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Holding companies in Singapore
11/01/2023
Holding companies are business entities that own a controlling interest in other companies. The companies which a holding company owns are known as subsidiaries.
Holding companies can control the subsidiary’s policies and management decisions but are not involved in its day-to-day operations.
Holding companies have a significant advantage in that they are protected from any losses accrued by subsidiaries; therefore, if the subsidiary goes bankrupt, any creditors can’t go after the holding company.
What is a holding company?
Holding companies don’t typically manufacture, sell products or services, or conduct business operations. Instead, a holding company will hold the controlling stock in other companies.
While a holding company will own the assets of other companies, it will usually not be involved with the company’s running and only maintain an oversight capacity. Therefore, it may oversee the company’s management decisions but won’t actively participate in running a business’s day-to-day operations.
In simple terms, a holding company is a company that controls:
- The composition of the board of directors of another company (also known as the subsidiary company); or
- Over 50% of the voting power of the subsidiary company.
Holding companies vs. parent companies
Legally speaking, holding and parent companies are similar but have distinct differences.
Under Singapore’s Companies Act (CA), a parent company is a company that must prepare and submit financial statements for both the parent company and its subsidiaries.
Holding companies and parent companies also have different functions. Holding companies exist to control other subsidiaries and do not undertake any of their operations.
On the other hand, parent companies will undertake day-to-day operations on top of owning and controlling their subsidiaries.
What are the benefits of a holding company?
Holding companies offer several significant benefits, including
Protection of a companies assets
Holding companies allow investors to protect their assets. Holding companies are treated as a separate legal entity from the subsidiary/subsidiaries it owns and controls.
Therefore, the holding company will be protected from any creditors or liabilities of the subsidiary.
Tax optimization
Depending on where the holding company’s subsidiary is established, that country’s tax regime will apply. For example, if the subsidiary is in a country with a reduced corporate tax rate, this could reduce the company’s tax obligations.
Furthermore, holding companies will be able to file a single tax return. Doing so means that if a subsidiary incurs any losses, the losses can be offset by the profits of another subsidiary. This means that the collective taxes payable by all companies in the group might be lower than if each subsidiary company handled its taxes.
Efficient management
Holding companies allow the management of the subsidiary to be consolidated and streamlined. In practice, each individual subsidiary will have its independent management structure, which will be integrated into the management structure of the holding company. For example, normally the directors of the holding company may hold positions on the boards of the subsidiaries. This allows the directors from the holding company to provide their input on the operation of the subsidiaries.
Why establish a Holding Company in Singapore?
Singapore has long been an attractive destination for entrepreneurs and offers impressive benefits for the companies that establish a presence there. Below we have listed some of Singapore’s more attractive benefits for you to take a look at.
Attractive tax regime
Singapore boasts a desirable tax regime for companies. You can take advantage of the tax incentives by setting up your holding company in Singapore.
Singapore has a single-tier corporate tax system, and a company’s profits will only be taxed once. This means that taxes are not imposed on dividends or any interest paid from the subsidiary to the holding company.
Singapore also does not have capital gains tax. Therefore, any company that operates in Singapore will not be taxed on the sale of any proceeds.
Operational flexibility
Holding companies established in Singapore do not need their subsidiaries or assets to be held in Singapore. As a result, holding companies can structure their business in a way that allows them to operate and establish subsidiaries anywhere else in the world.
What is the process for setting up a holding company in Singapore?
The process for setting up a holding company in Singapore is the same as registering or incorporating a typical company in Singapore.
To register a holding company, the following must be considered:
- A company is required to have at least one resident director. Resident directors can be Singaporean citizens, Singapore permanent residents, Singapore EntrePass holders, or someone with a valid Employment Pass and a Letter of Consent. Aside from this, a company can appoint as many non-resident directors as needed.
- Your company must have a minimum of SGD 1 worth of issued share capital.
- A resident of Singapore must be appointed as a company secretary within six months of setting up the holding company.
- A local Singapore address can be provided as the company’s registered address.
After completing the above, the process for registering your company is as follows:
- Choose a name for your company (with approval from ACRA).
- Complete and submit the following information and documents:
- Company name;
- The company’s registered address;
- Company constitution;
- Identification and residential address details of the shareholders, directors, and company secretary;
- Signed consent from each nominated director to act as a director; and
- Signed consent from the appointed company secretary to act as a company secretary.
The registration fee is SGD 315.
What are the post-registration compliance requirements?
After setting up your holding company in Singapore, the following compliance requirements must be satisfied.
- Compliance with Singapore accounting requirements;
- Filing annual returns with ACRA;
- Pay corporate tax yearly; and
- Holding an Annual General Meeting (AGM) every year.
It is important to note that a subsidiary company cannot be a member of a company that is its holding company. This means that the transfer of shares in the holding company to a subsidiary would be rendered void.
Other important information about Holding Companies in Singapore
Holding companies are complex entities; below, we have highlighted important information for interested parties.
Can holding companies have a different business name from their subsidiary?
Yes, a holding company can operate under a different business name from its subsidiary. Please note companies are still required to get ACRA’s approval for the chosen business name.
Can a subsidiary undertake different business activities from the holding company?
Yes, this is entirely possible; there are no restrictions on the business activities of a subsidiary.
Can holding companies be 100% foreign-owned?
Yes, a holding company can be 100% foreign-owned.
Is a holding company required to register for corporate tax?
Companies incorporated in Singapore are automatically registered for corporate income tax with the Inland Revenue Authority of Singapore (IRAS).
What tax rate are holding companies subject to in Singapore?
Singapore imposes a flat corporate tax rate of 17% on all taxable income for Singapore companies. Any company with an annual turnover of more than SGD 1 million is also subject to 7% Goods and Services Tax (GST) on most goods and services supplied.
What happens if the subsidiary becomes insolvent?
Holding companies are separate legal entities from their subsidiaries. Should the subsidiary become insolvent, the holding company will not be liable for the creditor’s claims against the subsidiary.
What happens in the holding company becomes insolvent?
Suppose it is the holding company that becomes insolvent. In that case, the liquidator is entitled to sell off the subsidiary or liquidate any of the subsidiary’s assets to pay off the outstanding debts of the holding company.
How can Belaws help?
If you have a question related to company law in Singapore, speak to one of our experts directly.
You can also view our Singapore incorporation services here.
Please note that this article is for information purposes only and does not constitute legal advice.
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