A subsidiary company is a corporation controlled by another corporation through a parent-child relationship. It is said that a corporation is only a subsidiary if the parent has a majority stake in owning more than 50% of the issued share capital. Only one subsidiary can have subsidiaries. The subsidiaries are considered separate legal entities for fiscal and regulatory purposes.
Three types of subsidiaries can be formed, namely:
It is important that the subsidiary is recognized as an independent company managed by the board of directors, even if it was incorporated by the parent company. This does not mean that the subsidiary is not controlled. The parent company has the legal right to hold the subsidiary liable for the achievement of the financial objectives.
For the parent company to control the independent subsidiary, it is necessary that:
As long as the parent company holds it's subsidiary responsible for the expectations of its board of directors, there is little risk that the parent company is liable for the incorrect facts of the subsidiary. However, if the parent company exercises excessive control, for example, if it has the same board of directors, the use of a common letterhead, in which case, the parent company, and the subsidiary are treated as one. and even the personal debts of the subsidiaries, etc.
Here are the benefits of registering a subsidiary in Singapore:
Foreign companies are not legally responsible for losses, liabilities, and debts incurred by their subsidiary in Singapore, which is treated as a separate legal entity.
A subsidiary can conduct business, even if it is not done at its headquarters. With this greater commercial freedom, this structure can maximize its income-generating activities.
To the extent that a subsidiary is incorporated in Singapore, it has the status of local resident and can claim local tax benefits and exemptions from its first assignable income of SGD 100,000, provided that the following conditions are met:
(Note: the maximum number of shareholders for a subsidiary is 50. Meanwhile, there are no requirements on the ownership percentage between foreign and local shareholders).
As a subsidiary has a legal obligation to manage and control its administration in Singapore, the Board of Directors will have greater control and decision-making powers that can have a significant impact on the success of your business.
In the meantime, it is important to note that it is mandatory to appoint at least one local resident director, Singaporean citizen or holder of the state of permanent residence, work permit or EntrePass.