Setting Up a Business in Singapore

Singapore’s investment-friendly landscape has made it a premier regional hub, attracting a multitude of international firms engaging in conventional as well as new-age industries across Asia and the world. This is reflected in its impressive Ease of Doing Business ranking and strong network of free trade agreements (FTAs) and double tax agreements (DTAs).

Contributing Advisor

David Stepat

Country Director

Despite this, investors need to be aware of the risks presented by each avenue of investment. Determining the ideal route for market entry or expansion needs thoughtful consideration of the intended scope of investment, the nature of business activities, tax implications, and legal liability.

In this section, we discuss the various options that a business has for market entry into Singapore and overview the entity types, requirements, and processes, as well as some key considerations that will help ensure a company is set up for success.

Also, find tips for what the procedures are for opening a bank account, managing IPR or closing a business, should the need arise.

Choosing a corporate structure

Singapore’s efficient business environment is demonstrated by the ease with which foreign investors can incorporate a business in the country. Registering a company can take as little as one day provided all the files are in order.

There are several options for foreign investors to choose from:

Branch offices

Foreign companies can establish branch offices to conduct any type of business activity that falls within the scope of the parent company.

Branch offices are not eligible for the tax exemptions and incentives available to local companies as ultimate control of the branch remains vested in the overseas parent company. As such, branch offices are considered an extension of the foreign holding company and are therefore taxed as a non-tax resident at the corporate tax rate of 17 percent.

The name of the branch office must be the same as the parent company and as a legal extension of the parent company. The parent company must bear ultimate legal responsibility for all liabilities and be registered with ACRA, which monitors new companies in Singapore. Because of this liability, many foreign companies choose to establish a subsidiary or private limited company rather than branch offices.

Setup requirements

• Reservation of name of branch office
  
  • The name of the branch office must be the same as the foreign parent company;
  • The name of the branch office must be approved by the Accounting and Corporate Regulatory Authority (ACRA) prior to the branch office registration process;
  • Once a name is selected, the name application shall be submitted via ACRA Bizfile for approval, which may be rejected if the name is identical, similar, or phonetically similar to a company that has already been registered; and
  • The name application costs S$15 (US$11.25), which will be reserved for 120 days upon approval.
• The officers of a company include the following:

• • Director
    • The board of directors of the Singapore branch office must be the same as the board of directors of the foreign parent company; and
    • The director must be at least 18 years of age and must not have a history of misconduct or bankruptcy in their work history.
      
      
  • Authorized representative
    • The branch office must have at least 1 authorized representative who is ordinarily resident in Singapore.
• The registered address must be a commercial business address in Singapore.

Investors looking to set up branch offices must ensure their activities do not go outside the scope of the parent company. The parent company will bear all the liabilities of its branch office as it is viewed as a legal extension of the parent company. This means they are also subject to Singaporean taxes and are not eligible for local tax incentives and exemptions.

Representative offices

A representative office (RO) serves as a short-term and temporary arrangement designed to explore business opportunities and assess the feasibility of operating in Singapore or the region. An approved foreign company can establish an RO and operate for a period of one (1) year from its commencement. If an RO wishes to continue its operations beyond the first year, it can apply for an extension, which will be evaluated on a case-by-case basis. Extensions can be granted for a maximum of three years.

Companies must meet certain criteria to be eligible for setting up an RO. They should have been in operation for at least three years in their country of establishment and have an annual sales turnover of at least US$250,000. Additionally, the RO should be represented by staff from their headquarters or employ a Singaporean citizen. Furthermore, the company must have less than five staff members.

The RO is confined to activities set out by Enterprise Singapore, which include:

• Gathering of information on markets and potential clients;
• Carrying out research to ascertain product/service information;
• Developing trade contacts and managing product inquiries;
• Participating in trade shows and exhibitions; and
• Gathering information on regulatory requirements for the set-up of a permanent entity.

Setup requirements

As a temporary administrative office, the RO cannot engage in profit-yielding business activities and can only participate in information-gathering or market research-based activities.

Investors wishing to establish a RO in Singapore must ensure:

• The parent company has been established for more than three years;
• The parent company has incurred an annual sales turnover of more than US$250,000;
• The foreign chief representative is from its headquarters; alternatively, the RO may appoint a Singapore citizen to fulfill the role of the chief representative; and
• The RO does not hire more than five local employees as support staff.

Private companies limited by shares

A private company limited by shares, also known as a private limited company, is by far the preferred structure among small and medium-sized (SME) foreign companies for setting up a local business presence in Singapore.

A private limited company can benefit from tax incentives available to local companies. It is also a separate legal entity from its directors, shareholders, and officers of the company; this means that the foreign holding company cannot be held for the liabilities of its subsidiary. In addition, the holding company’s liability is limited to the share capital subscribed in its subsidiary.

A private limited company can be wholly owned by a foreign individual and/or corporate investor, this legal entity can be established as a regional holding company or subsidiary of the foreign holding company. Having a Singapore-incorporated company provides the advantage of gaining access to the wider Asian market and ASEAN free trade zones and other FTAs through ASEAN, including ASEAN-Hong Kong, ASEAN-India, and ASEAN-China. This is particularly helpful for companies setting up larger manufacturing operations elsewhere in ASEAN.

Setup requirements

• Reservation of company name
  
  • The company name must be approved by the Accounting and Corporate Regulatory Authority (ACRA) prior to the company registration process;
  • Once a name is selected, the name application shall be submitted via ACRA Bizfile for approval, which may be rejected if the name is identical, similar, or phonetically similar to a company that has already been registered; and
  • The name application costs S$15 (US$11.25), which will be reserved for 120 days upon approval.
• The officers of a company include the following:
• • Director:
    • The appointment of at least one director who is either a Singaporean citizen, permanent resident, EntrePass or Employment Pass holder; and
    • The director must be at least 18 years of age and must not have a history of misconduct or bankruptcy in their work history.
  • Auditor (to be appointed within three months of incorporation unless exempted from audit requirements);
  • Company secretary (to be appointed within six months of incorporation); and
  • Shareholders (the minimum issued and paid-up capital is S$1 (US$0.75)).
• The registered address must be a commercial business address in Singapore.

Variable Capital Companies

The Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) launched the Variable Capital Company (VCC), a new innovative corporate structure for all types of collective investment schemes (investment funds) in Singapore.

The VCC is regulated under its own legal framework through the Variable Capital Companies Act and offers more operational flexibility than investment fund structures currently available in the country through trusts, limited partnerships, or private limited companies.

This means fund managers can establish investment funds across both traditional and alternative strategies and as open-ended or closed-end fund strategies.

Open-ended funds are offered through fund companies that sell shares directly to investors, allowing them to enter and exit according to their convenience. There is also no limit on the number of shares they can issue if there is an appetite for the fund.

Close-ended investments, however, are overseen by a fund manager or brokerage firm and are listed on the stock exchange. There is a fixed number of shares that are issued.

The government hopes this flexibility will attract more investment funds to be domiciled in Singapore and bring the country to the forefront of the global investment services industry.

What are the requirements of a VCC?

There are several key components of the VCC:

• The VCC must have at least three directors who are Singaporean residents. At least one director must be a representative of the fund manager;
• The VCC will require a Singapore-regulated and licensed fund manager, or it can use a Singapore-licensed bank to be the fund manager. The entity cannot be self-managed;
• The VCC can have a single shareholder or hold a single asset;
• The requirements for investment funds listed under the Existing Securities and Futures Act (SFA) will apply to VCC’s;
• The VCC must have a registered office in Singapore and appoint a Singapore-based secretary; and
• It must be audited by a Singapore-based auditor and present its financial statements as per the International Financial Reporting Standards (IFRS) or US GAAP.

What are the key benefits of using the VCC structure?

There are several benefits a VCC structure has over current collective investment schemes in Singapore.

• The VCC can be used as a standalone fund (comprising of a single investment portfolio) or as an umbrella entity with various sub-funds allowing for the segregation of portfolios and liabilities. Having multiple funds in a single VCC can improve cost efficiencies.
• The VCC capital will always be equal to its net assets. This is because the VCC’s shares are only created when investments are made. This provides flexibility in the distribution and reduction of capital as dividends can be paid out of capital, easing the ability of fund managers to meet dividend payment obligations.
• Fund managers can easily re-domicile existing overseas investment funds by transferring their registration as a Singapore VCC.

There are also several tax benefits for VCCs. These include:

• A VCC is not burdened by the same capital requirements of an open-end fund in Singapore and has access to the country’s more than 80 tax treaties.
• An umbrella VCC will only need to file a single corporate income tax return (CIT) to the Inland Revenue Authority of Singapore (IRAS).
• Income from a VCC can be exempt from tax if it qualifies for the government’s Enhanced Tier Fund (ETF) Scheme. There are two criteria for this:
• The VCC must have a minimum fund size of S$50 million (US$ 37.5 million); and
• Must have a local business spend of S$200,000 (US$150,052).
• The VCC could qualify for the tax exemptions for the startups' scheme (SUTE) and obtain a 75 percent tax exemption on the first S$100,000 (US$75,026) of chargeable income during the first consecutive three years. The next S$100,000 (US$75,026) of chargeable income can receive a 50 percent tax exemption.
• The entity can recover goods and services tax (GST) on expenses incurred in Singapore.

Company set up requirements

The company setup process for a representative office, branch office, or private companies limited by shares differs. However, overall,  businesses must pay attention to the following requirements:

Reservation of name

The company name must be approved by the Accounting and Corporate Regulatory Authority (ACRA) prior to starting the company registration process. The name application shall be submitted via ACRA BizFile for approval, which may be rejected if the name is identical, similar, or phonetically similar to a company that has already been registered.

Appointing key personnel

Depending on the type of entity chosen for setting up in Singapore, certain personnel must be appointed within the time stipulated under Singapore’s Companies Act.

For example, a private limited company must immediately appoint at least one director who is ordinarily resident in Singapore, above the age of 18, without any history of misconduct or bankruptcy in their work history.

On the other hand, a Representative Office must have a foreign chief representative from its headquarters or, alternatively, a Singapore citizen to fulfill the role of the chief representative.

Registered address

The registered address must be a commercial business address in Singapore. Every company must ensure that their registered office is open and accessible to the public for a minimum of three hours during regular business hours on each business day. Business days refer to weekdays, excluding Saturdays, Sundays, and public holidays.

Minimum paid-up capital

Paid-up capital is the sum of money that shareholders have given to a firm in Singapore in exchange for their shares. There is no statutory minimum paid-up capital for private limited companies, which are the most prevalent type of business entity in Singapore. Business people can form a private limited company for as little as S$1. As a result, startups and small businesses can create legal organizations without having to invest a sizable sum of money upfront. However, unique capital requirements may apply to certain industries.

Having said that, it's critical to remember that businesses should have enough money to meet financial responsibilities and do business as envisaged. To ensure the smooth operation of the business, it is advisable to analyze the financial requirements of the company carefully and set a suitable amount of paid-up capital.

Even if there isn't a set minimum, some companies may decide to have a greater paid-up capital to increase their credibility and financial stability, particularly when dealing with banks, suppliers, or customers that take this into account when determining the company's dependability.

Special purpose acquisition companies in Singapore

As of September 3, 2021, the Singapore Exchange (SGX) is among Asia’s first major bourses to allow the listing of special purpose acquisition companies (SPACs) in a move that the city-state hopes will attract more firms to raise funds amid a stagnating initial public offering (IPO) market. The SGX has introduced a new framework to enable SPACs to list on the exchange, such as minimum market capitalization requirements, minimum SPAC IPO price, and minimum public float, among others.

Singapore’s benchmark index has traditionally been dominated by companies in property and finance, but through SPACs, the SGX has set its sights on attracting tech companies. SPACs are essentially shell companies and have no commercial operations. Investors form them — who are called sponsors — with the sole purpose of raising money through an IPO to acquire another company, also known as a de-SPAC transaction. The process is often faster than a traditional IPO and exploded in popularity in the US a few years ago, with a total of 613 SPAC IPOs recorded in 2021. The popularity of this route to IPO has somewhat subsided in the years since, partly due to overall drops in IPO volume (total IPO volume in the US decreased by 87 percent year-on-year in 2022).

Other advantages of SPACs are their price certainty compared to conventional IPOs and a SPAC transaction allows the target company to negotiate its own fixed valuation with the sponsors.

The SPACs listing framework

The key features of the SPACs listing framework are as follows:

• The minimum market capitalization is S$150 million (US$111 million);
• The de-SPAC must take place within 24 months of IPO with an extension of up to 12 months, subject to conditions;
• The minimum SPAC IPO price is S$5 (US$3.7) per share;
• At least 25 percent of the SPAC’s total number of shares issued must be held by at least 300 public shareholders at the time of listing; and
• All independent shareholders are entitled to redemption rights — this mirrors the US SPAC framework.

Assessing suitability

The SGX will also assess a variety of factors when assessing the suitability of a SPAC listing. These include:

• Profile of the founding shareholders and their experience and expertise in managing the SPAC;
• Business strategy of the SPAC;
• Articles of association of the SPAC, which provide comparable shareholder protection and rights with that of a Singapore-incorporated company; and
• Nature of the compensation of the management team.

Measures related to business combination

As the proceeds raised for SPAC are for the sole purpose of undertaking a business combination (there are several requirements put in place to ensure this is in accordance with this objective:

Holding the IPO proceeds in an escrow account

The framework states that at least 90 percent of the gross IPO proceeds must be placed in an escrow account pending the completion of the business combination. The escrow agent must be an independent institution approved by the Monetary Authority of Singapore (MAS), and the escrow amount cannot be withdrawn except for the purpose of the business combination, the liquidation of the SPAC, or other specified circumstances.

Allowed timeframe for the completion of the business combination

The SPAC must complete the business combination within 24 months from the date of its listing, with an extension of up to 12 months. If the SPAC has not signed a binding agreement by the end of the 24-month period, the SPAC can seek an extension from the SGX but with a justification as to why they require the extension. The extension must also be approved by at least 75 percent of the votes of shareholders of the SPAC (excluding the votes of the founding shareholders and the management team).

The business combination must result in a sizeable new business

The initial business or asset acquired (that is, de-SPAC) must have a market value of at least 80 percent of the amount held in the escrow fund. However, the SGX may be prepared to waiver the 80 percent threshold on a case-by-case basis.

Appointment of a financial adviser

The financial advisor’s role is similar to that of an issue manager in a conventional IPO, and so they must be accredited by the SGX.

Shareholders’ circulars must be fully disclosed

The shareholders’ circular must contain prospectus-level disclosures on key areas such as:

• Financial position;
• Compliance history;
• The integrity of incoming directors;
• Permits and approvals; and
• The resolution for the mitigation of the conflict of interests.

This is to ensure that shareholders of the SPAC are making informed decisions when approving a business combination.

SPAC liquidation

The SPAC will be liquidated if the business combination is not complete within the timeframe or there is a material change to the founding shareholders or management. Upon liquidation, the remaining funds in the escrow accounts will be distributed on a pro-rata basis to all shareholders.

Aligning the interests of the founding shareholders with independent shareholders

The SPAC framework hopes to ensure the interests of the founding shareholders are aligned with the independent shareholders by subjecting the founding shareholders and management to a percentage-based minimum equity participation (MEP) requirement. The MEP is between 2.5 to 3 percent at IPO, depending on the SPAC market capitalization.

Moreover, moratoriums will apply similarly to an issuer listed on the SGX via a traditional IPO. Thus, a moratorium will be observed for the founding shareholders and management team of the SPAC, the controlling shareholders of the resulting issuer, and their associates

Companies in Singapore must now maintain a register of nominee shareholders and nominators

Singaporean and foreign companies registered in Singapore are now obligated to maintain a register of nominee shareholders and their nominators. Further, Singapore companies, foreign companies, or Singapore limited liability partnerships (LLPs) who have no registrable controller or are unable to identify the controller are required to identify individual(s) with executive control as their registrable controller.

The changes were set out under the Corporate Registers (Miscellaneous Amendments) Act, which was approved in January 2022. The Act amended the Corporate Registers (Miscellaneous Amendments) Act. Through these changes, Singapore aims to reaffirm its commitment to combat money laundering and other threats that threaten the integrity of the country’s financial sector. 

Mandatory requirement to keep a register of nominee shareholders and their nominators

Local and foreign companies must maintain a non-public register of their nominee shareholders and their nominators at their registered office.

Before, businesses were not required to ascertain whether a shareholder was holding the shares on behalf of another person (nominator). Under the changes, nominee shareholders must inform the company of their nominee status within 60 days after October 4, 2022. Those appointed as nominee shareholders after October 4, 2022, must notify the company within 30 days of becoming a nominee shareholder.

The company or foreign company must update its non-public register within seven days after receiving information from a nominee shareholder or a nominator in their company. This new requirement aims to minimize the risk of companies in Singapore being controlled by illicit actors.

A nominee shareholder is defined as:

• A person or limited company that is registered as a holder of the shares in a company on behalf of another person or company; and
• Receives dividends in respect of the shares that they hold as a representative of another person or company.

Nominee shareholders must also notify the company if they cease to become a nominee shareholder within 30 days of cessation.

Non-compliance with these requirements is punishable with a fine of up to S$5,000 (US$ 3,751).

Identification of individuals as registerable controllers

Another amendment under the act is the requirement for local and foreign companies and LLPs to identify registrable controllers.

Registrable controllers are individuals, such as chief executive officers, directors, partners, or even entities, that exercise executive control over the daily affairs of the company or LLP. There was no previous requirement for the company or LLP to maintain a register if they do (or are unable to identify) such individuals or entities.

The company or LLP must now identify all individuals or entities that have executive control and record them as the registerable controllers of the company or LLP. The amendments are aimed at improving the transparency of companies and LLPs that are established in Singapore. Non-compliance with these requirements is also punishable with a fine of up to S$5,000 (US$ 3,751). Every officer who is in default is also liable to the same amount.

LLPs and foreign companies have two business days to update any change of registerable controllers to the Accounting and Corporate Regulatory Authority (ACRA).

More guides for setting up a business

Types of Business

Comparison of Entity Types

Opening a Bank Account

Intellectual Property Protection

Doing Business Without an Entity

Closing a Business

Variable Capital Company in Singapore: Revolutionizing Investment Structures

A Guide to Mergers and Acquisitions