Based on a report by the Economic Times, about 9,000 Indian companies have been incorporated in Singapore. This strategic move has positioned Singapore as a hub for international expansion, offering a conducive environment for business growth and international outreach. This article will discuss some strategic considerations before incorporating companies in Singapore, such as the legal and regulatory framework, requirements before incorporating a company, tax requirements and access to talent.
These are the following primary regulators in Singapore: (i) Monetary Authority of Singapore (“MAS”), (ii) Inland Revenue Authority of Singapore (“IRAS”), (iii) the Accounting and Corporate Regulatory Authority (“ACRA”) and the (iv) Singapore Exchange (“SGX”).
MAS is the sole regulator in Singapore having regulatory oversight of the financial services industry and is also the central bank of Singapore. Meanwhile, IRAS is the national tax administrator. ACRA is the national regulator of business entities. Lastly, SGX is the stock exchange in Singapore which performs regulatory functions with respect to public listings.
It is mandatory to register a business with ACRA if you want to operate a business in Singapore. The first step is to choose and submit a company name. Next, these are the following types of companies which can be incorporated in Singapore: (i) exempt private company, (ii) private company limited by shares, (iii) public company limited by shares, (iv) public company limited by guarantee, (v) unlimited private company, (vi) unlimited exempt private company and (vii) unlimited public company. Then, all companies must appoint at least a director and a secretary.
In relation to foreign capital requirements, Singapore does not generally impose any restrictions on foreign capital limit. As for the capital requirements to incorporate a company in Singapore, the minimum paid-up capital for a private limited company is S$1 in Singapore, and this applies regardless of whether it involves a foreigner setting up a company.
Meanwhile, a registered address of a company must be provided when incorporating a company in Singapore, and it must be an address in Singapore. All companies must ensure that this registered office is open and accessible to the public for at least three hours during ordinary business hours on each business day, so as to allow members of the public to reach out to the office if necessary and to facilitate the delivery of any legal documents. Lastly, companies are minimally required to register one principal business activity with ACRA, but are usually able to declare up to two principal activities. In the event that a company is involved in more than two business activities, the company will only be required to register with ACRA the activity which contributes to the largest percentage of gross receipts/ the activity with the highest value among all the activities.
In Singapore, tax is imposed in two circumstances. It is imposed on income “accruing in/ derived from Singapore (“Territorial Basis”) or received in Singapore” (“Remittance Basis”).
Under the Territorial Basis, income will be taxable if the source of income is in Singapore. Meanwhile, under the Remittance Basis, income from a source outside Singapore will be liable to Singapore tax only if such income is received in Singapore, unless such income is specifically exempt from tax.
Companies incorporated in Singapore and foreign companies which have registered branches in Singapore are liable for tax at 17 per cent of the chargeable income accruing, derived or received in Singapore unless their business qualifies for and are granted tax relief for a period under the Economic Expansion Incentives (Relief from Income Tax) Act 1967 (“EIA”) or enjoy concessionary tax benefits by virtue of the EIA or the Income Tax Act 1947.
There are different types of taxes which may be payable in Singapore.
Income Tax
Income tax is generally payable on gains or profits from business or investments.
Goods and Services Tax (“GST”)
GST is a tax imposed on any supply of goods or services made in Singapore if it is a taxable supply made by a taxable person. It is mandatory for businesses to register for GST in the event that their turnover exceeds S$1 million at the end of the calendar year. The prevailing rate for GST is 9 per cent. Although GST is imposed on nearly all supplies of goods and services, GST is not chargeable for the export of goods and the provision of prescribed international services.
Stamp duty is a tax imposed on executed documents relating to interest in properties and interest in shares. If the documents were signed in Singapore, documents are required to be stamped and paid within 14 days from the date of execution. Meanwhile, it will be required to be stamped and paid within 30 days in Singapore if the document was executed overseas.
Tax on Branch of Foreign Company
Taxation is application on a branch of a foreign company. Taxation will be in the same manner as a company on its gains/ profits from business activities. A branch may remit its tax profits to its headquarters without such tax profit being subject to further tax obligations.
Withholding tax will apply when a person in Singapore makes payment to a non-Singapore resident. A person who makes payment of a specified nature to a non-resident company or individual must withhold a percentage of the payment and pay IRAS.
Under Singapore law, the employer-employee relationship is regulated by the Employment Act 1968 and common law. Employers are required to provide their employees with certain minimum statutory benefits such as salary payments and leave entitlements. In general, foreigners who wish to work in Singapore would be required to apply for a work pass with the Ministry of Manpower. The most common types of work pass are the following:
This pass is given to professionals, managers or executives who earn a fixed monthly salary of at least S$5,000 and pass the Complementarity Assessment Framework (COMPASS). The duration of the pass up to 2 years for first time candidates and up to 3 years for renewals.
Overseas Network and Expertise Pass
For existing work pass holders and overseas candidates who either earn a fixed monthly salary of at least S$30,000 or its equivalent in foreign currency. The duration of the pass is 5 years for first time candidates and an additional 5 years for subsequent renewals.
This pass is given to investors who want to operate a business in Singapore and intends to start a private limited company that is venture backed or owns innovative technologies. The duration of the pass is one year for the first time and 2 years for subsequent renewals.
This pass is given to mid-level skilled workers who will be paid a fixed monthly salary of S$3,000 or more from September 1, 2023 for new applications and S$3,150 from September 1, 2025 for new applications. The duration of the pass will be up to 2 years.
This pass is given to foreign workers from approved source countries working in the construction, manufacturing or services sector. The duration of the pass is 1 year for the first time and 2 years for subsequent renewals.
To conclude, by considering these strategic factors, Indian companies can make informed decisions about incorporating a company in Singapore and position themselves for success in the global economy.
About the authors: Oon Thian Seng is a Founding Partner and heads the Corporate Practice; Prakaash Silvam is an Equity Partner in the Litigation and Dispute Resolution department and co-heads the India Practice; Angeline Woo is a Senior Associate in the Corporate Practice at Oon & Bazul LLP.