An excellent place to start when creating your global holding structure is by forming a holding company in Singapore. Several multinational organizations have constructed their holding structures throughout the world to grow their operations and reduce taxable income, including in Singapore.
Numerous industry behemoths, like Berkshire Hathaway, DBS Group, and Alphabet (Google), have established their holding or subsidiary corporations in the city-state. Singapore is one of the best locations to start a holding company because of many factors. The ease of Singapore incorporation and its advantageous tax system are the most significant advantages.
Defining The Singapore Holding Company Structure
A Singapore holding company is a distinct legal entity that primarily holds controlling shares in other companies, termed subsidiaries. It does not engage in operational activities itself but rather possesses full or majority ownership of its subsidiaries, thereby exerting influence over their strategic decisions and operations.
Characteristics Of A Singapore Holding Company Structure
To establish a Singapore holding company, it is imperative to secure a pre-approved company name and ensure the presence of at least one resident director domiciled in Singapore. The holding entity is mandated to possess a registered address situated in Singapore, a pivotal requirement that needs approval from the Urban Redevelopment Authority (URA). This meticulous process underscores the importance of attention to detail and adherence to regulatory protocols in the establishment of such corporate entities within the Singaporean jurisdiction.
Differentiating Between Holding And Parent Companies
A parent company is legally mandated to prepare financial statements for a group, including itself and its subsidiaries, under the Companies Act. Thus, if a holding company is required to file group financial statements, it also qualifies as a parent company in accounting terms. While holding companies typically exist solely to manage subsidiaries, parent companies often engage in operational management alongside ownership and oversight of subsidiaries.
Types Of Holding Companies In Singapore
In Singapore, there are two distinct types of holding companies: investment holding companies (IHCs) and financial holding companies. IHCs are the standard corporate form for businesses outside of the insurance, banking, and finance sectors. On the other hand, financial holding companies are specifically designed for those who own businesses within the banking, insurance, and finance industries.
Singapore Holding Company Structure Has Many Benefits
Singapore should be at the top of your list if you’re considering building a holding structure. The Singaporean regulatory environment may provide many benefits when establishing a holding company.
Loss Reduction and Versatile Management
The number of subsidiaries and other assets your Singapore holding company may own is unrestricted. Furthermore, you are free to base the subsidiaries anywhere in the world, including Singapore.
By forming the company under a limited liability structure, liability protection can be ensured. A successful subsidiary will undoubtedly be advantageous to your holding company. However, your holding company will only suffer a loss on the owned shares if the subsidiary performs poorly or even fails.
In other words, the controlling company is not responsible for any subsidiary’s debts or liabilities.
Always keep safety in mind. At the subsidiary level, the same protection stands. The obligation of one subsidiary will not spread to another as long as each subsidiary has its unique legal entity position. As a result, each company unit should have its unique corporate entity. In this way, the holding structure’s companies won’t be impacted if one of the units collapses.
A holding structure may also result in better funding. Your Singapore holding company, for example, can flexibly use the earnings gathered to reinvest in or promote potential subsidiary companies.
Group Solace
A “group relief” procedure permits one company to transfer “loss items” to another company that is a part of the same group. The loss items may consist of the following:
- Unabsorbed capital allowances for the current year
- Unrecoverable trade losses for the current year
- Unused donations from the current year
The loss of some items of one company may be utilized to offset the revenue of another subsidiary in the holding structure under the relief system. The company that transfers losses is known as the transferor, while the entity that receives full losses is referred to as the main claimant.
Effortless incorporation
In Singapore, a holding company might fall under various business categories. Such entities include limited partnerships, and private companies limited by shares, which are commonly known as limited liability companies. Private limited companies are the most popular among them. Its distinct legal status, the limited liability of its members, and its eligibility for numerous tax-cut programs are the causes.
Online incorporation of a private limited company in Singapore can be completed in a few days. You will only need to provide the required documentation and the necessary information with the assistance of a reputable service provider. The service provider will submit the application on your behalf.
Tax Benefits In Singapore For Holding Companies
Singapore offers several tax benefits for holding companies, particularly concerning foreign-sourced income. Dividends from foreign subsidiaries can be exempt from Singaporean corporate tax if certain criteria are met, including a minimum foreign tax rate of 15% in the subsidiary’s country of residence. Additionally, Singapore operates a single-tier corporate tax system, where corporate profits are taxed only once. Dividends received by Singaporean parent companies are not taxed, and there are no withholding taxes on interest payments from subsidiaries.
Furthermore, Singapore does not levy capital gains tax or transfer taxes on the sale of shares, providing a favorable environment for asset sales. However, gains from asset sales may be subject to income tax if they are a company’s primary source of income and the holding period is short.
Singapore’s extensive network of Double Taxation Agreements (DTAs) with around 80 nations offers additional benefits. Under DTAs, dividends, interest, and royalties received by Singaporean holdings from treaty countries may be subject to lower taxes or even exempt from withholding taxes.
To qualify for DTA benefits, the Singapore holding must be considered a tax resident in Singapore, as determined by the “control and management” test. This test assesses whether strategic decisions and control are exercised in Singapore, with board meeting locations playing a crucial role. Overall, Singapore’s tax regime provides holding companies with advantageous structures and incentives for managing foreign-sourced income and transactions.
The Challenges of Forming a Holding Company in Singapore Structure
Your Singapore holding company ought to benefit the local economy and shouldn’t be created to avoid paying taxes. You must adhere to the following standards in Singapore:
Country-by-country reporting (CbCR)
Your holding company in Singapore must file a CbCR to the local tax regulatory authorities on behalf of each entity in the group if the following conditions are met:
It is the group’s ultimate parent entity and a Singapore tax resident. The group’s consolidated revenue in the previous year was at least $1,125 million, and the group has at least one foreign subsidiary.
Arm’s length principle
The arm’s length principle is accepted in Singapore for transfer prices between related parties. Simply put, when a firm in your holding structure transacts with another affiliated company (within the same group), the pricing must be the same as if the same transaction had taken place with a different unrelated company (outside the group).
Singapore Holding Company’s reporting issues
Additionally, complicated structures may make it more challenging to implement meticulous planning and efficient management. The paperwork will be tedious. There may be potential disputes between subsidiaries. Since decisions could affect the entire holding structure, they are likely to be made more slowly. When the holding company expands, new problems could start to appear.
How to Set up a Singapore Holding Company Structure
To set up a holding company in Singapore using the private limited company structure, the following incorporation conditions must be met:
- Take advantage of a Singapore business incorporation service
- Have a director who lives locally in Singapore
- Possess a Singapore office address
- Make a company secretary appointment within six months after establishment
- Appoint an auditor within 3 months after formation (unless your company is deemed a small company)
The Accounting and Corporate Regulatory Authority (ACRA) recommends that foreigners who want to register a company in Singapore use a Singapore company incorporation service. Additionally, the service provider can also aid you in meeting regulatory standards.
Register a Holding Corporation in Singapore
You must notify the service provider of your proposed company name before paying for your service package. Thereafter, certain needed documents must be provided upon request. The required documents primarily pertain to the company’s specifics and the backgrounds of its directors and shareholders (individuals or corporations).
The service provider will submit the full application to ACRA. The time for processing ranges from only 1 to 3 business days if all works out as planned. If the agency requires time to analyze your full application, it may be extended to a few weeks.
Conclusion
You are strongly advised by Premia TNC to set up your Singapore holding company as a private limited business. If you register distinct firms for various business ventures, a holding structure in Singapore can be relatively secure. It can also benefit significantly from Singapore’s tax system.
For one, corporate income tax rates are modest, compared to many other countries around the world. Additionally, due to tax-cutting measures, your Singapore holding company can enjoy partial tax exemptions and pay less. There are also no dividend tax or capital gains tax.
You should speak with a reliable service provider if you wish to establish a holding company in Singapore. In addition to assisting you with incorporation, they can also provide many other supplementary services that may be required by your company in its future.
How Can We Help?
The process of opening and registering a company in Singapore consists of several procedures. If you’re a foreigner interested in opening a local Singapore business, you’ll need to do so through a registered filing agent. At Premia TNC, a top-rated business consultancy firm, we understand everything it takes to register a business in Singapore. As such, we’ll be able to help you handle the process smoothly. Our experts will work hand in hand with you to achieve the desired results.
What is a Singapore holding company structure?
It's a setup where a Singapore-based company owns shares in other companies, enjoying tax benefits and strategic advantages.
What are the advantages of a Singapore holding company structure?
Tax benefits, stable environment, access to skilled workforce, and efficient regulations make it attractive for businesses.
