What Is A Singapore Subsidiary Company And When Do You Need One?

Do you want to incorporate your business in Singapore? Setting up a Subsidiary Company is the best option for you.

Businesses that plan to explore the Singapore market often choose to incorporate a subsidiary company that enables them to expand their footprints while taking all the benefits of being a private company.

Understanding the concept of a subsidiary company and its application can allow you to make informed strategic decisions.

Therefore, this blog will explore the definition, features, and circumstances under which setting up a subsidiary company is prudent. By the end, you’ll understand how subsidiaries function and why they are a globally favored corporate structure for businesses.

What Is A Subsidiary Company In Singapore?

The Singapore Companies Act, 1967 (the “Act”) clearly defines a Subsidiary Company as a corporation controlled by another corporation, known as the Holding Company through:

1. Composition of the Board of Directors, or
2. More than half of the voting power of the company

To clarify, a subsidiary company is a business entity that is controlled by another company, known as the parent or holding company, which typically owns a majority of the subsidiary’s shares (more than 50%) or has the power to appoint and remove all or majority of Directors in the company, thereby exercising significant influence over its operations, policies, and decisions.

However, a subsidiary maintains its legal identity separately from the parent company.

Key Characteristics Of A Subsidiary Company:

• Separate Legal Entity: The subsidiary operates as a separate legal entity distinct from its owners, shareholders, and directors, capable of entering into contracts, owning property, and being liable for its debts.
• Ownership: The holding or parent company holds a majority stake but may allow for minority shareholders,
• Governance: While the parent company exercises control, the subsidiary has its own management team and governance structure.
• Taxation: A subsidiary’s profits and losses are taxed independently from the parent company.
• Limited Liability: The parent company’s liability is limited to the amount invested in the subsidiary.

Establishing A Foreign Subsidiary Company In Singapore

The Accounting and Corporate Regulatory Authority (ACRA) allows foreign companies to have a subsidiary company in Singapore, which can be held by the foreign company as the sole shareholder, thereby allowing 100% shareholding by such foreign companies.

However, such a subsidiary company is required to get incorporated and registered as a local company with the ACRA.

All companies incorporated in Singapore as private limited companies are treated the same under the law, regardless of their ownership structure.

Therefore, such a foreign subsidiary company must comply with the same laws and regulations and follow the same registration process as any other local company incorporated in Singapore.

This means that establishing a subsidiary company involves the following:

1. Registering it as a private limited company / local company under the Singapore Companies Act with ACRA: Refer to our guide ‘From Idea To Incorporation: Forming A Singapore Private Limited Company’ to know the step-by-step process of a Singapore Company formation.
2. ACRA mandates foreign Entrepreneurs/companies must appoint a registered filing agent to submit their applications through its Bizfile+ portal. One can simply log on to the Bizfile+ portal or click here to check the registration status of a filing agent by entering its name or UEN no.
3. Fulfilling minimum basic requirements under the Act, such as having a Director, minimum shareholding, registered office, etc.: Refer to our guide ‘Directorship Options For Foreign Owned Singapore Companies’ to know the requirements and answer all your confusion relating to the appointment of a local director.
4. Comply with regular compliance requirements such as maintaining statutory records, submitting annual filings, tax compliance with IRAS, compliance with local labor and employment laws, etc.

When Do You Need A Subsidiary Company?

There are various strategic, operational, and financial considerations when setting up a subsidiary company in Singapore. However, understanding when to establish a subsidiary is crucial for making informed decisions. Here are some scenarios where a subsidiary structure is most beneficial:

Expanding to the Singapore Market

For businesses looking to enter Singapore, setting up a subsidiary company is the most practical solution to establish a localized presence.

Holding Assets

Setting up a subsidiary enables you to hold and manage assets in its name, such as intellectual property, real estate, or financial investments.

Managing Risks and Liabilities

Operating in different markets or industries comes with inherent risks. A subsidiary structure helps limit the financial and legal liabilities up to the subsidiary company only, ensuring that the parent company’s assets remain protected in case of adverse events.

Compliance With Local Laws

Establishing a subsidiary allows you to comply with local regulations, adapt to market conditions, and build trust with local stakeholders.

Tax Efficiency

Subsidiaries enjoy the same tax benefits as local companies in Singapore. Therefore, they can benefit from local tax incentives and treaties, such as exemptions for newly incorporated entities and access to a competitive corporate tax rate. This helps optimize the group’s overall tax liability.

Brand Differentiation

When companies wish to target diverse customer segments, subsidiaries allow businesses to create distinct brands tailored to specific markets or industries.

Segregating Business Operations

Businesses with diverse operations, such as manufacturing, distribution, and services, may set up subsidiaries to streamline management and accountability for each segment.

Investment and Joint Ventures

Subsidiaries can be used as a medium for joint ventures or strategic partnerships, enabling businesses to collaborate with local or international entities while maintaining control over specific operations.

Non-Compliance And Penalties For Subsidiary Companies

Failure to comply with the statutory obligations, such as filing annual returns, maintaining proper accounting records, adhering to tax filing requirements, etc., can result in significant penalties, including fines, disqualification of directors, or legal action against the company. In cases of serious non-compliance, the law may hold the directors, including any representatives of the parent company, personally accountable. While the parent company’s liability is generally limited to its shareholding, it may face reputational and financial risks if its subsidiary is penalized for non-compliance.

Conclusion

Entering the Singapore market by incorporating a subsidiary company is a versatile and strategic tool most businesses choose. It safeguards your assets and benefits you from tax and other friendly policies of Singapore’s dynamic economy.

However, going through the entire process can sometimes be challenging, especially for those with limited knowledge of Singapore laws and regulatory frameworks.

This is where 3E Accounting Services can help. Contact us for everything, from registering your business with ACRA to handling your accounting taxation and even assisting you with IT and designing, software sales and development, and everything else you need to do for a successful business set-up in Singapore.

We will be a one-stop solution for your business!