A foreign company keen to conduct business in Singapore may choose between two major types of legal entities: a Singapore branch office or a subsidiary company.
Depending on the type of legal entity, key considerations such as annual compliance requirements and tax treatments may vary significantly. This makes it absolutely crucial for foreign enterprises to choose the proper type of legal entity so as to avoid any undesired regulatory or cost issues.
Singapore Branch Offices
A branch office (BO) is considered an extension of its foreign parent company and would therefore be regarded as a non-resident entity. As a result, a BO would be taxed at a higher rate and excluded from some tax exemptions that local companies may enjoy.
Furthermore, each BO must appoint one local resident authorised representative and is required to lodge its financial statements alongside its parent company’s financial statements with the Accounting and Corporate Regulatory Authority (ACRA), the local companies registrar. In practice, a BO is typically used by companies with a strong brand reputation so they can easily use it as business leverage.
Subsidiary Companies
A subsidiary company (SC) is usually formed as a local private limited company, which is wholly owned by the parent company as the sole shareholder (normally with its name ending with “Pte. Ltd.”). Subject to certain tax requirements, a local SC would qualify as a resident entity to be taxed at the corporate tax rate applicable to Singaporean companies.
Needless to say, a subsidiary is a separate legal entity whose liabilities would not extend to its parent company, making it the ideal choice of entity for small businesses.
Comparison of Singapore Branch Offices and Subsidiary Companies
The table below shows a comparison of some key features of the two types of entities:
|
|
Branch Office |
Subsidiary Company |
|
Status |
Considered to be an extension of the parent company |
A separate legal entity distinct from its parent company |
|
Extent of Liability |
Liabilities extend to parent company |
Liabilities are limited to subsidiary |
|
Entity Name |
Must be the same as the parent company |
Can be different from the parent company |
|
Business Activities of the Entity |
Restricted to be the same as the parent company |
Does not need to be the same as the parent company |
|
Constitution |
The shareholders, structure of company and its activities are directed by foreign company’s constitution. There is no separate constitution for the branch office. |
The Company will adopt its own constitution. |
|
Tax |
Taxed as non-resident entity, local tax benefits are not available |
May qualify as Singapore tax resident entity, local tax benefits may be available |
|
Annual Return Filing Requirement |
Both parent company and BO’s financial statements are required to be filed |
Only financial statements of the SC required |
|
Appointment of Local Officer |
Must appoint at least one local resident authorised representative |
Must appoint at least one local resident director |
As you can see from this brief overview, when a foreign company wants to do business in Singapore, it is important to be clear which type of entity should be chosen before forming the company with ACRA. Understanding the compliance, tax ramifications and liability issues associated with a branch office vs. a subsidiary company will help you avoid undesired and costly surprises.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal or tax advice.
