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A Quick Q&A on Incorporating a Subsidiary vs. Registering a Branch Office in Singapore

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Subsidiary Company Vs Branch Office : Which one you should Choose?

When incorporating a new business in Singapore, a foreign entity can choose between a branch office and subsidiary company. We will explain the differences between these two business structures to help you understand them better and decide what would work best for your new business in Singapore.

What Is a Branch?

A branch office is an extension of its parent company that may be operating in a different country. It is not an independent company as it is 100% owned by its parent company. Its liabilities extend to its parent company. Its debts must be paid by its parent company. If it gets sued in Singapore, its parent company’s assets will be at risk.

The results, financial statements, and any other formalities of a branch will be filed together with that of its parent company. It must also carry out business activities stated in the constitution of its parent company.

A branch is subjected to audit. However, it is not deemed as a tax resident.

The brand name of a branch and the finances of its parent company can protect licenses and business contracts. Hence, multinational corporations, banks, and insurance companies choose a branch for company registration in Singapore.

What Is a Subsidiary?

Q&A a Subsidiary vs. Registering a Branch - Subsidiary

A subsidiary company is a company that is incorporated locally as a limited liability company. The majority of its stakeholders can be foreign or local companies. Normally when a parent company takes 100% shareholding in anather company it is referred to as a subsidiary.

A subsidiary is a legal independent entity. It is only required to submit its own accounts. However, its business scope can be similar to or different from that of its parent company.

The liabilities of a subsidiary are independent. In the case of debts, its parent company is not mandated to pay for them. Its losses and liabilities will not also extend to its parent company. Thus, the assets of a subsidiary and its parent company are both protected even if one of them gets summoned.

Many small- to medium-sized foreign companies who plan to expand their businesses in Singapore choose a subsidiary. Through subsidiary, these companies can hold 100% shares and take advantage of the following tax exemptions and benefits:

  • Double Taxation Agreements (DTA) exemption
  • Income tax exemption from foreign-gained dividends and foreign-gained service income
  • 100% share allocation to corporate shareholders
  • Partial tax exemption if at least 10% of company shares are distributed to individual shareholders

Being qualified as a small company, a subsidiary is also exempted from the annual audit of its accounts. A subsidiary will only need to file its audited accounts in case it does not fulfill audit exemption criteria. It must then file its financial statements in XBRL format.

If you aim to own a company that is a tax resident in Singapore, incorporating a subsidiary would be the most suitable option for you.

Incorporating a Subsidiary vs. Registering a Branch Office in Singapore: What Factors Should Foreign Business Owners Consider?

Q&A a Subsidiary vs. Registering a Branch - Factors

Liabilities

The liabilities of a branch office reach its parent company in its foreign country. Meanwhile, the liabilities of a subsidiary company are independent and will not reach its parent company.


Q&A a Subsidiary vs. Registering a Branch - Director requirement

Director Requirements

A branch office does not have separate directors. During its registration, the details of its parent company’s directors will be filed instead.

The directors of a subsidiary company can be different from the directors of its parent company.


Q&A a Subsidiary vs. Registering a Branch - Resident agent

Resident Agent/Director Requirements

A branch office needs to appoint at least 1 local resident agent, while a subsidiary company must appoint at least 1 local resident director.


Q&A a Subsidiary vs. Registering a Branch - Entity name

Entity Name

The name of a branch office must be similar to its parent company, with the words “Singapore Branch” added at the end of it.

A subsidiary company can have an entirely different name from its parent company.


Q&A a Subsidiary vs. Registering a Branch - Association

Memorandum and Articles of Association

A branch office follows the memorandum and articles of association of its parent company. Meanwhile, a separate constitution is prepared for a subsidiary company.


Q&A a Subsidiary vs. Registering a Branch - Scope

Business Scope

The business scope of a branch office must be the same as its parent company. It must carry out activities stated in the constitution of its parent company.

The business scope of a subsidiary can be different from its parent company provided that it has been clearly stated during its incorporation.


Q&A a Subsidiary vs. Registering a Branch - Texes

Corporate Taxes

A branch office is taxed as a nonresident entity as its management and control is still owned by its parent company. Nonresident entities are not eligible for tax exemptions, incentives, treaties, and grants until 2018. Presently, some tax benefits are being provided even to nonresident companies. Moreover, a branch can become a resident company if it can submit specific compliance evidence to IRAS.

A subsidiary company is taxed at local tax rates and can avail tax exemptions, incentives, treaties, and grants.


Q&A a Subsidiary vs. Registering a Branch - Accounting year

Accounting Year

A branch office must follow the accounting year of its parent company, while a subsidiary company can have its own accounting year.


Q&A a Subsidiary vs. Registering a Branch - Audit

Audit

Audit is compulsory for a branch office. Meanwhile, audit may not be compulsory for a subsidiary company depending upon certain conditions.


Q&A a Subsidiary vs. Registering a Branch - Filling company account

Filing of Parent Company Accounts in Singapore

Filing of parent company accounts in Singapore is compulsory for a branch office, while it is not compulsory for a subsidiary company.


Q&A a Subsidiary vs. Registering a Branch - Changes in parent company

Changes in Parent Company Constitution

A branch office is required to file any changes in its parent company, such as changes in constitution, directors, or share capital.

A subsidiary company is not required to file any changes in its parent company.

Incorporating a Subsidiary vs. Registering a Branch Office in Singapore: In Essence

Unless you have a specific reason to incorporate a branch office, you must prioritize incorporating a subsidiary company. As a matter of fact, only 1% of foreign companies register as branch offices and the remaining 99% register as subsidiary or independent companies. This only proves that foreign business owners normally choose a subsidiary when incorporating their companies here in Singapore.

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