore requires as few as two procedures to set up a business and these can be completed in a short time, at a low cost in terms of application fee, and with minimal paid-in capital (World Bank Group 2020).
Singapore is also ranked among the top three countries in the World Economic Forum’s Global Competitiveness Index (World Economic Forum 2019).
Business Environment/Ecosystem for Technology Companies
Singapore ranked 17th position in the Startup Genome and GEN 2020 – Singapore has achieved considerable success in building a support system for startups. In a recent assessment in Startup Genome and GEN 2020, its ecosystem was ranked 17th in the world and fourth in Asia, behind Beijing, Shanghai, and Tokyo. It was ahead of other well-known tech hubs, like Shenzhen and Bengaluru, and all other ecosystems in Southeast Asia.
Singapore’s reputation for nurturing startups developed only over the last decade.
Factors Contributing to the Performance of Singapore’s Startup Ecosystem – Several factors make the Singapore tech startup ecosystem vibrant. While some factors such as tax rates, infrastructure, and ease of doing business help all companies, other factors such as government grants and the volume of venture capital are specific to startups.
At present, the Singapore government is driving initiatives on several fronts to promote tech entrepreneurship and growth in the ecosystem. A few of them are mentioned herein below-
Spring Singapore Enabling Enterprises
Responsible for helping SMEs grow and build trust in products and services. Work with partners to help SMEs with technology and innovation, among others.
Ministry of ManPower
Oversees the manpower needs for the Singapore economy, Introduced the “Entrepass” for foreign entrepreneurs to start their businesses.
In conclusion, setting up a subsidiary company in Singapore has numerous benefits including a favorable business environment, a strategic location, and a robust legal system. However, businesses must be aware of the compliance requirements, taxes, and regulations associated with the formation of a subsidiary.
It is essential to work with experienced professionals if you are planning to set up a subsidiary in Singapore. We at BLOCK LEGAL can provide your company with the right guidance and preparation to ensure a smooth and successful subsidiary setup and your businesses can take advantage of the many opportunities that Singapore has to offer and grow their operations in the region.