A Guide to Setting Up a Holding Company
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 virtually anywhere in the world.
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.
What is a Holding Company?
Unlike a normal company that earns from its sales of goods and services, a holding company owns stock such as shares or assets in other companies. In other words, your holding 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.
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.
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 performs well, the holding company benefits as well.
Are There 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
Examples of brands with one or more subsidiaries in Singapore
- Johnson & Johnson
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
Relatively easy to set up
Firstly, setting up a company is simple in Singapore. You can even complete the registration and incorporation processes online. Both locals and foreigners can set up a company in Singapore with little trouble. To make your life simpler, here at Osome, we can help you register and incorporate your company just by following a few simple steps and providing all necessary information.
- Save on corporate taxes in Singapore
This is undoubtedly one of the biggest benefits of setting up a company in Singapore, as compared to other countries where there is a worldwide taxation system. This means that if you choose to start a company in Singapore, you do not have to worry about being taxed twice or paying more than you have to as long as you meet the requirements for example, your income is earned from outside of Singapore.
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.
Single-Tier Corporate Tax System
- You will only be taxed once for corporate profits.
- There will be no tax on the dividends you earn from your subsidiary companies, assuming that the subsidiary company is a resident company, or your holding company meets the conditions for exemption due to foreign source of income.
- No withholding tax on dividends issued to residents or non-residents.
- No withholding tax on interests earned from subsidiary 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.
No Tax on Foreign-Sourced Income
- No tax on dividends from foreign subsidiaries provided the subsidiary have been taxed at least 15% in the country of incorporation.
- Dividends may be taxed when distributed to your holding company in Singapore if the above has not been met.
- The undistributed income of foreign subsidiaries may not be subjected to tax.
No Tax on Capital Gains
- No tax on capital gains.
- No tax on the sale of shares.
- Attractive tax rate
Singapore has one of the most attractive corporate tax rates in the world. Marginal corporate tax rates in Singapore can be as low as 17%, and with various schemes, the effective tax rate can be lowered further.
- Reduce your losses
As we mentioned before, the holding company is not liable for the losses suffered by their subsidiary companies. You would still see the losses, but will not be held legally responsible for them. Singapore’s legal framework supports this rule, although there can be exceptions when dealing with fraud and negligence issues.
What Do I Need To Set Up 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 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 you are overwhelmed with all the paperwork, we provide company formation and incorporation services for both locals and foreigners. You do not even have to be in Singapore physically to start a business here, we can help you get started remotely. We also help you with getting a company secretary, your office address and corporate bank account!
How Do I Register a Holding Company in Singapore?
Firstly, you will need to apply via the Accounting and Corporate Regulatory Authority (ACRA) to register your holding company. ACRA is the Company Registrar of Singapore.
Then, you will need to:
- Register and get approval for your chosen company name.
- Formally register your company with the ACRA.
The registration process can be completed online using the BizFile+ web portal. If your documents and application are complete and properly filled out, the process usually takes one to three days. However, it can take longer if there are issues with your application. Therefore, it would be good to consult or hire a professional to assist you, especially if you’re a first-timer.
If you have already made your decision to start a holding company, and are deciding on the jurisdiction, then you will find that Singapore is one of the best countries to do so. Apart from the tax policies available, Singapore’s legal system and regulatory rules are also favourable towards entrepreneurs.
Remember, if it’s your first time handling company registrations, it is always beneficial to engage the help of the 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 secretaries.