If you are a foreign company considering setting up an office here in Singapore, you should consider what company structure in Singapore you would follow.
There are three company structures being used in Singapore, namely: Branch Offices, Subsidiaries, or Representative Offices. This article is here to help you navigate these different office structures by showing you the intricacies of these three systems in a simple yet informative manner.
Why Even Consider This?
Foreign companies are required by law to register a business entity with the Accounting and Corporate Regulatory Authority (ACRA) of Singapore before conducting any business activities here in the country. Without ACRA’s approval, you cannot conduct your company’s operations here. You can check out our article on how to register a company in Singapore here if you want to dive deeper into the process.
Part of that registration process is selecting what kind of office you would be putting up in Singapore. All three office structures are good, but each office structure serves a specific purpose. If you choose the one that does not match your company’s purpose, you might end up wasting time and resources.
Types of Company Structure in Singapore
Branch Office
A branch office is an extension of its parent company. There are various reasons why companies would decide on opening a branch, but the common denominator is expansion.
Pros
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- Greater Level of Control. Parent companies have more control over branch offices since they are directly an extension of the company, not a separate branch or entity. All its activities and decision-making processes are overseen by the parent company, which helps in ensuring that every move done follows what the parent company envisions.
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- Branch Company is Subject to the Laws of the Parent Company. Since the branch office is a mere extension of the parent company, the laws that govern the company would be the laws where the parent company is primarily registered – making compliance easier.
Cons
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- Legal Liability. If any contracts were breached by the branch or other negligent acts done by the branch staff, people could sue the parent company. It is because the branch does not have a separate legal entity. Whatever the branch does wrong, the parent company would be equally responsible.
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- Activities are tied to the parent company. Whatever the parent company would be doing, the branches would have to follow suit.
Subsidiary
A subsidiary is a private limited company whose stocks or shares are owned by a different company. The shareholders of this company can be a local or foreign corporate entity. In Singapore, this is the preferred company structure in Singapore for small to medium-sized companies wanting to expand in the country because its business structure is a private limited company, or PTE LTD for short. If you want to learn why, read our article on the advantages of setting up a PTE LTD company in Singapore here.
Related Reference: Advantages of Setting Up a PTE LTD Company in Singapore
Pros
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- Separate Legal Entity. Unlike the branch offices, subsidiaries have a separate legal entity from their parent company. They can enter contracts and conduct business with other companies under their name. It also means that if something were to go wrong, the parent company wouldn’t be held liable for anything.
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- Can do things independently. Subsidiaries can act independently of their parent companies. This independence allows businesses to get creative and even tweak their products to cater to the locals without consulting with the parent company.
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- Tax Benefits. Singaporean subsidiaries are entitled to receive local tax benefits, which reduces the overall tax obligations of the corporate entity.
Cons
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- Lack of control. Because subsidiaries can act independently, parent companies can’t directly manage them. Although they have voting powers and ownership stakes in the subsidiary, it does not give them the power to make decisions on their behalf.
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- Local Government Compliance. Subsidiaries are subject to all the required government obligations of a local company like financial reporting, risk assessments, auditing, etc.
Representative Office
The third type of company structure is a representative office (RO) which is an extension of a foreign company that is set up to manage and coordinate the non-commercial activities of its parent company. Unlike branch offices and subsidiaries, representative offices act as a liaison between the local market and the foreign parent company to establish initial relations. A representative office is perfect for foreign companies who want to evaluate the market before fully committing to investing in the country.
Pros
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- Fewer Restrictions. Because the office wouldn’t generate income directly, fewer restrictions are forced upon representative offices.
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- No Corporate Taxes. Since no revenue is involved, there are no imposed corporate taxes on ROs.
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- Develop an early presence in the community. Even if the company is not yet selling, the ROs can establish relations with local businesses and communities, which can help boost sales when they expand in Singapore.
Cons
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- No profit-generating activities. ROs may only do marketing and research.
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- Cannot enter into contracts. Since they are only liaisons, they cannot enter into agreements with other companies and individuals.
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- Can only operate for a maximum of three (3) years. After three years, if the parent company wants to continue to operate in Singapore, they would have to register either as a subsidiary or a branch office. The ROs status would also need to be reviewed and renewed annually.
To help summarise everything, here’s a comparative table of the different company structures in Singapore we’ve discussed:
| Singapore Branch Office | Singapore Subsidiary Company | Singapore Representative Office | |
|---|---|---|---|
| Legal Type | An extension of the parent company | Separate from its parent company | No legal status |
| Liabilities | Liabilities extend to the parent company | Liabilities can be limited by the parent company | Liabilities extend to the parent company |
| Allowed Activities | Same as the parent company | Can be the same or different from the parent company | Not allowed to do business that yields profits. Only relegated to doing market research or feasibility studies |
| Taxation | Flat corporate tax rate for non-resident entities. Local tax benefits and exemption not available | Flat corporate tax rate as a Singapore resident entity. Local tax benefits available | N/A |
Let us help you get your business started today!
If you would like to learn more about how you can expand your business here in Singapore, we at Lanturn can help you! Since 2017, our company has helped both startups and established businesses grow. From corporate services to fund management, our team is more than capable of giving you the support you need for you to take that next step.
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