Setting Up A Holding Company In Singapore

WHAT IS A HOLDING COMPANY?

A Singapore holding company is typically a non-operating corporation that owns a controlling or non-controlling interest in another company or a number of other companies. The assets that a holding corporation can own include real estate, patents, trademarks, stocks, works of art, etc. All operations are carried out simultaneously by the subsidiary firms it owns.

If a holding company fully owns another business, the second business is often referred to as its “wholly owned subsidiary.”

The “parent” or “umbrella” company is another name for the holding company.

A holding company that is registered in Singapore is referred to as a Singapore holding company. A Singapore holding company may own subsidiaries and assets that are located anywhere in the world.

A holding company’s primary objective is to hold the majority of the stock or membership interests in other businesses. It doesn’t carry out any company operations, sell any goods or services, or manufacture anything. Nonetheless, the subsidiary businesses it controls continue to perform the actual functions of product manufacturing, product sales, and other commercial operations. These organizations are known as operating companies.

CHARACTERISTICS HOLDING COMPANY IN SINGAPORE

• There are numerous ways to structure a holding company. It may be a foundation, trust, limited liability company, or limited partnership. A holding company structure that is most frequently employed is a limited liability company.
• Through its participation in (or control over) the board of the subsidiary, the holding company frequently exercises significant control over its subsidiaries. Yet, the holding company normally does not oversee the daily activities of a subsidiary.
• The holding company is insulated from the subsidiary’s obligations. A Singapore holding company structure’s main attraction is its loss insulation.
• The resources of its subsidiaries can be coordinated and combined by the parent. The parent gains if a subsidiary does well, while the parent only suffers the loss of the initial investment made in the subsidiary if the subsidiary performs poorly.

WHAT IS THE DIFFERENCE BETWEEN HOLDING COMPANY AND PARENT COMPANY IN SINGAPORE

Although they are similar, a holding company’s and a parent company’s legal definitions are not the same. In other words, a business may be a holding company but not a parent business, and vice versa.

A parent company is a business that is obliged by the Accounting Standards to prepare financial statements for a group under the Companies Act (CA) (referring to the parent company and its subsidiaries). Hence, if a holding company is legally compelled to file the financial statements of the group, the firm would also qualify as a parent company in terms of accounting.

Holding corporations and parent businesses can be distinguished from one another based on their operations in addition to their legal definitions. The common understanding is that holding companies lack their own businesses and are only created to manage other subsidiaries. On the other hand, in addition to owning and managing subsidiaries, parent firms frequently manage daily operations.

Refer to Singapore company registration for more information.

TWO TYPES OF HOLDING COMPANIES IN SINGAPORE

In Singapore, there are two different kinds of holding companies:

• Investment holding company (IHC) – For businesses outside the insurance, banking, and finance sectors, this is the standard corporate form.
• Financial holding company – This is a particular type of corporate structure for those who own businesses in the banking, insurance, and finance industries.

FEATURES OF INVESTMENT HOLDING COMPANY IN SINGAPORE

• If the investment holding company has assets like shares and properties,

The investors are supposed to hold them for a long period of time.

They can generate revenue from non-trade activities, such as interest, rental income, and dividend income.

• If the investors wish to regularly trade assets, like stocks or real estate, and then resell them for more money, the majority of their income comes from trading activities (the proper term is investment dealing as Accounting and Corporate Regulatory Authority described). As a result, they should establish an investment dealing business rather than IHC.
• By deducting the following costs from their income from non-trading investments, investment holding companies in Singapore can claim tax deductions.

1. Direct costs for earning investment income, such as interest paid on financing your investment activities
2. Statutory and regulatory costs associated with complying with regulations, such as audit, accounting, company secretary, tax filing, and bank-related fees, etc.
3. Administrative and operating costs, such as rent, payroll, energy costs, retirement contributions, and directors’ fees, that are directly related to running an investment holding company.

FEATURES OF FINANCIAL HOLDING COMPANIES IN SINGAPORE

A business with at least one subsidiary that is a bank or an authorized insurance company in Singapore is known as a financial holding company.

Financial holding firms come in two different varieties.

• The head of a financial group is a holding company known as the ultimate financial holding company.
• A holding company that manages a division of a bigger financial group is referred to as an intermediate financial holding company.

The following conditions must be met in order to establish a financial holding company in Singapore, according to the FINANCIAL HOLDING COMPANIES ACT 2013.

• Financial holding corporations may be organized as cooperatives or limited liability partnerships, and
• The holding company either owns 50% or more of the stock or assets of each subsidiary it controls,
• The holding company may be entitled to at least 50% of the revenues generated by the Singapore subsidiary firm or may carry 50% of the liabilities.

One thing to keep in mind is that a financial holding company needs an independent auditor to monitor the financial activities of the organisation. Following is a list of these activities:

• serve as a holding company for subsidiaries
• purchase stock in any company as permitted by law
• Support other businesses in your holding by providing them with financial and other help.
• Manage subsidiaries
• providing processing services for finances, advice, and accounting
• The Financial Holding Company shall get the Monetary Authority of Singapore’s written authorization before engaging in any activity.

DIFFERENT WAYS TO SET UP A HOLDING COMPANY IN SINGAPORE

The objectives of the company will determine the best structure for the holding company.

Private LLCs are the most common, but here are some alternative structures that have additional options.

• Corporation – Even though corporations can offer dynamic business administration and a clearly defined management structure, they are typically set up as holding companies. It can also benefit from corporation tax benefits from tax treaties because it is a taxable entity.
• Trust – Planning for wealth and succession is best done with a corporation and trust combination. Foreign trusts are the greatest choice if the goal is the effective transfer of assets across generations, together with asset protection and tax optimization.
• Limited liability company (LLC) – An LLC is an ideal choice if the goal is to protect assets from liabilities. Compared to corporations, LLCs are easier to form and have fewer compliance requirements.
• Foundation – All jurisdictions recognize foundations as legal entities. Trusts won’t be recognized if the legal system of a country of residence doesn’t distinguish between formal and beneficial ownership. In this situation, a foundation and business together would be a better alternative.

REQUIREMENTS FOR REGISTERING A SINGAPORE HOLDING COMPANY

• 1 SGD is the minimum paid-up capital.
• At least one shareholder, whether an individual or business
• At least one Singaporean resident local director
• At least one company secretary who resides in Singapore
• Locally registered business or residence address
• Business bank account

STEPS TO SETTING UP A SINGAPORE HOLDING COMPANY

• The first step is to pick a company name and have ACRA approve it.
• The next step is to have the following details and paperwork on hand for the business registration. These include the name of the business, its registered office address, its constitutions, the identities and residential addresses of the shareholders, directors, and company secretary, as well as signed authorizations from each director nominee and the company secretary appointed to serve in those capacities.
• The total time needed to register a firm is about a week.
• After submitting the paperwork to ACRA, it won’t take long for your Singapore holding company to get operational. However, in some circumstances, it can take more time if ACRA sends the registration application to other organizations for additional review.
• Opening a business bank account will take two to four weeks. Refer to Singapore corporate bank account opening for more information.
• It will take roughly a month to get a director’s business visa.

POST-REGISTRATION REQUIREMENTS & COMPLIANCE

Depending on the structure they select, holding companies in Singapore must maintain compliance just like any other business structure. The most common requirements are:

• first board meeting within 30 days after incorporation
• appointment of an auditor
• Disclosure of director’s interests and declaration of disqualification
• distribution of securities
• Share certificates must be issued within 60 days.
• the payment of stamp duty
• Registration for corporate tax and director’s income tax
• registering for GST/IEC
• Letterhead and statutory registers
• Minutes maintenance

Other annual compliance requirements include the following:

• Board meetings with an interval of no more than 120 days
• Statutory audit of accounts
• Filing of annual returns
• Filing of financial statements
• Annual general meeting
• Director’s report

ADVANTAGES OF SETTING UP A HOLDING COMPANY IN SINGAPORE

• Limited liability – Shareholders’ liability is limited to the amount that they have contributed to the paid-up capital because the holding company is recognized as a separate legal entity. In the event that the holding company incurs any losses or liabilities, their private assets are also not in danger. An investment holding company can accept additional shareholders since equity is represented by shares.
• Unlimited potential for investment – Through the investment holding company, businessmen can invest in a variety of enterprises in Singapore. The potential liabilities do not impact the subsidiaries, even if an investment holding company enters riskier industries.
• Unrestricted property ownership – Holding companies can buy, own, or sell real estate even while they don’t conduct business operations.
• Flexible corporate structure – The holding company can be created under any structure. The minimal share capital needed to establish a Singapore holding company is just 1 SGD.

TAX BENEFITS AVAILABLE FOR SINGAPORE FOR HOLDING COMPANIES

Tax exemption of foreign-sourced income

If the “subject to tax” and “foreign headline tax rate” requirements are met, dividends paid from the holding’s foreign subsidiaries may be excluded from corporation tax. 

In conclusion, these requirements mandate that the profits of the subsidiary be potentially subject to a tax rate of at least 15% in the subsidiary’s country of residence. Due to exclusions or incentives, no actual payment is necessary to be made to the subsidiary’s country of residence. 

As a result, when given to the parent business, dividends from tax-neutral or low-tax jurisdictions may be subject to tax in Singapore. Singapore currently lacks any regulations governing controlled foreign companies. It’s possible that foreign subsidiaries’ undistributed income won’t be taxed. 

Single-tier corporate tax system

Corporate profits in Singapore are only subject to a single tax under the country’s single-tier or full-imputation tax structure. As a result, Singapore doesn’t tax dividends paid by the subsidiary to the Singapore parent company, and no tax is deducted from dividend payments made to residents or non-residents. 

Interest paid by a subsidiary to the parent is not subject to withholding tax and is considered a pre-tax expense. However, if no exemptions apply and the tax rate is not lowered by a tax treaty, royalties and some technical service fees paid to foreign firms may be subject to a 10% and 17% tax, respectively. 

No capital gains tax

There are no transfer taxes or capital gains taxes in Singapore when selling shares. As a result, the parent’s sales of assets or subsidiaries are not taxable events at the level of the subsidiary or the holding company. Yet, they can be classified as ordinary income and be liable to income tax if they are a company’s primary source of income and the holding time of the sold asset was short. 

Tax agreement benefits

Around 80 nations have Double Taxation Agreements (DTAs) with Singapore. This indicates that dividends, interests, and royalties paid to Singapore resident holdings from subsidiaries situated in the treaty nations may be subject to lower taxes if DTA provisions are used. 

They might even be completely excluded from having to withhold taxes. Tax advantages under DTAs, however, are only accessible if the Singapore holding is regarded as a tax resident in Singapore. Tax residency in Singapore is typically determined using the “control and management” test. 

This means that if strategic choices are made, and control and management are exercised in Singapore, the entity is regarded as a resident. The location of the board meetings serves as the key determining factor in this situation.

DISADVANTAGES OF SETTING UP A HOLDING COMPANY IN SINGAPORE

Even when the parent company lacks sufficient knowledge of the subsidiary’s operations, it may occasionally be necessary for it to make decisions on behalf of the subsidiary. As a result of the misinformation, decision-makers may come to different conclusions and use different tactics, leading to conflicting decisions.

Minority shareholders who are unsure of how the holding company conducts business may be at a disadvantage. Majority shareholders, for instance, might favour suppliers with whom they have personal ties or who use transfer pricing techniques.

The subsidiary could also be unaware of the objectives and actions of the parent firm. Also, there can be conflicts of interest between the managers of the two businesses, which would lead to poor business judgments.

Due to the subsidiary’s opaque business practices, the stock process of the parent firm may suffer in the market. Due to the subordinate firm’s weak financial performance, the owning company may also experience disproportionate market penalties. But, if the parent company’s operation succeeds, it does not entirely receive credit for it.

Reach out to us at Relin Consultants for more information.