Different Ways Foreign Companies Can Set Up Shop In Singapore
Singapore consistently ranks as one of the best places in the world to do business in. A stable political environment, an advanced transport infrastructure and a sound financial system all serve to make this island state an attractive place for business. Consequently, it has managed to pull foreign direct investments (FDI) from multinational firms looking to grow in the Asia Pacific region. Indeed, a walk in downtown Singapore reveals many foreign names in the food and beverage (F&B) trade, the financial services industry and the music scene. Similarly, a drive through the industrial regions brings one past factories and warehouses operated by foreign firms, whether they are companies dealing in construction equipment or big names in the pharmaceutical world. Some companies are even housed in properties managed by foreign-owned real estate investment trusts (REITs).
With Singapore being such an attractive investment destination, there certainly has to be ways in which companies settle in the country and start operations. To this end, the Accounting & Corporate Regulatory Authority (ACRA), Singapore’s regulator in the business environment, has three distinct ways in which foreign companies may operate in Singapore. Each offers a unique structure that is suited for companies in different circumstances.
Probably the most popular way to set foot in Singapore is to register a subsidiary company. A subsidiary company is a Private Limited company that is incorporated locally and majority-owned by a foreign company. As a subsidiary company is a legal entity in the eyes of the law in Singapore, it is bound by the Companies Act, requiring it to adhere to the same regulations that bind other such companies. It has to appoint a company secretary within six months of incorporation and conduct its first annual general meeting (AGM) within 18 months. However, even though it is owned by a foreign company, it is treated as a separate legal entity in Singapore. As such, liabilities of this company are not extended to the parent company. Since it is a local entity, the company is treated as a resident local company and is eligible for tax incentives granted by the Singapore government.
Another way in which a foreign company may conduct its business here is to set up a local Branch office. A branch office, like a subsidiary company, is also a legal entity, but it is treated as an extension of the parent company. The branch office must carry the same name as the parent company, unless there is a conflict with an existing Singapore company. As a Branch office is viewed as a non-resident company, it is not accorded the same benefits as a subsidiary company. It does not enjoy tax incentives and any liabilities incurred in Singapore have to be borne by the parent company. Consequently, a branch office is a less attractive option for many foreign companies.
A foreign company that is exploring Singapore as a possible business location and is not ready to fully commit its resources may choose to set up a representative office. A representative office is a temporary setup without a legal status. Unlike its aforementioned counterparts, a representative office is not allowed to conduct commercial activities like perform profit-oriented transactions, raise invoices, obtain letters of credit and lease a warehouse. It may, however, conduct market research and feasibility studies on behalf of its parent company. It may, for the purpose of determining the suitability of Singapore as a business location, hire up to five employees. A representative office must be renewed on an annual basis with ACRA and may exist for up to three years. Thereafter, it must upgrade to a subsidiary company or a branch office, or cease operations.
A foreign company should carefully consider its intention of setting up its presence in Singapore and explore the best option with which to achieve it. Choosing the right route will ensure that it puts its best foot forward in what may be the start of a long-lasting business relationship with the Asia Pacific region.
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