How to start A Subsidiary Company in Singapore

A corporation typically sets up a subsidiary firm for a specific purpose. Often, most subsidiary firms are set up to either manufacture or market their parent company’s product. While a subsidiary company is treated as an independent firm, it is essentially still an extension and a part of the parent company.

This business structure has become an ideal solution for many Singapore companies for various reasons. One is that choosing this method of conducting business limits the company’s legal and liability obligations.

Another reason is that starting a local subsidiary company in Singapore allows global companies to benefit from the current taxation system in Singapore. This will enable them to ensure they keep to the different countries’ regulations, hence diversifying their risks. Additionally, it also helps reduces the cost involving localisation and hiring of international staff.

What do I need to be aware of in order to start a subsidiary company in Singapore?

Setting up a local subsidiary company is an ideal method to encourage business growth. Here are some essential requirements you need to ensure before starting anything:

A paid-up capital of at least SGD$1 is necessary to start a local subsidiary.
A minimum of one director who holds either permanent residency or citizenship and has no criminal records must be present in the subsidiary.
The subsidiary must be ACRA-registered (Accounting and Corporate Regulatory Authority).
The subsidiary must have a registered office address (a residential address is accepted).
The subsidiary must, within the initial three months, register their tax accounts with IRAS (Inland Revenue Authority of Singapore) as well as nominate and register an auditor with ACRA.

What are some compliances the subsidiary needs to adhere to after registration?

Corporation compliances are a vital factor in any business’s success. Not only is it legally necessary, but it also enables the protection and enhancement of your business’s reputation.

Licenses and permits: There are two essential Singapore business licenses: A permit license and a company license. The permit license is necessary for pawnbrokers, money changers, estate agents, and commercial agents. In contrast, the company license is required for any locally incorporated firm or international company with a Singapore branch office.
Customs registration: Any local company has the option to register as either a specialist or general importer. Since the beginning of 2009, all import and export numbers have been registered under Unique Entity Number (UEN).
GST Registration: The GST, or Goods and Services Tax, is a consumption tax applied to most goods and services offered in Singapore. If your subsidiary does not supply goods or services in Singapore, it is not subjected to GST registration.
CPF registration: Every Singaporean employee needs to have a CPF account to receive the employer’s contribution and benefits. Employees who are living with and married to a Singaporean are also entitled to CPF contribution.
Annual filing: Every locally registered business is required to file its annual returns. This process consists of submitting relevant documents and reports to ACRA.

Are Subsidiary Companies exempted from audit in Singapore?

Subsidiary companies can also enjoy the audit exemption if they are part of a group that qualifies as a “small group”. For a group to qualify as a small group, it must meet at least two of the three criteria mentioned above on a consolidated basis for the immediate past two consecutive financial years.

The Benefits of Establishing a Subsidiary in Singapore

Establishing a subsidiary in Singapore offers the advantage of creating a distinct legal entity separate from the parent company. This separation implies that the parent company is shielded from direct liability concerning the subsidiary’s financial obligations or any legal challenges it may face.

Therefore, should the subsidiary face financial difficulties or insolvency, the parent company can safeguard its assets, limiting its exposure to the liabilities and preventing creditors from making direct claims against them.

Moreover, subsidiaries that are incorporated in Singapore and managed locally qualify as local tax residents. This designation allows foreign companies to benefit from Singapore’s attractive corporate tax environment by establishing their subsidiaries within the country.

Taxation Overview for Subsidiaries in Singapore

Subsidiaries in Singapore are levied a uniform corporate tax rate of 17% on their taxable income. Additionally, subsidiaries with an annual turnover exceeding S$1 million are required to charge a 9% Goods and Services Tax (GST) on most goods and services provided from 1 January 2024 onward.

As with all companies incorporated in Singapore, subsidiaries might qualify for various tax incentives and exemptions designed to support business growth.

Key tax incentives available from the Year of Assessment (YA) 2020 include:

In the initial three Years of Assessment (YAs), subsidiaries can benefit from a 75% tax exemption on the first S$100,000 of taxable income and a subsequent 50% exemption on the next S$100,000.
Following this period, a 75% tax exemption applies to the first S$10,000 of taxable income, with a 50% exemption on the next S$190,000.
Subsidiaries may also receive reductions or complete exemptions on income sourced from foreign countries that have Double Taxation Agreements (DTAs) with Singapore, covering significant markets like Japan and China.

These benefits are conditional, offering pathways for subsidiaries to optimize their tax liabilities. For a more detailed exploration of corporate tax implications in Singapore, consider reviewing additional resources or articles focused on corporate taxation within the region.

Conclusion

Setting up a local subsidiary can often be time-consuming and stressful if you do not have the necessary resources and fundamentals. However, with this brief but thorough guideline, you can start the procedure seamlessly. Still, should you require professional advice on setting up a local subsidiary correctly, AG Singapore can help you with that.

We are an award-winning accounting firm that provides not only affordable accounting services in Singapore but also a variety of solutions such as auditing services, company incorporation services, corporate financing services, GST services, and tax services, among others. To know more about our all-in-one corporation solutions, you may reach us at johnwoo@ag-singapore.com