- Osome Blog SG
- A Guide to Setting Up a Holding Company
A Guide to Setting Up a Holding Company in Singapore
- Modified: 6 November 2024
- 5 min read
- Incorporation
Heather Cameron
Business Writer
From expert guidance and helpful accounting tips to insights on the latest trends in fintech, Heather is here to empower entrepreneurs and small business owners in Singapore with great content. With a background in digital marketing spanning eight years, she has experience writing for various industries and audiences. As Osome’s copywriter, she’s here to inform and inspire our readers with great storytelling.
A holding company is an ‘umbrella’ or ‘parent’ company which does not provide products or services like a normal company. That’s what makes it relatively easier to set up a holding company from virtually anywhere in the world. If you are considering starting a holding company, we will go in-depth on what it is, what you need and how to register your own holding company in Singapore.
Key Takeaways
- Singapore offers a straightforward process for establishing a holding company, with minimal requirements like a resident director, company secretary, and a local address.
- Singapore’s attractive tax system includes no tax on foreign-sourced dividends, capital gains, and a low corporate tax rate that can be further reduced through various schemes.
- Holding companies provide liability protection, ensuring that if a subsidiary company fails, the holding company isn’t held legally accountable for its losses.
What Is a Holding Company?
A holding company is an entity that owns stock, shares, or assets in other companies, unlike a normal company that earns from its sales of goods and services. In other words, your holding company, acting as a parent company, will be investing in other companies, and that is where your revenue will come from. A holding company exists to control other companies and have a say in their management decisions as a parent company.
A holding company can be a:
- limited liability company
- limited partnership
- trust or foundation
It can also have complete ownership of a business but does not participate in that business’s daily operations. Alternatively, a holding company will only be overlooking that business’s management decisions. If your holding company fully owns another business, the second business will be referred to as a wholly-owned subsidiary.
Why should you even consider starting a holding company instead of a typical company then? Well, holding companies enjoy the benefits of protection from losses even if there is a crisis in the subsidiary company.
Example
Let’s say Forgively Group is the holding company and Hapyy Pte Ltd is its subsidiary. If Hapyy Pte Ltd goes bankrupt, Forgively Group may experience a capital loss and a decline in net worth. However, the Hapyy Pte Ltd’s creditors cannot legally pursue the holding company for remuneration. Nonetheless, if the subsidiary company performs well, the holding company benefits as well.
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Main Characteristics of a Holding Company
A holding company in Singapore is primarily established to own and manage shares or assets in other companies, serving as a parent entity that oversees its subsidiary companies. Unlike an operating company, its main focus is on ownership and control rather than engaging in direct business activities. This business structure allows the holding company to exert influence over its subsidiaries' decisions and strategies.
One of the key benefits of setting up a holding company in Singapore is the limited liability protection it provides to its shareholders, safeguarding personal assets from business liabilities. Additionally, Singapore’s regime offers significant tax benefits, such as no capital gains tax and a low corporate tax rate. Additionally, holding companies can enjoy specific tax incentives, such as exemptions on foreign-sourced dividends or gains from the sale of shares under the Participation Exemption.
The primary source of revenue for a holding company typically comes from dividends or capital gains generated by its investments. The parent company may own several subsidiaries operating in various industries, creating a diversified portfolio. As with all companies in Singapore, a holding company must comply with regulations like filing annual returns, appointing a company secretary, and maintaining good corporate governance.
What Is an Investment Holding Company?
An investment holding company (IHC) in Singapore is a type of business entity set up primarily to own and manage investments like shares, bonds, real estate, and other financial assets. Instead of actively engaging in business operations, the IHC's role is to generate income through dividends, interest, or capital gains from its investments.
Key characteristics of an investment holding company in Singapore:
- Mainly for holding investments rather than trading or offering services.
- Singapore's tax benefits, such as no capital gains tax, make it attractive for such entities.
- Must comply with regulations, such as filing annual returns and appointing a company secretary.
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Examples of Holding Companies in Singapore
Singapore is a hotspot for holding companies. Therefore, it is no surprise that some of your popular brands have holding companies and subsidiaries in Singapore. Remember, holding companies may also own property such as real estate, stocks and other assets.
Examples of well-known brands with a holding company in Singapore:
- DBS Group
- Singtel
Examples of brands with one or more subsidiaries in Singapore:
- Alphabet
- Volkswagen
- Johnson & Johnson
- Citigroup
One example of a very well-known holding company is Berkshire Hathaway, which you probably would be familiar with if you’ve heard of Warren Buffet. Berkshire Hathaway owns assets in over one hundred public and private companies and holds them as investments. These companies include Duracell, Dairy Queen, The Coca-Cola Company, Apple, IBM, American Express and more.
Advantages for a Holding Company in Singapore
1 Relatively easy to set up
Setting up a holding company in Singapore is notably straightforward and efficient. The entire registration and incorporation process can be completed online, making it accessible for both locals and foreigners. This user-friendly approach to holding company formation means that anyone interested in establishing a business in Singapore can navigate the necessary steps with relative ease. The streamlined procedures are designed to facilitate entrepreneurship, enabling individuals to focus on their business operations rather than getting bogged down by complex bureaucratic requirements.
To make your life simpler, here at Osome, we can help you to incorporate your company just by following a few simple steps and providing all the necessary information.
2 Save on corporate taxes in Singapore
One of the most significant advantages of establishing a holding company in Singapore (whether it is a limited liability company or a private limited company) is the potential to save on corporate taxes compared to other countries that implement a worldwide taxation system. In Singapore, if you start a holding company, you can operate without the constant concern of being taxed twice as long as you meet specific criteria, such as ensuring that your income is primarily earned outside of Singapore. This favourable tax environment allows businesses to focus on their day-to-day operations while retaining more of their earnings, facilitating growth and reinvestment opportunities.
3 Double Taxation Agreements (DTAs)
Singapore has a signed agreement with over 80 countries. What this means for you as an entrepreneur with a Singapore resident holding company is that dividends, interests and royalties paid from subsidiary companies can enjoy reduced tax rates or even be exempt from tax obligations.
Things to note
- Your subsidiary company should be located in the treaty counties.
- Your holding company must be considered a tax resident in Singapore.
Usually, a holding company will be considered a Singapore resident if management decisions and Board meetings are held in Singapore.
4 Single-Tier Corporate Tax System
It means that:
- You will only be taxed once for corporate profits.
- There will be no tax liability on the dividends you earn from your subsidiary companies, assuming that the subsidiary company is a resident company or that your holding company meets the conditions for exemption due to foreign sources of income.
- No withholding tax on dividends issued to residents or non-residents.
- No withholding tax on interests earned from subsidiary companies or parent companies.
Keep in mind that royalties and certain service fees paid to foreign companies may still be subjected to 10% and 17% tax if the tax rate is not reduced under a tax treaty. Therefore, you must ensure your companies are properly set up to make use of the tax benefits.
5 No Tax on Foreign-Sourced Income
Holding companies in Singapore benefit from no taxation on foreign-sourced income, including dividends from subsidiaries, as long as the subsidiaries are taxed at least 15% in their country of incorporation. If this threshold isn’t met, dividends may incur a tax liability when distributed to the holding company. Additionally, undistributed income from foreign subsidiaries typically remains untaxed, enhancing the holding company’s financial positioning as a parent company and allowing for smoother day-to-day operations.
6 No Tax on Capital Gains
Another attractive feature of holding companies in Singapore is the absence of capital gains tax. This means that profits derived from the sale of shares are not subject to taxation, allowing business owners to reinvest or distribute their profits without incurring additional tax burdens. This characteristic contributes significantly to the overall financial efficiency of the business structure, enabling parent companies to maximise their resources and foster growth.
7 Attractive tax rate
Singapore is renowned for having one of the most competitive corporate tax rates globally, currently set at a marginal rate of 17%. Additionally, various incentives and tax schemes can effectively reduce this rate further, making it highly appealing for businesses looking to establish a presence in the region. This favourable tax environment attracts both local and international investors, positioning Singapore as a prime location for setting up holding companies and promoting economic growth.
8 Asset protection
Establishing a holding company offers significant asset protection against many liabilities incurred by subsidiary companies, though tax liabilities may still present risks under certain circumstances. While financial statements may still reflect losses, the holding company itself is not generally legally responsible for these losses, providing a layer of security for your investments. Singapore’s legal framework supports this asset protection structure, ensuring that most risks associated with subsidiary operations do not adversely impact the holding company. However, it is essential to remain aware of potential exceptions, such as cases involving fraud, negligence, or unpaid tax liabilities, which could affect the level of protection offered.
Requirements for Registering a Holding Company in Singapore
It is easy and straightforward to register a Singapore holding company. Most entrepreneurs would choose to use a private limited company or a limited liability company.
Here are the requirements for registering your holding company:
- At least one shareholder (this can be an individual or a company)
- At least one local director (must be a resident of Singapore and be over 18 years of age)
- At least one resident company secretary
- Minimum initial paid-up capital of S$1
- A local registered physical address for official communication
- A corporate bank account
By the way, if managing your finances feels overwhelming, we offer comprehensive accounting services to keep your business running smoothly. We also assist with securing a company secretary, your office address, and a corporate bank account, so you can focus on growing your business without the administrative burden.
How to Set Up a Singapore Holding Company
Registering a holding company in Singapore is a streamlined process that involves several key steps overseen by the Accounting and Corporate Regulatory Authority (ACRA), the official company registrar in the country.
1 Choose Your Company Name
The first step in establishing your holding company is to select a unique name that reflects your brand and business vision. This name must be submitted for approval to the Accounting and Corporate Regulatory Authority (ACRA). It’s essential to ensure that your chosen name is not identical or too similar to existing company names to avoid potential conflicts and confusion. Additionally, the name of your holding company must comply with local naming regulations, which prohibit the use of certain words or phrases that may mislead the public or are deemed inappropriate. Once your chosen name is approved, it will be reserved for a specified period, usually 60 days, during which you must complete your registration process.
2 Formal Registration
After securing your company name, the next step is to formally register your holding company with ACRA. This process involves filling out the necessary application forms and providing essential information about your company’s structure. You will need to include details regarding your shareholders, directors, and the appointed company secretary. It’s important to ensure that all information about your holding company is accurate and complete, as any discrepancies could lead to delays or complications in the registration process.
3 Online Submission via BizFile+
The entire registration process can be conveniently completed online through the BizFile+ web portal, which is operated by ACRA. This user-friendly platform allows you to submit your application electronically, upload the required documents, and pay the registration fees for your holding company through secure online payment methods. To facilitate a smooth application process, it is crucial to ensure that all documents are complete, properly filled out, and compliant with regulatory requirements.
4 Processing Time
If all your documents are in order, the registration process of a holding company typically takes between one to three days for approval. However, it’s important to note that delays can occur if there are any issues with your application or if any required information is missing. To mitigate the risk of complications and ensure a more efficient registration experience, it may be beneficial to consult with or hire a professional service. This is especially advisable for those who are new to the registration process or unfamiliar with the regulatory landscape in Singapore.
5 Why Choose Singapore?
If you are considering starting a holding company, Singapore stands out as one of the most attractive jurisdictions globally. The country’s favourable tax policies, which include no capital gains tax and a single-tier corporate tax system, provide significant financial benefits for businesses. Furthermore, Singapore boasts a robust legal framework and a supportive regulatory environment that fosters entrepreneurial growth and offers asset protection for business owners. The business-friendly atmosphere, combined with a strategic location in Southeast Asia, enhances opportunities for expansion and success. As a result, Singapore is increasingly recognised as a prime location for establishing holding companies.
By following these steps and taking advantage of the resources available, you can efficiently navigate the registration process for your holding company in Singapore and embark on your entrepreneurial journey with confidence.
Remember, if it’s your first time handling company registrations, it is always beneficial to engage the help of professionals to ensure a smooth incorporation process. A holding company is also subject to corporate governance in Singapore. If compliance is a troublesome process for you, why not entrust it to experienced corporate secretarial services?
What Are the Main Challenges of a Holding Company in Singapore?
Holding companies in Singapore face several challenges despite the favourable business environment. One of the main difficulties for a holding company is ensuring compliance with Singapore’s regulatory requirements. This includes timely filing of annual returns, maintaining proper corporate records, and adhering to the Companies Act. Failing to meet these obligations can result in penalties and legal complications.
Another challenge is tax planning, especially for holding companies with global subsidiaries. While Singapore offers attractive tax incentives, navigating international tax laws, transfer pricing rules, and double taxation agreements can be complex. Holding companies must carefully structure their investments to avoid tax inefficiencies, particularly when dealing with dividends, interest income, or gains from foreign sources.
Additionally, managing subsidiaries across different industries or regions can create operational complexity. Each subsidiary may have its own regulatory landscape, market conditions, and business risks, requiring careful oversight from the holding company.
Lastly, holding companies must also manage financial risks, such as currency fluctuations, interest rate changes, and market volatility, as their revenue often depends on investments. The challenge lies in ensuring stable returns while safeguarding the value of their assets over the long term.
Summary
In conclusion, establishing a holding company in Singapore offers numerous advantages, including a favourable tax environment, robust legal protections, and a straightforward registration process. These benefits make Singapore an ideal location for entrepreneurs looking to maximise their investments and minimise their tax liabilities. By following the outlined steps and considering professional assistance, you can successfully navigate the registration process and set your holding company up for long-term success.
FAQs
How does a holding company differ from an operating company?
A holding company primarily exists to own and manage shares or assets in other companies, serving as a parent entity that oversees its subsidiaries. Unlike an operating company, which directly engages in daily business activities, such as selling products or providing services, a holding company does not participate in these operations. Instead, its focus is on strategic control and investment. This means that while the operating company is responsible for generating revenue through customer interactions, the holding company is more concerned with overseeing the performance of its subsidiaries and making decisions that enhance their value.
What is the difference between an operating company and a subsidiary?
An operating company is a business entity that actively engages in producing goods or providing services, generating revenue through its core activities. A subsidiary, on the other hand, is a company that is owned or controlled by another company, known as the parent or holding company. While all subsidiaries that conduct business activities are considered operating companies, not all operating companies are subsidiaries. Operating companies can exist independently without any ownership ties to parent companies. In summary, the distinction lies in ownership: subsidiaries are defined by their relationship to a parent company while operating companies focus on their active role in the market.
What is a wholly-owned subsidiary?
A wholly-owned subsidiary is a company that is entirely owned by another company, typically a holding company that holds 100% of its shares. This structure allows the parent company to exert complete control over the subsidiary’s operations and management decisions. Although the holding company and the subsidiary are legally distinct entities, the parent company can influence the strategic direction of the subsidiary while isolating its liabilities. This means that any financial challenges faced by the subsidiary do not directly impact the holding company's assets, thereby providing an added layer of protection for its investments.
What tax advantages can a holding company in Singapore enjoy?
Holding companies in Singapore can take advantage of several favourable tax conditions that enhance their financial efficiency. One significant benefit is the absence of capital gains tax, which means that profits from the sale of shares or assets are not subject to taxation. Furthermore, Singapore operates under a single-tier corporate tax system, allowing corporate profits to be taxed only once, with no additional tax levied on dividends received from subsidiaries. Additionally, holding companies benefit from the absence of tax on foreign-sourced income, provided that the foreign subsidiaries are taxed at a minimum rate of 15% in their respective countries. Singapore's extensive network of Double Taxation Agreements (DTAs) further facilitates reduced tax rates or exemptions on income from over 80 countries, making the jurisdiction particularly attractive for international business operations.
Can a holding company reduce its exposure to business losses?
Yes, a holding company can effectively reduce its exposure to business losses due to its status as a separate legal entity from its subsidiaries. This separation means that the holding company is generally not liable for the debts or losses incurred by its subsidiaries, thus safeguarding its assets. As a result, even if a subsidiary company faces significant financial challenges or bankruptcy, the holding company's financial position remains protected. However, it is important to note that this protection may not apply in instances of fraud or negligence, where the holding company could still face legal liabilities.
How do I qualify as a tax resident holding company in Singapore?
To qualify as a tax resident holding company in Singapore, the company, including its parent company and any subsidiary company, must have its management and control exercised within Singapore. This typically entails that Board meetings and significant management decisions should be conducted within the country. Establishing a local presence in this manner not only enables the holding company to benefit from local tax incentives but also allows it to access Double Taxation Agreements (DTAs) that Singapore has with various countries, thereby optimising its tax obligations and overall financial strategy.
What are the compliance requirements for a holding company in Singapore?
Holding companies in Singapore are subject to various regulatory compliance requirements that align with local corporate governance standards. One key requirement is the need to file annual returns with the Accounting and Corporate Regulatory Authority (ACRA), which ensures that the company maintains transparency in its operations. Additionally, the appointment of a company secretary is mandatory within six months of incorporation to assist in regulatory compliance and corporate governance. Furthermore, maintaining accurate accounting records and financial statements is essential for demonstrating the company’s financial health. Adhering to these compliance requirements is crucial for upholding the holding company’s legal status and maximising its benefits under Singaporean law.
From expert guidance and helpful accounting tips to insights on the latest trends in fintech, Heather is here to empower entrepreneurs and small business owners in Singapore with great content. With a background in digital marketing spanning eight years, she has experience writing for various industries and audiences. As Osome’s copywriter, she’s here to inform and inspire our readers with great storytelling.
