Singapore is world-renowned for having one of the most competitive business landscapes in Asia, and is known for its ease of doing business operations. A quick skim-through UNCTAD's World Investment Report 2020 reveals that despite its comparatively small size, Singapore is among the World’s 5 largest recipients of foreign direct investments.
Investors from all over the globe hold the country in high prestige when it comes to doing business, which makes Singapore an ideal location for opening an investment holding company. But, before we go into that, let’s address the elephant in the room- what is an investment company in the first place?
What is an Investment Holding Company?
According to the Singapore Companies Act, an investment holding company or an IHC is a special type of corporate entity that allows investors to generate income directly through real estate property or shares in other companies. That means that in addition to buying, selling, and renting properties, you get to own and run other companies after acquiring equity through their shares.
It’s worth noting, though, that investment holding companies in Singapore deal with non-trade activities only. You can’t directly use it for any business venture. The most you can do here is use its subsidiary companies as conduits for establishing and controlling various businesses. An IHC can also do case studies on private companies.
All that comes after registering the IHC with the Accounting and Corporate Regulatory Authority (ACRA), which is Singapore’s overall statutory authority when it comes to corporate compliance. It allows both foreigners and local residents to set up an investment holding company in Singapore, as well as manage it for the long haul.
What are the Benefits and Features of Singaporean Investment Holding Companies?
- Limited Liability: A Singaporean investment entity is officially recognized as a distinct entity, complete with its own set of limited liabilities. Your personal liability here doesn’t stretch beyond the amount you contribute towards the company’s paid-up capital.
Consequently, all your personal assets should be safe from any form of legal implications that directly arise from the company’s liabilities. Any business entity formed under the IHC, however, is considered a wholly-owned subsidiary company.
- Shares: Equity in an IHC is usually managed in the form of shares. This allows you to bring in other parties into the company as shareholders.
- Unlimited Overseas Investment Potential: As a foreign investor, you can freely use the IHC to invest in a wide range of businesses within Singapore.
- Protection From Business Risks: Since subsidiary companies are treated as limited liability entities in Singapore, an IHC can venture into multiple risky businesses at the same time, and still remain protected from the subsequent risks. Each company’s liabilities cannot spread to other subsidiaries or the parent holding company.
- Tax Incentives: In addition to its standard low corporate tax rates, Singapore offers investment holding companies a range of tax incentives. The Inland Revenue Authority of Singapore (IRAS) regulates the tax payable for IHCs. As a shareholder, for example, your dividends are entitled to tax exemption.
Plus, you can expect zero tax rates on all the capital gains and investment income. IHCs are also entitled to assess income generated from their activities minus the direct, statutory, and regulatory expenses incurred, lowering the tax payable of the company.
- Property Ownership: Although an IHC cannot directly engage in business activities, ACRA allows it to freely acquire, own, and sell real estate property. Property tax is also part of deductible expenses for the investment holding company.
- Corporate Structure Flexibility: An IHC can be set up under any limited liability corporate structure. However, all things considered, you might want to register yours as a private limited corporation. This is the structure that offers the best business benefits.
- Low Share Capital: ACRA allows you to set up an IHC in Singapore with a minimum share capital of S$1. Its low share capital offers an accessibility for a Singapore investment holding company to incorporate in the country.
Now, despite all these outstanding factors, it just so happens that Singapore is not the only territory allowing foreigners to register and operate investment holding companies. So, why exactly should you consider it above other potential business destinations?
Why Should You Set Up Your IHC in Singapore?
We recently covered this topic in full in our article on Why You Should Incorporate Your Company In Singapore. You can check it out for in-depth insights into all the reasons why Singapore is an ideal place for startups.
Here’s a brief breakdown the principal highlights that you might want to prioritize as you consider Singapore for your IHC:
- Ease of Doing Business: Singapore isn’t just friendly to businesses, it’s recognized as the best in the world. This city-state has topped the World Bank’s Ease of Doing Business Index for more than 10 years straight.
- Solid Legal Framework: Apart from the Companies Act, Singapore has implemented a wide array of legislations to protect the interests of businesses. If you ever need to file a patent, for instance, the Intellectual Property Office of Singapore (IPOS) will facilitate you accordingly.
- Attractive Corporate Tax Rates: It’s no secret that Singapore is widely recognized as a tax haven for businesses. Both foreign and domestic companies pay a corporate tax rate of not more than 17%, which happens to be one of the lowest in the world.
- Tax Exemptions: Singapore doesn’t stop at the corporate tax rate. Turns out you’ll be eligible for several tax exemptions once you set up an investment holding company. You won’t, for example, pay any taxes on the company’s capital gains and the accompanying dividends.
- Double Taxation Agreements: To save foreign investors from possible repeat taxation across different territories, Singapore has signed Double Taxation Agreements (DTAs) and tax treaties with dozens of countries.
- Schemes for Holding Companies: The government of Singapore offers foreign corporations- including investment holding companies- a range of favorable schemes to promote business growth. The International (IHQ) and Regional Headquarter (RHQ) programs, for instance, offer various tax incentives to foreigners who choose to move their company’s headquarters to Singapore.
- Stable Political Environment: Historically, Singapore has never gone to war or experienced any form of political turmoil. You should be able to run your businesses peacefully without any unforeseen external threats.
Things You Should Consider When Setting Up an IHC in Singapore
Although an IHC in Singapore is registered under the standard corporate structures, it comes with its fair share of unique conditions. You should particularly take into account the following:
- While an investment holding company has a say in the administrative decisions of its subsidiary companies, it cannot manage their day-to-day activities.
- A Singaporean IHC can be set up under civil law structures.
- An investment holding company in Singapore can deduct direct expenses when assessing the income tax to be paid for a full or partial tax exemption.
- In the event its subsidiary companies dissolve or happen to run into problems, an IHC is protected from all the accompanying liabilities.
What Are The Requirements Of Setting Up An IHC in Singapore?
When it comes to the actual registration process, ACRA will only proceed with the process if your application meets the following minimum requirements. Each investment holding company should have:
- At least one resident director, who should be based in Singapore.
- A pre-approved business name.
- At least one shareholder, who can go ahead and double up as the company’s director.
- A registered office address that has been reviewed and approved by the Urban Redevelopment Authority.
Additionally, you’ll be expected to adhere to requirements that come with your selected corporate structure. For example- if you choose to have your IHC as a private limited corporation, your application should be accompanied by an explicit company constitution.
What’s Next After Setting Up an IHC in Singapore?
Hats off to you if you happen to make it this far. Admittedly, successful company incorporation in Singapore is certainly worth a toast.
But, don’t get carried away. You’re only halfway done. You can only fully establish the company in Singapore after following up the registration process with:
- Corporate bank account registration.
- Appointment of a resident company secretary within 6 months of incorporation.
- Applications for relevant government business schemes and programs.
- Annual compliance tax filing.
Where Should You Start?
Since ACRA requires each foreigner to submit their application through a reputable service provider, you can start by getting in touch with WealthBridge. Our broadly experienced professionals will guide you through everything, down to the last detail.
Let our team guide you to incorporating your business! Contact us today to get started.