Information on starting a business in Singapore, including a list of Singapore government agencies who can help employers.
What are the benefits of starting a business in Singapore?
The economy of Singapore is a highly developed free-market economy. Singapore’s economy has been ranked as the most open in the world, 3rd least corrupt, most pro-business, with low tax rates (14.2% of gross domestic product (GDP))and has the third-highest per-capita GDP in the world in terms of purchasing power parity (PPP). APEC is headquartered in Singapore.
To preserve its international standing and further its economic prosperity in the twenty-first century, Singapore has taken measures to promote innovation, encourage entrepreneurship, and re-train its workforce.
1. Tax Incentives for a new start-up
The tax exemption scheme for new start-up companies was introduced in Year of Assessment (YA) 2005 to support entrepreneurship and help our local enterprises grow. As another support for companies to build capabilities is being strengthened, it was announced in Budget 2018 that the tax exemption under the scheme will be revised. The changes will take effect from YA 2020 for all qualifying companies that claim the tax exemption under the scheme.
With the changes, qualifying companies will be given the following tax exemption for the first three consecutive YAs where the YA falls in:
YA 2020 onwards
- 75% exemption on the first $100,000 of normal chargeable income*; and
- A further 50% exemption on the next $100,000 of normal chargeable income*
YA 2019 and before
– Full exemption on the first $100,000 of normal chargeable income*; and
– A further 50% exemption on the next $200,000 of normal chargeable income*.
*Normal chargeable income refers to income to be taxed at the prevailing corporate tax rate.
The tables below summarise the amount of tax exemption.
Tax Exemption on First $200,000 of Chargeable Income (where any YA of the first 3 YAs falls in or after YA 2020)
|
Chargeable Income |
% Exempted from Tax |
Amount Exempted from Tax |
|
First $100,000 |
75% |
$75,000 |
|
Next $100,000 |
50% |
$50,000 |
The maximum exemption for each YA is $125,000 ($75,000 + $50,000).
Tax Exemption on First $300,000 of Chargeable Income (where any YA of the first 3 YAs falls in YA 2010 to YA 2019)
|
Chargeable Income |
% Exempted from Tax |
Amount Exempted from Tax |
|
First $100,000 |
100% |
$100,000 |
|
Next $200,000 |
50% |
$100,000 |
The maximum exemption for each YA is $200,000 ($100,000 + $100,000).
* Learn more about “Tax Reliefs” here
2. Capable and Skilled people
Consistently ranked as one of the world’s most competitive, Singapore’s workforce is highly educated and skilled. More than 30 percent of our workforce hold a university degree, with another 15 percent having earned a diploma or professional qualification.
Singapore’s bilingual education policy also means that our people are proficient in English and at least one other language, such as Mandarin, Bahasa Melayu, or Tamil.
The Singapore Government has introduced initiatives such as SkillsFuture to help their people upgrade their skills or learn new ones. It means your business always has access to potential employees with the right capabilities.
Singapore governments are also strengthening their digitally capable workforce. TechSkills Accelerator (TeSA), a SkillsFuture initiative, provides various programs to prepare workers for digital and tech roles.
How to register a company in Singapore?
Below you can find the steps required to register a company in Singapore. These steps can be easily applied also to foreigners interested to start a business in Singapore:
- Choose a Company Name
- Determine the Company Type
- Appoint Directors, Company Secretary, and Other Key Personnel
- Shares and Shareholder
The director is the person in charge of managing the company. An important rule to remember is that the company must have at least 1 director who is locally resident in Singapore (A Singapore Citizen, Singapore Permanent Resident or EntrePass holder).
Two rules regulate the incorporation of the corporate secretary. The secretary must be:
- A natural person;
- Locally resident in Singapore.
The company must have at least one shareholder. You will need to provide the personal identification details, contact information (telephone number and e-mail address), and residential address of each of the shareholders when submitting the application online.
You must also indicate the amount of issued capital i.e. the total amount that shareholders have paid for their shares. The minimum issued capital must be at least $1. However, there is no minimum paid-up capital required.
- Register Office address and Constitution
You must provide a registered office address during your application to incorporate a company. A registered office address refers to the place where all communications and notices to the company are addressed to, and the place where the company’s register and records are kept.
A registered office must be operational and accessible to the public during normal office hours, but need not be where the company conducts its activities (e.g. the registered office address may be in Raffles Place but the factory could be located in Tuas).
- Decide on a Financial Year End
You must also decide on the first financial year-end (FYE) of your new company. The FYE will determine when your corporate filings and taxes are due. Common choices by companies include 31 March, 30 June, 30 September or 31 December. You must also decide whether your accounting period covers 12 months or over 52 weeks.
- What you have to file each year
- Annual General Meeting
- Annual Return
- Register of Registrable Controllers
- Electronic Register of members
- Electronic Registers of Directors, Secretaries, Auditors and CEOs
- Change in Company Information
- Changes in Personal Particulars of Company Officers and Shareholders
Types of businesses in Singapore
Below you can find a list of the different legal entities that you can choose to start a business in Singapore:
-
Limited Liability Company (LLC): A LLC can be considered as a mix between a Partnership and a Corporation because of its similarities to both. Like a Sole Proprietorship/Partnership, finances are sent to owners for their personal tax returns. Additionally, it is also a separate legal entity like a Corporation and has similar liability protection, but there is no stock involved. This type of company suits for SME’s, Startups, and Entrepreneurs. A Singapore Limited Liability Company (LLC) is a very efficient tax entity. The effective corporate tax rate for Singapore companies for profits up to USD$ 220,000.00 is below 9% and capped at 17% for profits above USD$ 220,000.00.
- LLC has the following types:
1. Private Limited Company
The most common and most preferred type of entity among entrepreneurs in Singapore is the Private Limited Company. The shares of a Private Limited Company are not made available to the general public, all of its shares are held privately. The number of shareholders in a Private Limited Company must not be more than 50. In Singapore, the names of this type of entities have the suffix ‘Private Limited’ or ‘Pte Ltd’.
2. Exempt Private Limited Company
An Exempt Private Limited Company (EPC) is a Private Limited Company that is exempted from statutory annual audit. In order to qualify as an EPC a Private Limited Company must meet the following conditions:
- It must not have more than 20 shareholders
- No corporation should have beneficial interest in its shares, meaning, it must not have any corporate shareholder
- The annual revenue must not be more than S$5 million
Instead of preparing and filing an audited statement annually to the ACRA the EPCs are merely required to submit a declaration signed by the directors and company secretary confirming the solvency of the company. EPCs must still keep records of the financial statements following Singapore’s Financial Reporting Standards (FRS) in case ACRA requests them.
An amendment made to the Companies Act has made more companies eligible for the exemption even if they do not qualify as an EPC. Such companies are categorised as ‘small’ companies. Effective 1 July 2015, a company, even if it does not qualify as a EPC, will be exempted from the annual audit requirement if it meets at least two of the following new criteria for the immediate past two consecutive financial years:
- Annual revenue is less than S$10 million
- Total assets not exceeding S$10 million
- Less than 50 employees
Parent Companies or subsidiaries that are small companies and are part of a small group will also qualify for audit exemption. A small group is one, which meets at least two of the three quantitative criteria above on a consolidated basis for the immediate past two consecutive financial years.
Merits of Private Limited Company
- This is the most popular entity type because besides limiting the liability of shareholders, it also provides greater control of ownership.
- The ownership is easily transferable, either as a whole or part, by simply transferring the shares. Assets, licenses and permits can be easily transferred in the case of change in ownership.
- Though the compliance cost is higher when compared to sole proprietorship, the tax liability is immensely lowered by the competitive corporate tax rates in Singapore. Companies that have a taxable profit of S$300,000 or less are effectively charged a rate of just 8.5%. Profits above S$300,000 are subjected to a rate of 17% only.
- It is relatively easy to raise capital by issuing shares to new shareholders or by issuing additional shares to existing shareholders. This facilitates growth and expansion of the business. It also improves the access to financial assistance from banks and other financial institutions.
- The death or insolvency of shareholders will not impede the existence of the company. It has legal perpetuity until it is taken off the register.
- Public Company: A public limited company is a LLC that may offer shares to the general public. A public limited company must have at least 50 shareholders and is subject to significantly more stringent rules and regulations since they have the power to raise funds from the public. A public limited company is usually listed on a stock exchange. Public limited companies are outside the scope of this article as they are meant for large businesses.
- There are two types of public company:
- Public Company Limited by Shares
- Public Company Limited by Guarantee
1. Public Company Limited by Shares
A LLC that has more than 50 shareholders is a public limited company. It may offer shares to the general public. The name of a Public Limited Companies is followed by the suffix ‘Limited’ or ‘Ltd’. They can get listed in the stock exchange and are required to submit a prospectus to the Monetary Authority of Singapore (MAS) before getting listed to raise capital from public.
Its merits are similar to that of a private limited company, in terms of limiting the liabilities of the shareholders, competitive corporate tax rate and a prestigious image in general. They have improved access to capital; they can raise capital by offering shares, debentures and bonds to public. Shareholders enjoy greater liquidity as they can buy and sell shares in the capital market. However they are subjected to strict regulations and financial matters are subjected to greater public scrutiny. The compliance cost is very high. The board and management are accountable to the shareholders.
2. Public Company Limited by Guarantee
A company that is incorporated for the purpose of public good and non-profit purposes is a Public Company Limited by Guarantee. Societies and organizations that are registered for the purpose of promoting arts or for the purpose of charity fall in this category. The liability of its members is limited to the amount that the members undertake to contribute to the assets of the company in the event of its winding up. The amount of guarantee by the members will be stated in the Memorandum of Association. The amount is usually nominal. The names of such companies do not have the word ‘Limited’.
It must be noted that there is no shares involved in this type of entity. As long as it is a going concern the members are not required to pay any capital. This structure is generally used by non-trading and non-commercial entities such as trade associations, charitable bodies, professional societies, religious bodies, incorporated clubs or other not-for-profit undertakings.
-
Sole Proprietorship:
This is the most basic structure and second most popular type of entity. There is only one individual or corporate owner, hence the name Sole Proprietorship. The registration with ACRA must be renewed annually. There is no legal veil separating the business from its owner. The business although registered with ACRA, does not result in a separate legal entity therefore the owner’s risk is unlimited. The owner is personally liable for the debts of the company. Sole Proprietorship is exempted from annual filing.As it does not limit the liability of the owner it is suitable only for less risky businesses. Though it states that corporations can own Sole Proprietorship, because of the unlimited risk of liabilities corporations generally do not prefer this structure. Typically individuals involved in small businesses and freelancing or other low profile businesses prefer this structure, as the compliance requirements and costs involved are low. The profits are treated as personal income of the owner and subjected to personal tax rates.There are serious downsides to the owner if the business falls into huge debts or is sued for other liabilities. The personal assets of the owner will be attached in such litigations or for recovery of debts. It will be challenging to raise capital all of which may have to come from the owner only and the lending institutions generally ask for personal assets to be furnished as collaterals. It typically does not bear a prestigious perception. The lack of access to capital and poor perception will hinder its growth and expansion.
The business cannot be sold in parts and assets must be sold separately and licenses held by the owner may not be transferable. The Sole Proprietorship does not have a legal identity of its own, hence will cease to exist with the demise of the owner, thus it lacks perpetuity.
If you are serious about growing your brand and business, Sole Proprietorship is not an ideal choice.
-
Foreign Company Registration Options:
Foreign companies wishing to setup a presence in Singapore, have the choice of setting up a branch office, subsidiary, or a representative office in Singapore.
-
Subsidiary Company
A Subsidiary Company suits small to medium-sized foreign businesses, this type of entity is the most preferred choice of registration in Singapore. A subsidiary company is a locally incorporated private limited liability company and in most cases, shareholders are another local or foreign company.
-
Branch Office
A Branch Office is a registered legal entity that is treated as an extension of the foreign parent company. if you are running a medium to a large-sized business that has specialized operations in international locations, and intend to conduct a wide range of business activities in Singapore, a Branch Office make it eligible.
-
Representative Office
A Representative Office is a temporary setup which enables foreign companies to research the market or manage company affairs in Singapore, However, It won’t allow conducting any profitable business activity.
- Partnership
-
General Partnership (GP):
Two or more individuals or corporations, known as partners, come together to form Partnerships. The number of partners cannot exceed 20. If the number of partners exceeds 20 it must be registered as a company. Individuals and companies may set up a partnership. The partnership must be registered with ACRA and needs to be renewed annually.It does not constitute a separate legal entity. It can sue or be sued in the firm’s name but it cannot own property in its own name. The partners’ liability is unlimited and their personal assets are not protected from the debts and liabilities of the business. Each partner can be held responsible for the liabilities of the other partners. The partners divide the profits and the profits are treated as personal incomes of the partners for tax purposes and are taxed at personal tax rates. In the case of corporations it will be subjected to corporate tax rates. The merit of Partnership structure is that owners/partners are able to pool the resources in terms of capital, skills, assets etc. The ongoing compliance is lenient therefore administrative costs are low. However the risks involved is similar to that of a sole proprietorship, therefore not recommended for high-risk businesses and businesses with ambitious growth plans. Aside from individuals corporations enter into such business structures only for short term projects.
-
Limited Partnership (LP):
This is similar to the general partnership but it consists of general partners and limited partners, at least one of each kind. There is no limit to the number of partners. The liability of a limited partner is limited to the amount of his contributions and not personally liable. Unlike the limited partners, the general partners are personally liable for the debts and liabilities of the business. The limited partner cannot take active management roles in the business.
-
Limited Liability Partnerships (LLP):
LLP is a relatively new type of entity and the structure integrates the features of both partnerships and companies. In this type, two or more partners (individuals corporations, or another LLP) enter into an agreement to conduct business under specific terms and conditions that are mutually agreed by all partners. The liability of each partner is limited to the extent of his or her contribution. At least two partners are required but there is no upper limit on the number of partners. Like a company, it has a legal identity of its own. It can be sued and sue in its own name. It can own property. Though the partners are not personally liable for the debts and losses of the LLP, the partners become personally liable in case of debts and losses arising from their own actions. Unlike the GP or LP the partners are not personally liable for the debts incurred by the other partners. Profits are charged at personal tax rates for individual partners and corporate tax rates for corporate partners. The LLP enjoys the flexibility of functioning as a partnership while enjoying the benefits of a body corporate such as limitation of liability. It also has perpetuity and does not cease with changes in the partnership resulting from death, bankruptcy, resignation etc. It is easy to set up and the cost of registration is lower than that for a company. Compliance requirements are minimal therefore the compliance cost is also low. Unlike GP its registration need not be renewed annually. This is generally suitable for professional practices such as doctors, lawyers, engineers, architects etc.
Conclusion
Businesses are looking to open companies in Singapore more and more with the current booming economy. However, legal complexity, recent tax reform, and foreign trade barriers pose a challenge to start a business in Singapore.
NNRoad’s team of experts guides firms through the complex incorporation process, minimizing risks for smooth market entry. NNRoad makes your global expansion as easy as possible. Opening a company in Singapore will not be a barrier while you partner with NNRoad.
