Why a Singapore holding company is the best vehicle for investments in Asia.

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Why a Singapore holding company is the best vehicle for investments in Asia

If you are looking for a company that own stocks or shares in other companies but does not carry out any business activities and can still generate income, then a holding company is the ideal entity for you. But why should you consider a Singapore holding company? We have put together a guide on why a Singapore holding company is the best vehicle for investment in Asia.

Characteristics of a holding company

Generally, a holding company is a legal entity that does not conduct any business activities but owns controlling or non-controlling interests of other companies. Holding companies can also hold other kinds of assets, such as artwork, patents, property, stocks and trademarks.

It can be structured in various forms, including a limited partnership, a limited liability company, a trust or a foundation, but the most popular structure is a limited liability company.

Holding companies that fully own other businesses, also known as wholly owned subsidiaries, are referred to as a parent or umbrella company. A holding company registered in Singapore is considered a Singapore holding company but can own assets and subsidiaries in other places around the world.

Why Singapore?

Foreign investors prefer to set up a holding company for investments in Singapore because its economy is one of the strongest in Southeast Asia. Singapore also is one of the largest financial centres in the world and a leading financial hub in Asia.

According to the Global Financial Centres Index (GFCI) 30 September 2021, which ranks the competitiveness of financial centres, Singapore currently ranks at fourth place. Singapore is one of the 16 Global Leaders that has broad and deep financial services and relates to other financial centres.

Singapore also has robust anti-money laundering regulations, which prevents money laundering, terrorist financing and other offences to maintain Singapore’s reputation as a top financial hub.

Another factor that attracts foreign investors to set up a holding company in the country is its strong tax policies and the fact that Singapore is considered a tax haven. It has various tax agreements and treaties with numerous countries around the world and offers tax advantages to both resident and non-resident companies.

Singapore applies a single-tier corporate tax system in which the company’s income is only taxed once, and shareholders will not be taxed on dividends received. No tax is also imposed on capital gains. The current corporate income tax rate is 17%, and only income that is generated in Singapore is subject to tax.

Singapore holding companies can also benefit from incentives provided by Singapore’s Economic Development Board (EDB) and the Monetary Authority of Singapore (MAS), which include the Pioneer Status Incentive, the Development and Expansion Incentive. Under this incentive, companies are granted a corporate tax exemption of 5% or 10% on qualified activities.

Holding companies that provide headquarter services can enjoy incentives from the Headquarters Program. This program awards companies that meet the qualifying conditions with a reduced tax rate of 15% for 3+2 years on qualifying income from overseas.

Qualifying conditions for this program include:

  • Paid-up capital of SGD 200,000 and SGD 500,000 by the end of year one and year three of the incentive period
  • Three qualifying headquarter activities to group entities based in three countries outside Singapore by the end of year one
  • 75% skilled employees (hold an NTC2 Certificate)
  • An additional 10 professionals with a diploma in Singapore by the end of year three
  • Five management executives earning an average annual remuneration of SGD 100,000 each by the end of year three
  • Additional SGD 2 million in annual total business spending in Singapore by the end of year three
  • Additional SGD 3 million in total business spending cumulative for the first three years of the incentive period

Qualifying headquarter activities include:

  • Corporate finance advisory services
  • Corporate training and personnel management
  • Economic or investment research and analysis
  • General management and administration
  • Intellectual property management
  • Marketing control, planning and brand management
  • Research, development and test-bedding of new concepts
  • Shared services
  • Strategic business planning and development
  • Technical support services

Benefits of a holding company

The first benefit of a holding company is protection against any financial loss or penalty and is not liable for any actions by the subsidiary. Holding companies also reduce the business overall risks and reduce the cost of capital.

Another benefit is the numerous tax advantages which include double tax treaties, incentives and taxes on capital gains, dividends, interest and royalties. Singapore has signed the Double Tax Agreement (DTA) with over 90 countries that benefit from reduced tax rates or are exempted from withholding tax.

The third advantage is asset protection. Intellectual property, patents, copyright and trademarks are valuable assets of a business, and by transferring the ownership into a subsidiary, the holding company can protect the business’s assets.

The fourth benefit is deductible expenses. The Accounting and Corporate Regulatory Authority in Singapore (ACRA) grants holding companies with expense deductions. These expenses include direct expenses (cost of collecting rent, insurance, MCST management fees, repair and maintenance for rental properties and interest expenses on loans taken to acquire investments such as shares and property), statutory and regulatory expenses (accounting fees, annual listing fees, audit fees, bank charges and income tax service fees), administrative and management fees, directors’ fees, general expenses, staff salary, allowances and bonus, office utility charges and transport expenses.

A holding company can also be used to transfer intergenerational assets and wealth. The advantages a holding company provide for wealth transfers are:

  • Risk management, asset protection and wealth preservation
  • An intergenerational strategy that integrates asset holding with foundations, family offices, wills and lasting power of attorney
  • Governance rules for family wealth can be established and applied

Conclusion

Even though Singapore is not the only location that allows foreign investors to set up holding companies, but considering the factors stated above, Singapore has increasingly been a destination for setting up a company, and a Singapore holding company is a favourable vehicle for investments in the region. Setting up a holding company for investments in Singapore is rather simple, but it is important to adhere to the compliance requirements. You can find out more about holding companies and its requirements in our Holding Company in Singapore guide.

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