Large number of foreign companies set up an office in Singapore every year and use it as a base for operating in the region. With emerging market economies, especially Asia, leading the global economic recovery, investors are particularly bullish on Asia and Singapore is at the forefront of such activity. For more details on Singapore investment by country, refer to the Singapore Department of Statistics’ 2008 foreign direct investment figures.
Business Structure Considerations
Foreign companies has three different options for establishing an office in Singapore:
- Setup a Branch Office. A branch office is treated as an extension of the parent company and as such its liabilities extend to the parent company. A branch office is considered a non-resident company and tax exemptions available to resident companies (such as subsidiary company) are not available to a branch office. Given the above, setting up a branch office is not a popular choice for most small-to-midsize companies.
- Setup a Subsidiary Company. A subsidiary company is treated as a locally incorporated legal entity that’s separate from its parent company. As such, its liabilities do not extend to the parent company. A subsidiary company is treated as a resident company and therefore is eligible for tax exemptions available to local companies. Incorporating a subsidiary company in Singapore is the most popular choice for small to medium size foreign companies.
- Setup a Representative Office. A representative office setup is a temporary arrangement and has no legal status of its own. A foreign company can setup a representative office if they wish to first explore the market before setting up a full-fledged office such as a branch office or a subsidiary company. A representative office can only act as a cost center and can not be engaged in any revenue generating activities. A representative office setup can not be extended to more than 3 years at which point the foreign company is expected to upgrade to a branch office or a subsidiary company.
Staff Relocation Considerations
Foreign companies that have established their office in Singapore and wish to relocate some of their professional staff including executives from the head office will be required to apply for Employment Pass for each such staff member. Each application is subject to review and approval by the authorities and will be considered based on its own merits. Good tertiary level education, professional experience, and the employee salary are some of the key factors during application consideration. There is no quota system for employment pass applications.
Tax Considerations
Branch office and subsidiary company are subject to Singapore corporate taxation on their annual taxable income. Branch office is treated as non-resident company whereas a subsidiary company is normally treated as a resident company. Branch office setup is unable to take advantage of double tax treaties and tax exemptions available to resident companies.
A representative office is not subject to any taxation in Singapore as it’s not a revenue generating entity.
