Why are holding company structures so popular in Singapore? Why are so many foreign SMEs and multinationals using this structure? Our guide explores the distinct features of a holding company, the eligibility criteria, and benefits
The characteristics of a holding company
A holding company is a legal entity which own shares and controls other companies, with the main business operations of the entity being carried out by its subsidiary companies. A holding company is normally set-up to mitigate risks for the owners of the entity, as their obligations are limited to the shares or assets associated with the subsidiary in which the holding company is held.
A holding company structure is generally used by medium to larger sized foreign companies, primarily for taxation advantages. It is important to note however that, foreign companies and investors wanting to set-up a holding company in Singapore, will need to appoint a local resident director or a trusted service provider, like Hawksford to complete their registration.
Learn more about our Singapore Company Registration Services here.
The eligibility criteria for setting up a holding company:
- Have one or more shareholders within the company
- A corporate bank account may need to be set-up
- Have at least one local director which is a resident of Singapore
- Have a registered physical address approved by the URA (Urban Redevelopment Authority)
- Have $1 of minimum share capital
- Appoint a resident secretary within 6 months after registering the company
Base erosion and profit shifting (BEPS) substance requirements
Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax, and to mitigate this, Singapore has adopted, economic substance requirements for companies, which requires taxpayers (including holding companies) to have an adequate number of employees with necessary qualifications and to incur certain operating expenditures to for their core income-generating activities. The substance requirements aim to improve the coherence of international tax rules and ensure a more transparent tax environment in Singapore.
Singapore as an ideal jurisdiction
Singapore is an attractive jurisdiction to set up a holding company for many foreign companies, due to its strategic geographic location, economic connectivity, world class infrastructure, strong legal framework, efficient tax system, competent workforce, and political stability with its neighbouring regions. Many companies also setup shop in the island-state to access the high-growth markets of South East Asia and ASEAN.
You can read more about why Singapore is the gateway to access ASEAN, here.
The benefits of setting up a holding company:
- Protection against financial lost and liability
- A holding company is not liable for actions by its subsidiaries that results in financial loss or penalties.
- Taxation advantages
- A holding company can take advantage of double tax treaties, incentives and avoid unnecessary taxes on capital gains, dividends as well as on royalties and interests.
- 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.
- Holding companies can consolidate their bookkeeping, which means less paperwork, and gains from one subsidiary can be used to off-set another.
- If you're looking for more information on the taxation incentives available for your foreign company, please contact our highly skilled Accounting and Tax experts here.
- Protection of intangible assets
- By transferring the ownership of valuable assets (such as patents, trademarks, IP, etc.) into a separate subsidiary, a holding company can provide protection on assets from breaches.
- Deductible expenses
- The Accounting and Corporate Regulatory Authority in Singapore (ACRA) allows some deductible expenses for holding companies; These include regulatory and statutory expenses as well as some direct and in direct expenses such as management and insurance fees.
Singapore’s strong regulatory framework, tax policies, and legal system, make it an ideal jurisdiction for setting up a holding company for foreign companies looking to access the high-growth markets of South East Asia.
If you are a foreign investor looking to set-up a holding company in Singapore within a particular timeframe, you may need to appoint a local director or corporate service provider to successfully do so. At Hawksford, our business incorporation and company formation experts will take you through the eligibility criteria, help you prepare the necessary documents and liaise with the Companies Register and government bodies so you can save time and focus on growing your business.
This article is intended for general information only and is not intended to apply to constitute legal advice. Hawksford accepts no liability for any errors or for any loss, of any nature, to any person by reliance on this article.
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Associate Director, Business Development
Serene has extensive expertise in capital markets, structured finance as well as trust structuring and succession planning for corporate and high net worth individual clients
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