The process of incorporation of a new firm by a Singaporeans (Singapore citizens and permanent residents) is very straightforward. There are several considerations that you must take into account while incorporating a new business.
Legal Form for the New Entity
The first decision for a resident is to select the type of business entity to form. The three most common business entity forms available in Singapore are: Sole Proprietorship, Limited Liability Partnership and Private Limited Company. These are explained below:
Private Limited Company
This is the most popular business entity in Singapore. Unlike a Sole Proprietorship or a Limited Liability Partnership, it has a separate legal status from its shareholders and directors with the result that they have limited liabilities for the debts and losses of the company. Such an entity usually has the words ‘Pte Ltd’ as part of its name. In many European countries or the US, this legal form is commonly known as a Corporation. This form is also referred to as an LLC.
For more information, please see Guide to Singapore Private Limited Company registration and Singapore company incorporation FAQs.
Limited Liability Partnership
A Limited Liability Partnership (LLP) is a partnership with private limited company setup. A LLP gives owners the flexibility of operating as a partnership while having a separate legal identity similar to a private limited company. This structure is suitable for individuals engaged in professional services such as lawyers, architects, accountants and management consultants. Singapore citizens, residents, and employment pass holders can register a LLP. Foreign individuals and companies may also register an LLP but must appoint a local manager.
For more details, see Guide to Limited Liability Partnership registration
Sole Proprietorship
A Sole Proprietorship is the simplest form of business entity with only one owner who is the sole decision maker and responsible for all assets and liabilities belonging to the business. Singaporeans may register a sole proprietorship. Foreigner individuals and companies may also register a sole proprietorship but must appoint a Singapore resident manager.
For more details, see Guide to Sole Proprietorship registration
Most Common Choice
Among the three types of business structures in Singapore i.e. Limited Liability Company (LLC), Limited Liability Partnership (LLP), and Sole Proprietorship (SP), setting up a LLC (also called private limited company) is the most preferred and most widely used incorporation vehicle used by entrepreneurs. The reasons are clear:
- A limited liability company is the most flexible and advanced type of business entity available.
- A limited liability company is a legal entity on its own separate from its owners. Therefore its liabilities do not extend to its owners.
- A limited liability company enjoys special tax exemptions in Singapore not available to other types of business structures.
- A limited liability company has perpetual existence.
Tax Considerations
Your company’s taxable income for the year will be subject to corporate tax in Singapore. There is no tax on capital gains or dividend distributions for Singapore companies. Any after-tax income of the company can be distributed to its shareholders tax free. Corporate tax rate in Singapore is a flat low rate of 17%. Tax exemptions are available that make the effective tax rate for annual profits of up to S$300,000 less than 9%. It’s also important to note that Singapore companies can easily avoid any double taxation when conducting international trade. A Singapore company can claim tax credit for any tax paid overseas.
All in all, Singapore offers a very attractive proposition for establishing and operating a business for entrepreneurs. In fact, Singapore is ranked as #1 in the world for ease of doing business by the World Bank. To learn more about Singapore advantages, see Why Singapore.
