Why incorporate an offshore company in Singapore
Many investors would choose to incorporate an offshore company in Singapore. But why incorporate an Singapore Offshore Company? We will explain that here and describe 9 reasons why. The main reasons are their friendly business environment, stable economy, coherent tax system, and lucrative business opportunities.
In the past, people viewed the incorporation of an offshore company as a way to evade tax or commit other criminal activities. But the fact is that this is a legitimate way of expanding one’s operations internationally.
The offshore company in Singapore can operate as a subsidiary or a branch office.
Also, both individuals and multinational companies can decide to incorporate a offshore company in Singapore with little to no significant hassle.
All they need is documents necessary for registration and procedure to incorporate one.
That said, this is an ultimate guide to help you understand what an offshore company is, the benefits of opening one in Singapore, and the requirements to incorporate and sustain it in the country.
What is an offshore company?
An offshore company is an entity that is incorporated in a different jurisdiction rather than where its parent company, shareholder, or directors reside.
Its primary operations do not happen in the country where its principals are located.
The main reason for offshore company incorporation is to enjoy different favorable laws, among other benefits in the country of interest. Therefore, a Singapore offshore company is one that is registered, managed, and operated in a different country other than Singapore.
It means that nobody runs or controls the business from Singapore. The government provides Singapore offshore companies with some financial, tax, and legal benefits.
These companies usually operate the same as a typical private limited company except that the offshore company is recognized as an international business.
The main difference between an offshore and local company is its incorporation process.
A local company gets incorporated generally in the country, demanding the usual documents of company incorporation. An offshore company in Singapore follows the same process, but its incorporation needs to be carried out by a local nominee director.
Opening an offshore company does not require you to relocate to Singapore, and neither are you required to produce a working visa or work pass to open the company or pay a visit to the company.
Since it’s an offshore company, you cannot live in the country for extended periods — it might diminish the definition of an offshore company.
However, if you ever decide to relocate, you will need an entrepreneur pass or employment pass for you to manage your company in Singapore.
Don’t miss my article about, What is an offshore company and where to start your offshore business
What business can your offshore company in Singapore carry out?
Your offshore company can carry out any business activity in Singapore, including those that your parent company is not engaged in.
However, you must fulfill every requirement stipulated in the country for that specific business activity.
For instance, incorporating a restaurant in Singapore requires you to get an exclusive license. You can get such licenses from the official government website for business licensing — GoBusiness.
Some of the sectors that seem to thrive with Singapore offshore companies include:
- Investment holding
- Intellectual property holding
- General manufacturing
- Mineral fuels
- Consultancy among other professional services
- Yacht owning or ship management, among others
Some may wonder if they can change their incorporated business name — giving it a different one from its parent company, and the answer is yes.
All you need is to ensure that Accounting and Corporate Regulatory Authority (ACRA) (opens in a new tab) approves the new name.
One of the main reasons they might reject your application is if another business in the country carries the same name.
You must carry out a diligent and thorough name search.
Things to know before offshore company registration in Singapore — requirements
Before the incorporation of an offshore company, here, some of the things to know and fulfill are required.
Identify your company name
You either decide to keep your original company name or change it. However, whichever name you choose, it must be approved by ACRA, which is the company registrar authority in Singapore.
They have rules and regulations that you must fulfill before the approval of your chosen business name.
- The name must be meaningful, unique and decent
- It must not violate any law concerning trademark or copyright
- It cannot be similar to any other business name in the country
- The name must not be found in their black-list catalogs
Board of directors
Just like any other company in Singapore, an offshore company must have a board of directors. In the case of a foreign company, at least one of the members of the board of directors must be a local resident.
He can be a citizen of Singapore, a permanent resident, or an individual holding a valid work pass. If the company wishes to add more resident directors inboard, that is up to them.
This director must be 18 years or above and cannot be an entity. In case the resident director does not satisfy his duties adequately, you can rely on a nominee director. A nominee director is a person appointed to represent the interest of another individual, company, or any other group. here I advise you to read my full article on Nominee director and nominee shareholder – Who are they, and do I need them?
In Singapore, this director can assist overseas investors in incorporating the offshore company in the country. They operate like other directors in a limited company except that they are working for the interest of another person and the overall company. They also help in fulfilling the requirement of a resident director when it comes to the incorporation of Singapore offshore companies.
List of shareholders
Every limited company in the country requires at least one shareholder and a maximum of 50.
One of these must be a local resident. Directors can also operate as the shareholders, and this includes the resident one.
A company shareholder can either be a person or an entity.
Shareholders are literally the owners of a company, which means they enjoy all the rewards from the company. These include losses and profits.
For investors who would like to shield their name from the public as the owners of the Singapore offshore company, they are allowed to appoint a nominee shareholder.
A nominee shareholder is a person or an entity registered as a holder of shares during the incorporation of an offshore company.
They are the people known by the public as the owner of the shares, but in the real sense, they are only holding the shares for the beneficial owner. A nominee shareholder cannot enjoy any benefit or rights of owning shares in a company.
To ensure that this promise is binding, the nominee usually signs a Declaration of Trust and then hand it to the beneficial owner. You can learn more about a nominee director and shareholder from my previous post.
Company secretarial service
Limited companies in Singapore must provide a company secretary as one of the requirements of the registration process. An offshore company is not exempt from this requirement. The secretary needs to be a local resident and must be a person and not an entity.
Also, a company secretary cannot be a member of the board of directors or a shareholder. If it becomes challenging to get a resident secretary, you can opt for company secretarial services in Singapore to help you speed up the registration process.
Requirements for paid-up capital and documents
For the incorporation of an offshore company, you need a minimum of S$1 as paid-up share capital, but no authorized capital required.
Some of the documents you need to incorporate your offshore company include:
- Copies of passport for all directors and shareholders
- Proof of residential address for all directors and shareholders
- If any of the shareholders in a company is an entity, you will need to provide details of the parent company
- Memorandum and Articles of Association (M&AA)
- A Description of business activity
- Company constitution
Get the necessary licenses and permits
Almost every business activity in Singapore requires a license and permit to start operations, and these documents depend on the type of business.
Singapore offshore companies are not exempt either. Therefore, if your business activity requires you to obtain any license, go for it from the relevant government agency.
You need to get this done after incorporating the company, but before you start your operations.
A locally registered address for the offshore company — can either be a commercial or residential address. In this case, a PO Box address is not acceptable.
You need a company incorporation agency to help you register an offshore company, and it will only take between 1 and 3 days to be complete. The law does not allow individual or entities from other countries to self-register their Singapore offshore company.
Why incorporate a Singapore offshore company? – 9 Reasons
You may wonder why most entrepreneurs and multinational companies are settling on expanding their businesses in South Asia. Well, the main reason is the fast emerging markets and numerous business incentives provided by local governments in these countries.
Singapore is explicitly known for lucrative business opportunities, among other benefits, as stated below.
1) Favorable tax system
Before setting up an offshore company, most investors will consider the tax regime in the country of interest to ensure it is favorable for their business.
Singapore is one of the countries that comes with a tax-friendly business environment.
Every private limited company in Singapore, including offshore companies, pays a corporate tax of 7.5% for revenues up to S$300,000. For revenues surpassing S$300,000, the corporate tax is 17%.
This is by far below average corporate tax rate in most companies across the globe.
A newly incorporated company pays a 0% tax for every S$100,000 taxable income for the first three years of operations.
However, for a company to enjoy this benefit, shareholders must be 20 or less, and at least one of them must hold a minimum of 10% share capital. Since Singapore has a one-tire tax policy, shareholders get to enjoy their dividends tax-free.
Also, every company incorporated in Singapore is not liable to pay withholding tax, capital gain tax, accumulated revenue tax, or sales tax.
Previously, corporate companies were never required to pay Value Added Tax (VAT) (opens in a new tab), which is referred to as Goods and Services Tax (GST) (opens in a new tab) in Singapore. The government introduced GST in the year 1994, and today it stands at 7%. This too low as compared to the global VAT average.
It is also below the Asian Pacific region (opens in a new tab) average, which stands at 10.5%.
2) A reputable image in the market
Incorporating an offshore company in Singapore does not mean you are enjoying tax benefits that local companies are not.
This means that you will not attract negative energy from stakeholders, employees, bankers, or any other professional in the market.
You are all operating on a leveled ground and, therefore, can compete naturally and healthily with other companies in the country.
It builds trust and credibility in the market from all stakeholders.
3) It is easy to incorporate an offshore company in Singapore
Most countries have strict and complex requirements for the incorporation of an offshore company. This is one of the reasons why you should consider Singapore.
They have been ranked among the most comfortable nations to start any business in the world. As shown earlier, their registration process and requirements are quite straightforward.
Also, it only takes a maximum of three days to incorporate any company in Singapore.
As long as you have all the documents required, be sure not to encounter any bureaucratic red-tape when incorporating Singapore offshore company.
4) Liberalized foreign ownership
According to liberal ownership policy in Singapore, an offshore company is allowed to take 100 percent ownership without restrictions.
The foreign ownership policies are quite open for any business that you may think of setting up in the country. You are not required to get any prior approval to register a company in this country as well.
5) Politically stability
Political instability is one of the main reasons why most businesses, including successful ones, fail terribly when radical issues escalate.
Singapore is a country with the least bureaucrats as compared to other nations in Asia, making it a great country to incorporate an offshore company.
The country’s government is known for its integrity being described as pragmatic, rational, and corrupt-free.
Very few countries get to enjoy such political stability, yet it is crucial for the growth and success of every business.
6) Numerous and favorable banking facilities
Since Singapore has been a business hub for many foreign investors, including multinational companies — they provide diverse choices for offshore banking.
The good thing is that you can get access to a multi-currency bank account and also transfer your money with ease to and from your domestic bank.
The process of opening an offshore bank account is also straightforward.
7) Numerous business opportunities
As stated earlier, Singapore, as one of the emerging markets in South Asia, and it comes with diverse business opportunities for start-ups and companies that wish to expand their business internationally.
The good thing is that the Singapore government is open to provide incentives and promote free-market to foreign investors who wish to register a company in the country.
Sectors such as electronic components, chemical products, mineral fuels, and general manufacturing hold excellent prospects.
One can indulge in any — they are actually remarkable for import and export trading.
8) Favorable immigration policies
Sometimes it can be difficult to hire foreign professionals, and it is harder when it is an offshore company.
The good thing with incorporation in Singapore is that the government has made it easy for foreign investors to hire employees from other countries other than Singapore citizens.
Singapore offshore companies get to enjoy the open immigration policies implemented by the government to acquire working visas and permits for their foreign employees.
9) Heightened intellectual property protection
Singapore is known for its robust guidelines formulated to protect intellectual properties.
In fact, when registering Singapore offshore company ies, you are allowed to apply for international global trademark registration.
This is possible because the country is a significant signatory in most intellectual property treaties, including the patent cooperation treaty, Berne Convention, and Paris Convention.
Compliance and regulations in Singapore
Have you managed to incorporate your offshore company in Singapore?
If yes, congratulations!
They will provide you with a registration number, which can act as a formal certificate of incorporation for your offshore company.
This company will start operating as a separate entity from its parent company in a foreign country.
That said, here main compliance requirement that the offshore company must fulfill.
Singapore accounting requirements
Like other companies in Singapore, your offshore company needs to identify its designated financial year-end.
This happens during the time of incorporation of the offshore company.
It is an annual accounting period that does not require to start on January 1 and end on December 31 — choose a period depending on your business cycle.
All Singapore offshore companies need to maintain proper books of accounts. This is a requirement for all companies in the country.
The financial statements and records of all transactions need to be maintained for a minimum of five years.
The offshore company is also required to appoint an auditor within the first three months after its incorporation.
However, those companies that are considered by the law, Company Act as a “small company” are not required to fulfill this requirement.
In Singapore, every public-listed company is required to hold an annual general meeting (AGM) (opens in a new tab) within four months after the closure of its financial year.
Other limited companies are given a time limit of six months after the end of the fiscal year.
However, there are a few exemptions from this requirement.
For instance, dormant companies that are exempted from maintaining financial records are also exempted from holding AGMs.
Also, if a private company sends its financial statements to all the members within five months after the closure of the financial year, they are also exempted.
These exemptions come with some conditions, and it is essential to ensure that you fulfill them all.
Tax payment and filing of returns
Once you complete registration for your offshore company, you automatically get registered with IRAS (Inland Revenue Authority of Singapore) (opens in a new tab).
Every company in Singapore, including offshore companies, must remit their tax payments every year and file returns.
That said, Singapore offshore companies are required to declare their revenues, including approximated taxable income through the Estimated Chargeable Income (ECI) form (opens in a new tab).
This revenue includes the primary source of income for the offshore company excluding items such as capital gain and withholding incomes.
Even if the company’s taxable income is zero, they must still file a return, ‘NIL’ under ECI.
Filing returns for on offshore company ought to be done within 60 days after the AGM of the parent company.
The documents they need to remit to the registrar include:
- A copy of financial accounts from the parent company
- A proof of filed returns in the parent’s company tax jurisdiction
- A copy of audited accounts of the offshore company in Singapore
Even if it is not a must for the parent company to prepare accounts of hold an AGM, they must maintain accurate financial records and get them audited.
Singapore offshore companies are required to file their annual returns with ACRA through their online portal on the website.
They must file these returns for corporate tax either by December 15 (online filing) or November 30 (physical filing).
The good thing is that your incorporation agent is responsible for fulfilling all these compliance requirements.
Remember, if you do not comply with any of these statutory requirements, it is considered an offense that may lead to hefty fines or imprisonment.
Also, if your company qualifies for GST registration, you need to register it and pay the tax liabilities there-in.
Qualification for GST comes when a company’s revenue surpasses S$1 million and this demands for compulsory registration with IRAS within 30 days.
Some entities may also register voluntarily even if they are not liable to do so based on the business they intend to carry out.
However, some conditions come with voluntary registration.
Setting up an offshore bank account
Since you are required to maintain financial accounts for the offshore company, it is advisable to open a bank account separate from that of the parent company. Opening an offshore bank account is very easy since the requirements for the same are straightforward.
You either open the account online by remitting the necessary documents or visit the bank in person. The decision depends on the policies of the bank you choose or your own preferences.
You can read more about offshore banking from my previous blog post, How to open an offshore bank account.
Most banks in Singapore will allow you to save in diverse currencies and, at the same time, expand your investments for maximum returns.
Offshore bank accounts are no longer a thing for the wealthy only, nor are they illegal.
After incorporation of your foreign company in Singapore, start shopping for a reliable offshore bank account.
Most Singapore offshore companies consider these leading banks, namely:
- Citibank Singapore
- OCBC Bank
- UOB Bank
- HSBC Singapore
However, your choice should not be limited to these — do your research homework until you get satisfied with the services you need.
Now, can you close an offshore company, and how?
The procedure for closing an offshore company in the country depends on whether you still have outstanding liabilities or not. In this case, if your foreign company does not have any liability, you can apply for the deregistration of the company through ACRA.
The process is referred to as a struck off of the register. Creditors can still claim and enforce their unpaid dues. In case the company has liabilities to settle, the company gets closed through a process known as full winding up.
A liquidator may be required to help in proper realization of the offshore company’s assets and distribution of the same to its members and creditors.
Winding off an offshore company can be a complicated process based on the type and quantity of assets and liabilities associated with the company.
Therefore, before you decide to close your foreign company in Singapore, consider working closely with reliable legal and accounting professionals.
They will advise you on the best way forward.
FAQs for offshore company incorporation
How many licenses do you need to start operating in Singapore?
The number and type of business license required by any limited company in Singapore depend on the activities of the business.
The same rule applies to Singapore offshore companies.
Therefore, you can’t say that you need a specific number of licenses to incorporate an offshore company.
How come a local company in Singapore does not need a nominee director?
Since this is a locally registered and owned company in Singapore, the directors are citizens or local residents.
The law only requires a director who is a local resident for offshore companies only.
Therefore, no need for a local nominee director.
Is a dormant Singapore offshore account required to audit its accounts?
The answer is no. However, you can still file returns based on unaudited accounts.
The answer is yes. Once the incorporation of the foreign company is complete, details of directors and shareholders of the company become public.
This is the main reason why most people appoint a nominee director or shareholder to shield their privacy as the company owners or from public association with it.