Benefits and Drawbacks of Setting Up an Offshore Company in Singapore
- Published: 11 March 2025
- 10 min read
- Starting a Company, Bookkeeping
Heather Cameron
Author
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.
Deepti Laddha
Reviewer
Deepti Laddha, our Head of Corporate Operations in Singapore, brings a decade of experience to her role, supporting our business writers in crafting insightful and engaging articles. With a strong background in corporate services, Deepti is a rich source of knowledge and expertise. We can count on her to assist in transforming any definition, concept or complicated jargon into helpful tips that help our readers take their businesses to the next level.
Jiaping Zhang
Reviewer
Jiaping, CA Singapore and SCTP member, is our Corporate Tax Manager based in Singapore with a decade of experience in Singapore corporate tax. With in-depth knowledge of Singapore corporate tax law and regulations, she can help with corporate tax compliance that matters to every company.
Wondering about the benefits of Singapore offshore companies? Key advantages include tax incentives enhanced privacy, and asset protection. This article will explore these and other perks, highlighting the offshore company benefits to help you understand why offshore companies are appealing.
Key Takeaways
- Setting up an offshore company in Singapore offers significant advantages, including tax incentives, enhanced privacy, and asset protection.
- Notable drawbacks include higher operational costs, strict compliance requirements, and limited access to the local market.
- The incorporation process is streamlined, requiring only a local director and a minimum capital investment, making Singapore an attractive offshore destination.
Pros and Cons of Setting Up an Offshore Company
Setting up an offshore company in Singapore can offer several advantages and disadvantages, depending on your business goals, industry, and operational needs. Below is a breakdown of the key pros and cons.
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Offshore Company Advantages
Singapore offshore companies have numerous advantages, ranging from a transparent legal system and tax avoidance to enhanced privacy and beyond. If you want to maximise these advantages, you may consider how to set up an offshore.
Advantages | Disadvantages |
|---|---|
| Tax Savings: Foreign-sourced income that is not remitted to Singapore is not subject to corporate income tax. | High Costs: Expensive registration, compliance, and professional fees. |
| Privacy: Owners’ identities are confidential, and nominee shareholders ensure anonymity. | Strict Rules: Must follow AML, KYC, and detailed reporting requirements |
| Asset Safety: Protects assets from legal claims and personal liabilities. | Tax Limits: Tax exemptions only on foreign-sourced income that is not remitted to Singapore. |
| Quick Setup: Incorporation takes 1-2 days via BizFile+. | Substance Rules: Must have a physical office or local staff in Singapore. |
| Global Access: Attracts foreign investments and simplifies international business. | Reputation Issues: The “Offshore” label may raise trust concerns. |
| Ownership Flexibility: Allows full foreign ownership and easy share transfers. | Local Market Limits: Cannot operate in Singapore without extra licenses. |
| Limited Liability: Protects personal assets from business debts. | Banking Challenges: Opening corporate accounts is difficult due to strict checks. |
| Business-Friendly: Stable environment with tax efficiency and government support. | Global Reporting: Must comply with international and transparency rules and avoid tax evasion. |
| Banking Benefits: Multi-currency accounts and secure banking systems. | |
| Funding Options: Access to venture capital and angel investors. | |
| Global Edge: Boosts market access and attracts foreign investments. |
Exploring the unique advantages of Singapore reveals why it is a prime offshore location for businesses.
Tax benefits
One of the key advantages of Singapore offshore companies is the tax system. Foreign-sourced income not remitted to Singapore is generally tax-exempt, allowing businesses to retain more profits. Certain types of remitted income, like dividends and branch profits, may also qualify for exemptions if they meet IRAS conditions.
This framework helps corporate entities reinvest earnings effectively, supporting growth while leveraging Singapore’s favourable tax regime.
Enhanced privacy
Privacy is a significant concern for many business owners, and offshore company formation offers substantial privacy benefits. Many offshore jurisdictions do not require the disclosure of beneficial owners’ identities, providing an extra layer of privacy and shielding them from public scrutiny.
Offshore structures protect owners’ personal information from being linked to business activities. Appointing nominee shareholders can further ensure ownership anonymity. High-risk professionals often use offshore trusts to mitigate litigation risks.
Asset protection
Singapore offshore companies provide robust asset protection, shielding assets from potential legal claims, creditors, and other liabilities. Incorporating an offshore legal entity insulates company assets from the owner’s personal liabilities, offering protection from creditors and unforeseen legal actions.
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Ease of incorporation
The process of incorporating an offshore company involves a few steps. Typically, the incorporation can be completed in 1-2 days. This swift process is facilitated by the BizFile+ portal managed by ACRA, where most of the registration can be done online. There are only two main steps: name approval and the incorporation application. Additionally, a physical office address and at least one resident appointed as a director are mandatory requirements.
Such a streamlined process highlights Singapore as an attractive destination for offshore company incorporation.
Access to international markets
Offshore companies in Singapore enjoy facilitated business operations globally and can attract foreign investments.
Forming an offshore company facilitates collaboration and networking with international clients and partners, opening up new business opportunities.
Additionally, this incorporation streamlines cross-border trade, attracts foreign investments, and enhances market presence, giving businesses an edge in global expansion.
Flexible ownership structure
Offshore jurisdictions often permit full multinational corporations, with some allowing up to 100% foreign shareholding. This flexibility makes it easier for entrepreneurs to set up and manage their businesses in an offshore jurisdiction without local ownership restrictions.
Transferring shares in offshore companies is relatively easy, ensuring smooth ownership transitions. Ownership structures can be modified without significant limitations, offering ongoing operational flexibility.
Limited liability
One of the key advantages of offshore companies is the limited liability protection they offer. This ensures that personal assets are safeguarded against business debts and obligations. Investors often opt for offshore companies because this limited liability confines their financial responsibility to their share capital.
For investors and entrepreneurs, limited liability is crucial to avoid exposing personal assets to business risks, making offshore companies appealing to those looking to minimise financial risk.
Business-friendly regulatory environment
Singapore is recognised globally for its favourable business climate, characterised by strong political and economic stability, and a great tax system. Singapore government agencies foster a business-friendly atmosphere, offering essential administrative support, lower tax liabilities, and an easy-to-navigate regulatory environment.
Quality corporate banking facilities
Singapore offers excellent corporate bank account facilities for offshore companies looking to open bank accounts. Multi-currency accounts enable businesses to hold and manage funds in various currencies without frequent conversion costs. Offshore accounts in Singapore also allow businesses to conduct transactions in Singapore Dollars, eliminating unnecessary currency conversions.
Singapore’s banking system supports remote account openings for offshore companies, enhancing accessibility.
Venture capital and funding opportunities
Offshore companies in Singapore have access to diverse funding options from financial institutions, including private equity, venture capital, and angel investors. Angel investors often provide both financial resources and valuable industry expertise to startups.
Competitive edge in global business
Offshore incorporation significantly enhances a company’s global competitiveness by facilitating market access, attracting foreign investments, and offering benefits like reduced corporate taxes and capital gains tax exemptions through an offshore corporation.
The business-friendly regulatory environments in offshore locations also foster growth and provide strategic advantages.
Offshore Company Disadvantages
While there are numerous advantages to setting up an offshore company in tax havens like Singapore, it is essential to consider the potential drawbacks. These include higher costs, strict compliance requirements, and operational restrictions.
Higher costs
Singapore can be costlier than other offshore jurisdictions due to higher registration fees, compliance costs, and professional service fees, involving significant expenses in regulatory compliance and professional services.
These higher costs can be a barrier for some businesses, making it essential to weigh the financial implications before proceeding with offshore incorporation in Singapore.
Strict compliance requirements
Despite its business-friendly environment, Singapore enforces strict regulatory and compliance standards.
Offshore companies must adhere to anti-money laundering (AML) and know-your-customer (KYC) regulations.
Additionally, Singapore offshore companies are subjected to rigorous reporting and adherence to various regulations. These stringent compliance requirements can be burdensome for businesses, necessitating careful planning and adherence.
Limited tax exemptions
Singapore offshore companies have tax exemptions only on foreign-sourced income that is not remitted to Singapore. Income sourced from or brought into Singapore is subject to corporate tax, requiring companies to carefully manage their income streams. While certain types of remitted foreign-sourced income, such as dividends, branch profits, and service income, may qualify for tax exemptions, this is conditional on meeting specific criteria set by IRAS, which can limit the flexibility of tax planning to avoid double taxation.
Substance requirements
Singapore has introduced economic substance requirements to prevent tax evasion and ensure that companies have a real presence in the country. Such companies may need to maintain a physical office, hire local staff, or demonstrate significant management and control in Singapore.
Such entities must often prove substantial operational business activities in Singapore to comply with local laws, adding to the administrative burden.
Reputation risks
While Singapore is a reputable jurisdiction, the term “offshore” can sometimes carry negative connotations, potentially affecting stakeholder perceptions. This term may lead to mistrust from potential clients or partners, despite Singapore’s established business credibility.
Limited local market access
Singapore offshore companies are restricted from conducting business the country unless they obtain additional business licenses, are part of a local parent company, or convert to a local company.
To operate within Singapore’s market, offshore companies must obtain additional licenses, complicating their business operations.
Complexity in banking
While Singapore offers excellent banking facilities, opening a corporate bank account for an offshore corporation can be challenging due to stringent due diligence processes. Opening corporate bank accounts can be challenging for offshore companies due to stringent vetting processes.
The process of establishing a corporate bank account is often made difficult by stringent compliance measures, adding to the administrative burden for these legal entities.
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Checklist for Offshore Company Incorporation
To successfully incorporate an offshore company in Singapore, follow these steps:
- Approve the company name with ACRA.
- Appoint at least one resident director.
- Appoint a qualified company secretary who cannot be the sole director or shareholder.
Ensure a minimum paid-up capital of S$1, a registered local address (no PO Boxes), and prepare necessary documents including passport copies and residential addresses of shareholders and directors.
Summary
In summary, setting up an offshore company in Singapore offers benefits like tax efficiency, privacy, asset protection, and access to international markets, making it an attractive choice for global businesses. However, higher costs, strict compliance, and operational restrictions should be considered.
A thorough analysis of your business needs is essential. Consulting legal and financial experts can help ensure this structure aligns with your goals, allowing you to maximise benefits while managing potential challenges.
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.
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FAQ
What is the purpose of an offshore company?
The purpose of an offshore corporation is to legally relieve tax burdens and take advantage of favourable regulations in jurisdictions outside of the company's home base. This is achieved through lower corporate tax rates and compliance with international tax laws.
What is the tax rate for offshore companies in Singapore?
The tax rate for Singapore offshore companies is a flat rate of 17%, making it one of the most attractive corporate tax regimes in Asia. This competitive rate encourages foreign investment and business establishment in the region. Singapore provides incentives like other tax havens such as the British Virgin Islands and the Cayman Islands for businesses incorporating offshore.
What are the pros and cons of offshore companies?
Offshore companies offer advantages such as tax optimisation, asset protection, and enhanced privacy, but they often come with high setup and maintenance costs, as well as increased regulatory scrutiny. Carefully consider these factors when evaluating the establishment of an offshore entity
What are the primary tax benefits of setting up an offshore company in Singapore?
The primary benefits of establishing an offshore Singapore company include the exemption of foreign-sourced income from corporate tax, provided it is not remitted to Singapore. Additionally, certain types of remitted foreign-sourced income, such as dividends, branch profits, and service income, may qualify for tax exemptions if specific conditions set by IRAS are met.
How does incorporating an offshore company in Singapore enhance privacy?
Singapore does not allow complete anonymity of beneficial owners. While the names of shareholders (and directors) are not publicly accessible on ACRA’s website, the company must maintain a register of its beneficial owners. This register must be kept at the company’s registered office and made available to relevant authorities upon request. Same for Nominee Shareholders.
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