A holding company in Singapore is a company that holds shares of other companies. The income of a holding company is usually passive, which comes from dividends, interest, rental, and royalties.
A Singapore holding company can bring you a wide range of advantages, and the process of registering a company is really fast and simple. The company can enjoy many tax-cut schemes. The dividend policy is favorable. Foreign-sourced income can be exempted from taxes.
- Advantages of a Singapore Holding Company
Singapore’s favorable legal framework allows a holding company to have the following advantages:
Safety and flexibility
A holding structure in Singapore can be built with many types of businesses and companies. However, you are advised to establish a parent and subsidiaries in Singapore under the form of a private company limited by shares.
A private limited company in Singapore has a distinct legal status, which is separate from its shareholders and other companies in the same holding structure. So, if a private company in the structure fails or even goes bankrupt, others are safe and the risk is minimized.
A holding structure can lead to better financing. Profits of a parent holding company can be distributed to support its subsidiaries within the same group.
Dividends advantages
Singapore adopts a single corporate tax system. As a shareholder, when you receive dividends from a holding company in Singapore, those dividends will not be taxed. This is because they have already been taxed according to the income corporate tax.
Also, there is no withholding tax imposed on dividends in Singapore.
Furthermore, if your holding company in Singapore receives dividends from another foreign subsidiary, those dividends can be exempted from being taxed when received in Singapore. Of course, to be granted this exemption, your company must meet certain conditions. These conditions are:
- The dividends have already been paid or payable in the foreign country
- The corporate tax in the foreign country has to be at least 15% when the dividends are remitted to Singapore
- The exemption is believed to benefit Singapore taxpayers.
Tax reduction
The corporate tax rate in Singapore is currently 17%.
There are many expenses that your holding company can use to reduce its taxable income. After the deduction, it continues to benefit from the Partial exemption scheme in Singapore. The scheme is for all companies in the country and you need not to apply for it. Particularly, your company will be entitled to:
- A 75% tax exemption on the first $10,000 of taxable income, and
- A further 50% tax exemption on the next $190,000 of taxable income.
Last but not least, an annual tax rebate will be entitled to your company. This policy has been extended every year since 2013.
Loss transfer
Singapore’s legal framework allows companies within the same group to transfer loss items from one to another. The loss items include current-year unabsorbed capital allowances, trade losses, and donations.
To be more specific, two companies in your holding structure must satisfy the three following conditions to transfer loss from one to the other:
- Both are Singapore-incorporated companies
- Both have the same financial year end
- Both companies are in the same group
The two companies are considered in the same group when:
- 75% ordinary shares of one company are held by the other
- 75% ordinary shares of each of the two companies are held by a third Singapore-incorporated company
Double tax treaties
Singapore has built a network of tax treaties with more than 80 countries all over the world. This prevents a source of income from being taxed twice when it is transferred from Singapore to a signed country or vice versa. These tax treaties bring reduced tax rates on many types of income and even tax exemption in certain circumstances.
You can make use of these tax treaties by establishing a parent holding company in Singapore and subsidiary companies in other countries where there is a tax treaty signed with Singapore.
- How to Set Up a Holding Company in Singapore
In order to register a holding company, you can choose to do it yourself or engage a Singapore company incorporation service. As a new-comer, the registration must confuse you. ACRA, the government agency that oversees all the business registration, advises foreigners to look for a trusted third party for the incorporation.
A good
Singapore company incorporation service can help you cover all the basic requirements to set up a company. All you need to do is
pay the fees, provide the necessary information (the company name for example), and submit the required documents.
These
documents will include the details about:
- Your company’s business activities;
- Local office address; and
- The company’s members and shareholders.
The service provider will be the one who submits the application and register the company on your behalf. The process can be fast, in a couple of days, or sometimes
24 hours if everything runs smoothly. However, if the application needs further consideration from the government, the processing time can be extended to a couple of weeks.
If the application is approved, there will be a confirmation letter sent to your email address. And you will receive the certificate of incorporation for your holding company if qualified.
The next step is to
open a bank account. There are many large and reputable banks in Singapore. With a holding company, the application for a bank account can be a little bit tricky.
It is advisable that you
consult a professional service provider to help you prepare the application in the best way.
BBCIncorp will support you with bank account opening alongside the Singapore company incorporation.
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