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To setup a branch or subsidiary in singapore?

  • When a foreign company wants to establish a presence in Singapore, it has two main options: setting up a branch office or creating a subsidiary. Each structure has distinct implications in terms of legal identity, taxation, compliance, and operational flexibility. Here’s a detailed comparison:

    Branch Office
    Subsidiary
    Legal Identity and Structure
    • Not a separate legal entity.
    • Operates as an extension of the parent company.
    • The parent company is fully liable for the activities and obligations of the branch.
    • Must have the same name as the parent company.
    • A separate legal entity incorporated in Singapore (usually as a private limited company, or Pte. Ltd.).
    • Has its own legal identity, distinct from the parent company.
    • The parent company’s liability is limited to its investment in the subsidiary.
    • Can have a different name from the parent company.
    Taxation
    • Taxed at the corporate tax rate of 17% on Singapore-sourced income.
    • Not eligible for local tax incentives and exemptions.
    • May face withholding taxes on repatriated profits.
    • Taxed at the corporate tax rate of 17%.
    • Eligible for local tax incentives and exemptions (e.g., tax exemptions for new start-ups).
    • Dividends distributed to the parent company are generally exempt from withholding tax.
    Compliance and Regulatory Requirements
    • Requires registration with the Accounting and Corporate Regulatory Authority (ACRA) as a foreign company.
    • Must appoint at least one local agent to handle compliance matters.
    • Required to file audited financial statements and annual returns.
    • Requires incorporation with ACRA.
    • Must comply with local corporate governance requirements, including appointing at least one local director.
    • Needs to maintain its own accounting records and file annual returns and audited financial statements.
    Operational Flexibility
    • Activities are typically restricted to those specified by the parent company.
    • Operations are closely tied to the parent company’s directives.
    • Easier to set up but may face limitations in terms of business activities.
    • Greater operational flexibility and autonomy.
    • Can engage in a broader range of business activities.
    • Can make independent business decisions tailored to the Singapore market.
    Funding and Profit Repatriation
    • Funded directly by the parent company.
    • Profits are typically repatriated back to the parent company.
    • No separate capital requirements.
    • Funded through share capital and can raise funds independently.
    • Profits can be retained or distributed as dividends.
    • Subject to Singapore regulations on capital and profit repatriation.
    Liability and Risk
    • Parent company is directly liable for all actions and liabilities of the branch.
    • Higher risk exposure for the parent company’s assets.
    • Liability is limited to the subsidiary’s assets and the parent company’s investment.
    • Reduced risk exposure for the parent company.
    Decision Factors
    Suitable for companies looking for a straightforward entry with limited activities and willing to assume direct liability.
    Ideal for companies seeking a long-term presence, operational flexibility, and limited liability.

    Conclusion

    The choice between setting up a branch office and a subsidiary in Singapore depends on the foreign company’s strategic goals, desired level of control, liability tolerance, and operational needs. Consulting with local legal and business advisors is recommended to ensure compliance with Singaporean laws and to make an informed decision.