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Can a Foreign Company be Made Subsidiary to a Singapore Company?

Can a Foreign Company be Made Subsidiary to a Singapore Company?

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Can we make our company in home country as subsidiary of Singapore company we are establishing?

There is a common question that is asked; If you are incorporating a company in Singapore, is it possible to give it the status of parent company while making the company in your home country it's subsidiary?

Yes, it is possible, and there is no legal or technical violation in it. As per the Singapore Companies law, a company incorporated in Singapore can buy an unlimited number of shares of any other company, even a whole company anywhere on this planet earth. So, if you intend making your company in your home country as a subsidiary to your newly incorporated company in Singapore, there is no issue in it.

However, certain factors must be considered while making your home country company a subsidiary to the company Incorporated in Singapore.

Factors to Consider

Majority of the factors that need to be considered while making your home country a subsidiary to Singapore Company are related to the rules and regulations of the home country. These are appended below:

Legality of Owning a Local Company by a Foreign Company as Per the Host Country's Laws

Since the local company will be a subsidiary of the company in Singapore, therefore, the Singapore company will buy its 100% shares. So, the very first thing that you need to check is whether or not the home country laws allow 100% ownership of a local company by a foreign company.

For Example as far as India is concerned, only specific sectors are open to this. Many business sectors do not allow 100% ownership of the shares of a local company by a Singapore company or any other foreign-based company.

Can foreign company made subsidiary - Cost effect in term

Cost Effect in terms of Tax and Duty

If the country laws allow making a local company subsidiary to a foreign company. In that case, the next thing you need to check is the cost effect/charges that will be incurred in terms of Capital Gain Tax and Stamp duty when you are going to transfer the share capital from existing owners to the parent Singapore company. Also, you should work out the valuation of the shares that will be transferred to Singapore because the taxes will be directly proportional to this.

Can foreign company made subsidiary - foreign owenership

Stringent Scrutiny of Documentary Complexities Due to Foreign Ownership

In the majority of the cases, a company with foreign ownership is subject to more scrutiny with regards to routine, audits, corporate file and taxation as compared to a locally owned company. Therefore, expect many more questions than usual and be ready to provide tons of documents which otherwise may not have been required.

Can foreign company made subsidiary - Administrative

Administrative Hassles of Changing the Ownership

Suppose you are ready to go through the all of the steps mentioned above, must weigh out the administrative hassle involved in changing the ownership of the company. This includes checking on specific approvals that you may need to obtain. For instance, you would be required to approach the Apex Bank in your home country to approve the transfer of ownership, also there many other approvals from the company's law board or tax authorities.

Besides, under such an arrangement you are also required to consider the following Two Most Important Factors

  • You will be required to file consolidated results of parent and subsidiary company in Singapore and possibly in the home country.
  • You would also need to file the Singapore entities in the home country depending upon the rules of the home country. So, this is going to add more disclosure and complexities of your business operations.

The Upshot

Though technically and legally possible, incorporating a subsidiary company abroad should be avoided as much as possible and should be undertaken only if you have very compelling reasons for it. Moreover, you must get talk to your tax consultant and professional adviser before flexing your business muscle on this undertaking because it involves several disclosure requirements, complexities and documentary issues that need to be considered beforehand.

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