Singapore is a highly sought-after financial and business center of the east. Its pro-business policies, strategic geography and technology-friendly practices have made it the hub of investment from both well-established international companies as well as homegrown start-ups.
The country offers a range of business setups to suit the varying needs of the growing global trade. However, multinational companies looking to establish a foothold in Southeast Asia generally opt for either a branch office or a subsidiary company in Singapore.
Here are the main differences between the two:
Legal status and liability
A subsidiary company is a legal entity separate from the parent company, while a branch office is a local physical presence of an overseas business in Singapore.
Consequently, the actions, losses and debts of the branch office are eventually the responsibilities of the parent company, while the liability of the shareholders of a subsidiary is limited to the extent of capital invested in the company.
Foreign parent companies are allowed to hold 100% share capital in a Singapore-based subsidiary.
Establishing either type of business is subject to compliance with local laws and regulations. A subsidiary company needs to follow the guidelines laid out in the Singapore Companies Act, and it should not have more than fifty members. In contrast, a branch is really just an operational extension of an existing overseas business and therefore there are no restrictions on the number of members in a branch office.
Additional requirements for incorporating a company in Singapore include having a resident director, appointing a resident company secretary and an auditor within the specified time, and having at least one individual or corporate shareholder.
The branch office must appoint two Singapore ordinary residents as agents to look after its local operations.
While a branch office will carry the same name as that of the foreign parent, a subsidiary can have a different name, which must be approved by the Accounting and Corporate Regulatory Authority of Singapore (ACRA).
Additionally, the branch office must be involved in the same business activity as the parent company. For this reason, having a subsidiary company is the right option for MNCs wanting to enter a new line of business.
Both branch offices and subsidiaries are required to have a registered physical office in Singapore.
Accounting and Taxation
Branch offices and subsidiary companies both need to submit annual financial returns with ACRA. However, in addition to its own accounts, the branch must also furnish financial statements of its head office abroad.
Unlike a branch office, a subsidiary company enjoys several tax exemptions, government subsidies and other incentives available to tax-resident private limited companies in Singapore.
To conclude, professional branch set up is undertaken by foreign businesses such as insurance companies, private banks and international firms looking to expand their business operations to Singapore and neighboring Asian states. In contrast, companies that choose to open subsidiaries in Singapore generally do so to establish a new business activity and to avail the tremendous tax benefits Singapore is known for internationally.