In 2007, we saw a young Alphabet Inc., Google’s parent company, move into Singapore. The rest, as we know, is history. It started by forming a subsidiary company in Singapore with only 24 people.
By 2016, the company had already expanded to a lavish corporate space occupying over 1,000 people. By the end of 2019, the numbers had spiked up by 50% to reach 1,500.
Alphabet Inc and several others have successfully established a name for themselves worldwide after setting their foot in the country. It is because Singapore offers a plethora of reasons to establish a holding company and run it successfully.
This article discusses ten reasons for setting up a holding company in Singapore.
What is a Singapore holding company?
A holding company in Singapore is one that holds authority over its subsidiaries. The control can either be a majority stake in its equity (at least 51%) or control the composition of the board of directors.
For more information, read our article on holding companies and the reasons behind their existence.
Holding company examples in Singapore
Singapore is a breeding ground for companies. It can safely be termed as the corporate Disneyland. So it goes without saying that there are several top-notch MNCs with a holding company or a subsidiary in Singapore.
Here are some of them –
- Banyan Tree Holdings
- Fraser and Neave
- Trek 2000 International
- DBS Group
In addition, there are a number of brands with at least a subsidiary in the country. It includes organizations such as Volkswagen, Alphabet, Citigroup, and Johnson & Johnson.
Ten reasons to set up your holding company in Singapore
Here are ten reasons to set up your holding company in Singapore –
1. A flourishing economy
Singapore is a flourishing economy that has a lot to offer to the business landscape. The country is in the middle of several trading routes and has an abundance of skilled and unskilled labor to take complete advantage of it.
2. Loss insulation
Singapore allows holding companies to stay insulated from the losses of their subsidiaries. It means if the owning company doesn’t actively engage in or does not have control over the action of its subsidiary, the legal caricature of Singapore offers complete protection to the holding companies and ensures loss insulation.
But, of course, there are exceptions for fraud and negligence.
3. Tax optimization
With effect from 1 January 2003, the imputation system was replaced by the “one-tier” corporate tax system, under which profits are taxed at the corporate level only.
Dividends are therefore exempt from further tax when paid out to shareholders. Taxpayers were given a period of five years to make the transition into the one-tier system, which was fully implemented with effect on 1 January 2008.
A non-resident who has an investment in a Singapore company, by way of share or stock holdings, may receive income or payments from the company in the form of:
- a reduction of the paid-up capital of the company, or
- a distribution in the course of the liquidation of the company.
No Singapore tax is payable on the second and third types of payments as the receipts are of a capital nature. In the case of dividends, there is no dividend withholding tax in Singapore.
So if the corporation is able to optimize its tax structure, it can ensure one of the lowest tax outflows compared to operating anywhere else in the world.
4. Exemption from Capital Gains tax
Capital gains tax refers to a tax on the transfer of a capital asset for money or money’s worth. Singapore doesn’t have any law for charging capital gain tax. Any transfer by the holding company to its subsidiary does not entail tax unless the transfer of such assets is the primary business of the parent.
5. Double Taxation Agreements with over 80 countries
Double taxation treaties help ensure that the holding doesn’t end up paying double tax on the same income. Singapore currently has signed DTAs (Double Taxation Agreements) with over 80 countries, allowing foreign subsidiaries’ revenues to flow seamlessly to the parent.
But you must be careful that such exemption is available only if the entity is considered a tax resident in Singapore. For that to happen, it must obtain a Certificate of Residence by registering itself with IRAS (Inland Revenue Authority of Singapore).
6. Foreign Tax Credit pooling
Singapore has a foreign tax credit (FTC) pooling system in place that allows foreign companies to establish their holdings and engage in seamless transfers. The country undertakes a pooled mechanism for taxation rather than a source-by-source basis. It will enable holdings to minimize excess tax outflow.
7. Stable political landscape
Singapore is one of the most politically stable countries you are likely to find. They have never been at war, nor are they under constant boundary disputes. Plus, the government is welcoming and allows ease of business for foreign companies looking to establish their holding companies in the country.
8. Clutter-free compliance
Like everything else, Singapore’s corporate laws ensure a clutter-free compliance process too. It means that you are unlikely to face any hassles while submitting your periodic financial documents.
The prescribed accounting standards are also bereft of any unnecessary complications that may make it difficult for you to continue your operations. As long as you follow the law of the land, you should not face any hindrance.
9. Wide choice of business structures
The country’s law allows different options for structuring your holding company. For example, you can opt for a limited liability company, partnership, foundation, or trust.
These options allow structural flexibility and enable foreign organizations to operate as they would deem best for themselves.
10. Tax exemptions for IP holdings
The country offers a variety of tax exemptions and tax incentives for IP holdings. For example, it has a unique IP Development Incentive (IDI) scheme, which entails lower corporate tax on companies that fall under the prescribed categories. Plus, companies can also apply for qualifying expenditures incurred for research and development activities.
Challenges involved in setting up a holding company in Singapore
When a foreign entity sets out to establish a holding company, there can be some challenges to slow down your acclimatization process. Here are some of the common issues you may face while setting a company in Singapore –
Semantic or language barriers are common when you are engaging in international business. So it is imperative for you to consider the languages spoken in the country in which you want to establish a holding company.
Even though a majority of the Singaporean population speaks Mandarin and Malay, over 1/3rd of its people are accustomed to English. It is key to helping a foreign company seamlessly operate in the country.
Every religion has its way of going about things. From food to mannerisms, everything changes when you shift from one country to another. So unless they prepare themselves for what is coming, it would be difficult for a foreign company to operate a holding company in Singapore smoothly, at least during the initial period.
A foreign company is already acclimatized with a specific currency, but when you are going international, there are a plethora of currencies that your workforce will have to manage. So when you are initially setting up your holding company in Singapore, you will have to understand the exchange rates between Singapore Dollar and the other currency.
Managing global teams
When you are operating in multiple countries, you inadvertently have a diverse workforce operating across the world. So you will need to establish a clear communication route to help you ensure a clutter-free workflow.
A business cannot exist on its own. There are a plethora of external factors, such as politics, inter-country relationships, and the law of the land, that would influence the way your company operates. If you can use it to your benefit, there are a lot of ways you can use foreign policies to your advantage.
Singapore welcomes holding companies with both hands
Setting up a holding company in a country such as Singapore allows your subsidiaries to operate smoothly. It also allows the parent entity to manage its operations and its subsidiaries effortlessly.
The country allows a plethora of benefits, and its clutter-free business landscape ensures that every foreign company seamlessly establishes itself within the country. Be it taxation, legal, or political aspects, Singapore is one of the best places to establish a holding company.
As an investment, Singapore is one of the best options investors should consider. It has something for everyone, and that makes it unique.