Firstly, the holding company and a parent company’s legal definitions are similar, but they are not identical. This means a company can be a holding company but not a parent company and vice versa.
Secondly, under the Companies Act, a parent company means a company that is required by accounting standards to prepare financial statements for a group. Thus, if a holding company is legally required to file group financial statements, that company would also be a parent company under the accounting definition.
Then, accounting standards are a set of principles governing various financial transactions in a jurisdiction. Indeed, in Singapore, the applicable accounting standards are known as Singapore Financial Reporting Standards. Therefore, companies must comply with these standards when preparing their accounting records and filing their financial statements.
In addition to their legal definitions, holding companies and parent companies can be differentiated by their functions. On the one hand, holding companies are created to control other subsidiaries and have no activities of their own.
On the other hand, parent companies generally carry out day-to-day operations in addition to owning and controlling subsidiaries.
A holding company can be 100% foreign-owned. However, if you are a foreigner and wish to set up a holding company in Singapore, there are some requirements you should consider:
1. Your company must have a physical address registered in Singapore.
2. At least one of the directors of the company must be resident in Singapore.
There are several advantages to creating a holding company in Singapore. Here are some of the main advantages:
Firstly, creating a holding company protects your assets and reduces the risk of losing those assets if something goes wrong. This is possible because the holding company is treated as a separate legal entity from the subsidiaries.
Therefore, a common scenario is that a holding company is created to hold the valuable assets of a business, while the subsidiary handles the business’s operations. Since the assets are held by the holding company, they are protected from the subsidiary’s creditors or any other liabilities that the subsidiary may incur. This minimizes the risk of losing the assets when the subsidiary faces problems such as debt or insolvency.
Secondly, creating a holding company in Singapore may allow you to benefit from financial advantages. The holding company will likely be in a better financial position than the individual subsidiary, either because it has more assets or for other reasons. This financial strength allows the holding company to obtain loans at a lower interest rate. The holding company can then distribute the funds obtained to the subsidiary.
In addition, depending on the tax regime applicable in the country where your company operates, the holding company’s creation may allow you to reduce your tax obligations.
On the one hand, it may be possible to establish your holding company in a country with a lower corporate tax rate. On the other hand, it may be possible for the holding company to file a single tax return. This means that if there are several subsidiaries, the losses of one subsidiary can be offset against the profits of another subsidiary. Thus, the collective tax liability of all companies in the group may be lower than if each subsidiary managed its taxes.
The Singapore investment holding company is considered a resident company. Therefore, it enjoys all the tax benefits that other local companies are entitled to:
|➤ Holding companies pay corporate income tax of between 0% and 17%|
|➤ Holding companies with up to 20 members are eligible for a tax exemption on the first S$100,000 earned|
|➤ They are eligible for a tax exemption on foreign income|
|➤ Their capital gains are tax-exempt|
|➤ Their subsidiaries can distribute dividends at very low withholding tax rates|
|➤ They can benefit from tax incentives for SMEs|
Singapore holding companies can legally deduct some of their investment-related expenses. The deductible expenses are as follows:
|➤ Regulatory expenses|
|➤ Direct and indirect costs|
|➤ Expenses related to audit fees, tax compliance fees|
|➤ Annual listing fees|
Finally, by creating a holding company in Singapore, you can also consolidate and streamline the management of your subsidiaries. Indeed, each subsidiary can have its independent management structure, which is integrated into the management structure of the holding company. For example, the holding company’s directors can simultaneously hold positions on the directors’ boards of the subsidiaries and contribute to the operation of the subsidiaries as needed.
The procedure for registering a holding company in Singapore is simple. Mostly, they are incorporated as private limited companies. The requirements are as follows:
|➤ Minimum initial paid-up capital of S$1|
|➤ At least one shareholder|
|➤ At least one local director is ordinarily resident in Singapore|
|➤ A registered local physical address for official communications|
|➤ Bank account of the company|
Setting up a holding company in Singapore is largely the same as registering any other company in Singapore. Before registering your company, you should consider the following, which apply whether you are a local or a foreigner wishing to set up a holding company in Singapore:
1. Your company must have at least one resident director. This resident director can be a Singaporean citizen, a Singapore PR, a Singapore EntrePass holder, or a person with a valid Employment Pass and a letter of consent.
2. Your company must have an issued share capital of at least S$ 1.
3. You must appoint a qualified resident company secretary within 6 months of the formation of the holding company.
4. You must also have a physical local address in Singapore, which can be provided as the company’s registered address.
Finally, if you meet the above requirements, there are only two steps to set up your holding company. The first step is to choose a name for your company and have it approved by ACRA. The second step is to have the following information and documents for your company’s registration. These are:
|➤ The name of the corporation|
|➤ The registered address of the company|
|➤ The company's articles of incorporation|
|➤ Details of the shareholders’ identification and residential address, directors, and secretary of the company|
|➤ Signed consent of each director designated to act as a director|
|➤ Signed consent of the company secretary designated to act as the company secretary|
After setting up your holding company in Singapore, you will have to comply with certain compliance requirements, which are imposed on all Singapore companies under Singapore law. As such, the main requirements to consider are:
|➤ Complying with Singapore's accounting requirements, including maintaining proper accounts and records|
|➤ Filing annual returns with ACRA|
|➤ Paying corporate tax annually|
|➤ Holding an annual general meeting each year|
In addition, another compliance requirement specific to holding companies relates to membership in the holding company. Indeed, a subsidiary cannot be a company’s member that is its holding company. Any transfer of shares from the holding company to a subsidiary company is void.
For example, we have company A and company B. Company B, being the subsidiary of company A, cannot be a corporate shareholder of company A.
Therefore, you must ensure that the members’ register of your holding company does not include any subsidiary as a shareholder company. The holding company’s shares must also not be transferred to any subsidiary company after the holding company is established.