A Holding Company is one of the most popular forms of business operations in Singapore. Generally, startups prefer this business structure, but multinational corporations and enterprises also operate as holding companies. So, what is a holding company in Singapore? What are the advantages and disadvantages of this structure? What does it mean for your business and your industry? This article will provide you with all the answers about holding companies.
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What is a Holding Company?
Simply put, a holding company is a business entity that holds assets but does not operate or conduct any activities. A holding company, also known as a Parent Company or an Umbrella Company, can fully own another company, which is then called a “wholly-owned subsidiary.” All operations are carried out by the subsidiary.
A holding company owns equity in another company and can also own property, patents, trademarks, stocks, and other assets. Registering a holding company in Singapore is quick and easy, and its subsidiaries and owned assets can be located in Singapore or anywhere else.
There are two types of holding companies in Singapore:
- Financial holding companies, which can establish subsidiaries in the financial, banking, and insurance sectors.
- Investment holding companies in other fields.
There is no significant difference in taxation between the two types (please note: the type of taxation is based on the company structure, such as LLC, partnership, etc., not the type of holding company).
Key Features of a Holding Company
It is worth noting that a holding company can be established in the form of a Limited Liability Company (LLC), limited partnership, trust, or foundation. The LLC is the most popular among them. Although a holding company is not involved in the day-to-day affairs of its subsidiaries, it can gain significant control over them through board decisions.
The liabilities of the subsidiary do not affect the holding company—this is one of the reasons why holding companies are so popular. A holding company can consolidate all the resources of its subsidiaries. If a subsidiary is profitable, the holding company also benefits. But if a subsidiary incurs losses, the holding company’s losses are limited to its original investment in the subsidiary.
Overview of a Holding Company
Holding companies are regulated by the Financial Holding Companies Act 2013. Here are some key points to note when setting up a holding company in Singapore:
- A pre-approved company name.
- At least one director who is a resident of Singapore. This role can also be filled by at least one shareholder.
- The holding company must have a registered address in Singapore that has been reviewed and approved by the Urban Redevelopment Authority (URA).
These are the minimum requirements set by the Accounting and Corporate Regulatory Authority (ACRA) for you to proceed with registration. Additionally, you should be aware that regardless of the corporate structure you choose for your holding company, you must also meet the accompanying requirements for that chosen structure. For example, if your LLC is a private limited company, you must also submit the company’s constitution during the application process.
If ACRA approves your initial application, you can proceed with the following steps to establish your company:
- For an LLC, the holding company must have a minimum capital of S$1.
- Since the Singapore government does not require authorized share capital, investors can choose to set the amount needed for operations.
- If the holding company needs to increase the capital of a subsidiary, it must amend its company constitution and notify ACRA.
- The holding company must open a corporate bank account in Singapore.
- You need to appoint a resident company secretary within six months of incorporation.
- You can apply for relevant business schemes and programs offered by the Singapore government.
- File annual tax returns on time.
Investment Holding Companies in Singapore
Investment holding companies enjoy a special status in Singapore because they generate revenue by purchasing real estate, leasing, or holding shares in other companies. ACRA defines this type of revenue as “non-trade revenue”—which allows investment holding companies to enjoy many tax and fee reductions.
Advantages of Setting Up a Holding Company
There are many advantages to setting up a holding company in Singapore. Here are some of them:
- Limited Liability
Since a holding company is considered a separate legal entity, your liability as a shareholder does not exceed the amount of your paid-up capital. If the holding company incurs any losses or liabilities, your personal assets are not at risk.
- Unrestricted Number of Shareholders
You can invite other shareholders to join the investment holding company, as equity is held in the form of shares.
- Unlimited Investment Potential
An investment holding company can be used as a vehicle to invest in various wholly foreign-owned enterprises in Singapore.
- Risk Mitigation
Even if the investment holding company is involved in high-risk industries, potential liabilities will not affect the subsidiaries.
- Multiple Tax Benefits
Holding companies in Singapore enjoy many tax benefits. For example, shareholder dividends are tax-exempt, and the capital gains tax rate is zero.
- Unrestricted Real Estate Ownership
Although a holding company does not conduct business operations, it can purchase, own, or sell real estate.
- Flexible Corporate Structure
A holding company can be registered under any corporate structure, but we recommend setting up your holding company as a private limited company, as this is in its best business interest.
- Minimum Share Capital
The minimum share capital required to set up a holding company in Singapore is only S$1.
Disadvantages of a Holding Company
The disadvantages of a holding company include complexity, lack of transparency, relatively time-consuming decision-making, and the potential for market manipulation. Let’s look at how these disadvantages affect the different stakeholders of a holding company.
- For the Parent Company
In some cases, the parent company may have to make decisions for a subsidiary despite lacking sufficient information about the subsidiary’s business. Incorrect or insufficient information can lead to decision-makers having divergent views and strategies, resulting in conflicting decisions.
- For the Subsidiary
Meanwhile, the subsidiary may also lack information about the parent company’s operations and goals. There may also be conflicts of interest between the two companies and their management, leading to inconsistent business decisions.
- For Shareholders
Minority shareholders who are unclear about the holding company’s business may be at a disadvantage. For example, major shareholders might use related-party suppliers.
- Other Disadvantages
The lack of transparency in a subsidiary’s business operations may cause the parent company’s stock to be penalized by the market. A holding company may also suffer a disproportionate market backlash due to the poor financial performance of its subsidiaries.
Different Ways to Set Up a Holding Company
The most important point: based on the company’s objectives, choose the right corporate structure for your holding company. The most common is the private limited company. However, here we will explore other options you can consider.
Corporation
Most holding companies are established as corporations because this provides dynamic business management and a clearer management hierarchy. As it is a taxable entity, it can also benefit from corporate tax incentives provided by tax treaties.
Limited Liability Company (LLC)
If your main goal is to avoid asset liabilities, an LLC is the best choice. Compared to a corporation, an LLC is simpler to set up and has fewer compliance regulations.
Trust
A combination of a corporation and a trust is best suited for wealth and succession planning. If your goal is to efficiently transfer assets between generations, protect assets, and optimize tax payments, an offshore trust is the best option.
Foundation
Foundations are legally recognized in all jurisdictions. If your residential jurisdiction does not distinguish between legal ownership and beneficial ownership, it will not recognize a trust. In this case, a combination of a foundation and a legal entity would be a more appropriate choice.
Requirements for Registering a Holding Company in Singapore
Registering a holding company in Singapore is very straightforward, with the following minimum requirements:
- Minimum paid-up capital of S$1
- At least one individual or corporate shareholder
- At least one local director residing in Singapore
- At least one company secretary residing in Singapore
- A local registered physical address (business or residential)
- A corporate bank account
Steps to Set Up a Holding Company in Singapore
Registering a holding company in Singapore involves the following steps:
- Get the company name approved by ACRA
- Submit the registration application online via BizFile+
The registration process takes about three days. However, in some cases, ACRA may need to refer the application to other agencies for review, which could extend the waiting time.
Post-Registration Requirements and Compliance for a Holding Company
Just like any other company structure in Singapore, a holding company needs to maintain compliance, which will depend on the chosen structure. The most common requirements are:
- Hold the first board meeting within 30 days of incorporation
- Appoint an auditor
- Disclosure of directors’ interests and declaration of directors’ disqualification
- Issue share certificates within 60 days
- Pay stamp duty
- Register for corporate tax and directors’ income tax
- GST/IEC registration
- Maintain minutes of meetings
A holding company also needs to meet annual compliance requirements, as follows:
- Board meetings held at intervals not exceeding 120 days
- Audit of statutory accounts
- Filing of Annual Return
- Submission of financial statements
- Annual General Meeting
- Directors’ report
Conclusion on Holding Companies in Singapore
Setting up a holding company in Singapore is very simple, and its requirements are not much different from any other corporate structure, although the holding company itself is not a “structure.” Holding companies are favored for being exempt from tax on dividends and capital gains. Among the many tax benefits they enjoy, holding companies can reduce fees and taxes by leveraging Double Tax Treaties.
The most important thing to remember is that since a holding company is set up like any other corporate structure, you also need to continuously meet compliance requirements. Our experts can assist you with this, helping you set up a Singapore holding company from scratch and ensuring you stay compliant every step of the way.
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