To put it simply, a holding company is an “umbrella” company that earns revenue from the assets that it holds in the subsidiary companies under them. They are not involved in the production of goods or services. Many big corporations all over the world including Singapore have been operating under this structure. If you’re considering setting up a holding company in Singapore, here’s all the information you need to help you start.

What is a holding company 

A holding company owns stock such as shares or assets in other companies, unlike other normal companies that earn from the sales of goods and services. The revenue of a holding company comes from investment in other companies and they also have a say in other companies’ management decisions. 

An example of a holding company includes Johnson & Johnson, which holds several Singapore-based subsidiaries and has Singapore as its regional centre for the Asia-Pacific region. Subsidiary companies under J&J include Neutrogena and Ethicon. 

There are three main types of holding companies:

• Limited liability, which is the most common
• Limited partnership
• Trust or foundation

Holding companies have complete ownership of a business but do not participate in its daily operations. They only overlook the management decisions of the business. A second business owned by the holding company is referred to as a wholly-owned subsidiary.

Examples of holding companies in Singapore

An example of a holding company includes Johnson & Johnson, which holds several Singapore-based subsidiaries and has Singapore as its regional centre for the Asia-Pacific region. Subsidiary companies under J&J include Neutrogena and Ethicon. 

Other examples of well-known brands with holding companies in Singapore include Singtel and DBS Group.

Advantages 

There are several advantages that come with having a holding company, in Singapore specifically. From tax benefits to asset protection, you will find that there are several legislations that make it beneficial to have a holding company in Singapore. However, this is still subject to one’s own objectives and the nature of one’s assets as well.

Protection from losses

Even if there is a crisis in your subsidiary company, a holding company will help you to reduce your losses. You will see the losses, but not be held legally responsible for them according to Singapore’s framework. Of course, this does not include exceptions when dealing with fraud and negligence issues.

Easy to set up

Holding companies are relatively easy to set up in Singapore. Both locals and foreigners can set up a holding company in Singapore, and the registration and incorporation process can even be done easily online.

Corporate tax savings

Unlike other countries that have a worldwide taxation system, you won’t have to worry about getting taxed twice in Singapore or paying more than you have to as long as you meet the requirements.

Singapore has signed Double Taxation Agreements (DTAs) with over 80 countries all over the world. This allows holding companies in Singapore to enjoy reduced tax rates or even be exempt from tax obligations on dividends, interests and royalties earned from subsidiary companies.

However, do note that this is only applicable if your subsidiary company is located in the treaty countries and your holding company is a tax resident in Singapore. A holding company is required to have management decisions and Board meetings in Singapore to be considered a Singapore resident. 

The single-tier corporate tax system only taxes holding companies on corporate profits and does not tax on dividends you earn from subsidiary companies. This is assuming the subsidiary company is a resident or company or the holding company meets the requirements for exemption due to a foreign source of income. 

This is not withholding tax on dividends issued to residents or non-residents, or tax on interest earned from subsidiary companies.

Take note that royalties and certain service fees paid to certain foreign companies may still be subjected to 10% and 17% service tax if the tax rate is not reduced under a tax treaty. To make full use of your tax benefits, the holding company must be set up properly.

There is no tax on foreign-sourced income, which includes dividends from foreign subsidiaries. This is provided that the subsidiary has not been taxed at least 15% in the country of incorporation. Undistributed income of foreign subsidiaries may also be subjected to tax. 

Setting up a holding company in Singapore also means no tax on capital gains or the sale of shares, well as attractive tax rates. Marginal corporate tax rates can be as low as 17% and can be lowered even further with various schemes.

Asset Protection

With holding companies, transferring ownership of valuable assets into a separate subsidiary or holding company can protect these assets from legal attacks. This also helps the business to buy and sell these assets easily. When holding companies are used by a high net worth individual, they let individuals protect their personal assets because those assets are technically held by the corporation and not by the person, who is consequently shielded from debt liabilities, lawsuits and other risks

Asset transaction

By segregating your assets in separate subsidiaries, it will be easier for you to transact these assets. You can sell the subsidiary as a separate unit without having to restructure your business or engage in complicated accounting review and audits.

Risk reduction and financing

When the failure probabilities of individual subsidiaries are decoupled, the probability of a systemic failure of the whole business is reduced and by extension reduces the cost of capital. This allows the holding company to obtain better financing terms than what it would have obtained under a single company structure. 

Centralized and consistent control

Businesses control the holding company and the subsidiary companies through the board of directors. This allows centralized coordination of the strategy of individual businesses while providing them with the flexibility to operate independently. A holding company can also be used to ensure consistent ownership and governance policies across subsidiaries. 

What do I need to set up a holding company in Singapore?

Most entrepreneurs choose to use a private limited company or a limited liability company to set up their holding company. With that, here is what you need to do to register a holding company in Singapore:

1. At least one shareholder (this can be an individual or a company)
2. At least one local director (must be a resident of Singapore and be over 18 years of age)
3. At least one resident company secretary
4. Minimum initial paid-up capital of S$1
5. A local registered physical address for official communication
6. A corporate bank account

How do I register a holding company in Singapore?

You will first need to apply via the Accounting and Corporate Regulatory Authority (ACRA), which is the company Registrar of Singapore, to register your holding company. 

Then, you will need to:

1. Register and get approval for your chosen company name.
2. Formally register your company with the ACRA.

This registration can be done easily using the BizFile+ web portal. The entire process should take about one to three days if all the documents are submitted and the application is done properly. If you are unsure about your application, be sure to consult a professional, else the application process might take longer.

Before you jump headfirst into registering your holding company, be sure to assess if this company structure will be suitable for you. Consider your objectives and evaluate the nature of your business to see if this is the best option for you. However, if you have already made the decision to use this company structure and is looking for the best jurisdiction, Singapore should be on your list.

With so many benefits and ease of application, we can see why Singapore has been a popular place for many entrepreneurs to start up holding companies. Singapore’s legal system and rules are also favourable towards entrepreneurs. If you have any uncertainties, be sure to engage a professional, or simply engage Margin Wheeler to assist you.