What is a Foreign Subsidiary? When Do You Need One?
You are ready to expand your business to Asian markets. But, you are unsure about setting up a foreign subsidiary or foreign branch. Yes, it is a complex decision. However, liability-wise, setting up a foreign subsidiary in Singapore is a wise option. Let us know more about why and when you should do so.
What is a Foreign Subsidiary in Singapore?
A foreign subsidiary in Singapore is a company registered in Singapore. Here, it is known as a Subsidiary Company. Its shares are, partly or wholly, owned by a parent company registered in another country.
Singapore treats your Subsidiary Company as a local company. As it has a separate identity from your parent company, it must comply with the Companies Act. The authorities, here, expect you to comply with the local statutory, tax, employment, and disclosure requirements.
Advantages & Disadvantages of a Singapore Foreign Subsidiary
Foreign companies wanting to expand in Southeast Asia favours setting up a company in Singapore. It gives them easy access to established and emerging markets in Asia. They also benefit from low corporate tax rates, pro-entrepreneur policies, and an effective legal system.
Your foreign subsidiary company in Singapore gives you a base of operation to spread from into Asia. Do not have any doubt about its potential. Because as a type of limited liability private limited company in Singapore, it is a great business or legal structure to incorporate.
Do not proceed further without knowing the advantages and disadvantages of setting up a foreign subsidiary.
Advantages
Access to New Opportunities and Talent
Your subsidiary company first opens the Singaporean market for you and creates opportunities for you to go places. It gives you a chance to increase your revenue by selling your products and services. You also get to hire local professionals to augment your combined skill sets.
Local Tax Benefits and Exemptions
As a local company, your subsidiary company is liable to pay its taxes. Your parent company is not responsible for it. You get to pay low tax rates on your income instead of those charged at home. It enables you to save money.
Limited Liability for Parent Company
By setting up a foreign subsidiary, you get to limit the liability of your parent company. If a drastic financial and legal incident happens, your subsidiary is liable for it. Your parent company remains unaffected. At its worst, your parent company loses the amount it has invested in subsidiary’s share capital.
Division of Workload
The staff working for your Singapore subsidiary shoulder their part of the workload. It means your parent company does not have to do all the tasks as it would happen if you start a Singapore Branch Office.
Your domestic teams and foreign teams get to focus on their specialised tasks. Diversification divides the work and allows you to achieve your goals faster.
Disadvantages
Expanding your business through your Singapore foreign subsidiary also poses challenges to you. You have to master differences in culture, new regulatory rules, and operational challenges.
Cost and Time Required
Setting up a foreign subsidiary can be costly and time-intensive. However, it is not so in Singapore.
Generally, you can start your Singapore subsidiary company in 1-3 days. It may take up to 2 months if you are getting into sectors like finance, education, casino, Etc.
However, your parent company may have to keep on investing time, workforce, and other resources in the subsidiary. It may cause it to lose focus on other profitable activities.
Winding Up a Company
Winding up or dissolving a company is not an easy process. If you want to exit the Singapore market, it may take months to dissolve or wind up your subsidiary. The process is lengthy and costly.
Cultural Differences?
Cultures are nuanced, and not everyone can adopt a foreign culture easily. However, Singapore is known as a melting pot.
English is the business language of Singapore. Singaporean workforce, including immigrant professionals, also speaks it. It is one of the reasons why MNCs prefer Singapore. Still, your parent company must be open to local culture and accommodate it to ensure smooth workflow.
Compliance Risks
Yes, you must comply with the pre-incorporation rules and regulations while setting up a foreign subsidiary. However, these requirements are easy to fulfil. You can also hire a registered filing agent. These professionals are well-versed in the process of setting up a company in Singapore.
These firms are authorised to communicate with government agencies and pay official fees. These firms apply to ACRA on your behalf to form your company. Accounting and Corporate Regulatory Authority (ACRA) is the Company Registrar of Singapore.
These agents advise you on each stage of the company incorporation process. They obviously know it inside out.
Singapore Subsidiary Company – Legal and Financial Aspects
As has been stated, your subsidiary company in Singapore has a separate identity from its parent company. As a locally registered company, it must follow all the Singaporean tax and employment regulations.
Your subsidiary is responsible for its actions, such as non-compliance or defending itself in a court of law in a lawsuit filed against it or for paying a fine or penalty.
When Should You Register Your Singapore Subsidiary Company?
Your long-term business goals play an influencial role in when to set up your Singapore subsidiary company. You should consider it if you plan to:
- Be in Singapore market for the long-term
- Employ a number of employees in Singapore
- Minimise company taxes on global profits
- Own physical assets in Singapore
Before you go and form your subsidiary in Singapore, you must conduct market research and surveys to determine its potential.
Alternatives to a Foreign Subsidiary in Singapore
What if you want to expand your business without forming a Singapore subsidiary company? Yes, it is possible.
To avoid starting a subsidiary company in Singapore, you can hire indipendent contractors or freelancers or strike a relationship with an Employer Of Record (EOR).
Hire Contractors or Freelancers
An experienced contractor or a freelance will help you establish a toe-hold in Singaporean market. Hire these on a service fee or per project basis to save money. It also gives you flexibility in staffing and access to international talent. It also reduces your legal exposure.
Employer Of Record (EOR)
Another reliable option for entering a foreign market like Singapore is to strike a partnership with an EOR.
An EOR is a company that acts as the legal employer of employees. In reality, these professionals work for you. EOR takes the legal and administrative responsibilities of employment in Singapore.
An EOR, here, is necessary because you have chosen not to start your subsidiary. So, you cannot hire employees in Singapore.
Setting up a foreign subsidiary company in Singapore will help you expand your business to new horizons. This a most favoured business structure as it limits the liability of your parent company. Contact us at +65-6536 0036 or at info@sbsgroup.com.sg know how we can start a tax efficient business for you.
Also Read: Foreign Company Registration Options in Singapore
