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Taxation of a Holding Company in Singapore

Taxation of a Holding Company in Singapore

A type of vehicle used for owning shares in other corporations, a holding company’s scope is to own stock in a subsidiary, for the purpose of reducing the investment risks should the said subsidiary become bankrupt.

The taxation of a holding company in Singapore is particularly advantageous as this is one of the locations in Asia with the lowest corporate income tax rates and a range of treaties that allow for the reduction of double taxation in the case of subsidiaries.

Our accounting firm in Singapore is able to assist foreign investors who are looking towards opening a holding company in this location. We can help present all of the tax advantages and particularities as well as provide additional details about the double tax treaties signed by Singapore, according to the jurisdiction in which the company controlled by the Singapore holding is based.

How to open a holding company in Singapore

Singapore is a great worldwide location for the creation of a holding company because of the simple registration requirements, but also from a taxation point of view.

The opening of a Singapore holding company will imply choosing a business form (this entity usually operates as a private or public limited liability company, depending on its size) and registration with the Accounting and Corporate Regulatory Authority in the city-state.

From a taxation point of view, holding companies domiciled in Singapore will be imposed with the corporate tax which is applied at a rate of 17%. Non-resident holding companies will be imposed with the same tax only on the profits it earns in Singapore.

Holding companies in Singapore can also be subject to special taxation criteria if they operate in the financial sector.

The Singapore taxation system is not complicated when compared to those of other countries, however, it also has its special regulations when it comes to specific types of businesses, such as holding companies.

Our accounting firm in Singapore is at your service with detailed information on the taxes imposed in the city-state, including when it comes to holding companies.

Types of holding companies in Singapore

Singapore holding companies can be categorized as investment and financial entities. Each has its own registration criteria, however, from a taxation point of view, there aren’t many differences.

Investment holding companies will be imposed with the corporate tax applicable to other companies in Singapore, while financial holding companies are usually set up as banking or insurance institutions falling under special regulations of the tax legislation.

The taxation of Singapore holding companies will be determined based on whether they are incorporated as investment or financial companies.

If you need more information on the taxes applied to holding companies, our accountants in Singapore are at your service. We also provide a wide range of tax-related services to business owners.

You can read about the taxation of Singapore holding companies in the infographic below:

The Singapore financial holding company from a taxation point of view

In 2013, the Singapore Tax Law was amended with a new part called the Financial Holding Companies Act. According to it, financial holding companies can be set up as co-operatives or limited partnerships. Also, a company must have at least one subsidiary operating as a bank or licensed insurance company incorporated in Singapore in order to be considered a financial holding. The holding must own at least 50% of the assets or capital in its subsidiary.

There are two types of financial holding companies that can be created in Singapore: the intermediary and the ultimate ones. They will be levied the corporate income tax which is applied at a rate of 17%.

Financial holding companies are also required to obtain the consent of the Monetary Authority in Singapore (MAS) in order to operate here.

If you need assistance in understating how a financial holding company is taxed, our accountants in Singapore can advise you. Investors can also rely on us for audit services in Singapore.

The investment holding company in Singapore and its taxation

One of the most popular types of Singapore holding companies is the investment one. This type of entity will usually hold real estate and shares as assets in its subsidiary. In order for these assets to be beneficial from a taxation point of view, they must be held in the portfolio of the holding for long periods. Also, they will be deemed as non-trade or investment types of incomes. These are divided into:

  •           dividends,
  •           interests,
  •           rental income.

The main object of activity of the company in this case will be investment holding, hence its name.

From an accounting point of view, the income of a Singapore investment holding company will be assessed at the end of every financial year when the company’s directors are required to file the annual account and financial statements.

There are several tax advantages linked to the creation of an investment holding company in Singapore, among which one of the most appreciated is related to the expenses related to the investment income that can be deducted.

Among these are:

  •           interest-related expenses,
  •           real estate rental interests,
  •           management fees associated with the rental of real estate,
  •           the property tax,
  •           repair and maintenance costs for properties,
  •           rental income collecting costs.

By far, the deduction of the property tax is one of the main benefits related to setting up an investment holding company in the city-state.

Our accountant in Singapore can offer more information on the property tax.

Taxes applicable to holding companies in Singapore

Singapore has an attractive taxation regime for all types of companies established here, however, a set of these particular advantages make the city an ideal location to base a holding company. The taxation of a holding company in Singapore is as follows:

  1. corporate income tax: at one of the lowest rates for legal entities in the region, these companies are subject to a 17% tax.
  2. dividend income: the dividends paid by a company in Singapore are not subject to tax as there is no withholding tax in Singapore;
  3. capital gains: there is no tax applicable to capital gains in Singapore, an important advantage for investors.
  4. double taxation relief: the double tax treaties offer an exemption or a reduction on certain types of income, meaning that the withholding taxes payable on dividends from Singapore holdings will be reduced as long as a DTA is in place between Singapore and the country where the subsidiaries are based.

Moreover, there are is no controlled foreign companies regimes and no thin-capitalization rules in Singapore. In some cases, even if there is no capital gains tax in Singapore, the income from the sale of shares can be treated as regular income when the taxpayer is a business that trades in shares. Our team of accountants in Singapore can give you more information on this. Furthermore, our team of accountants can help you in a wide range of accounting matters, from GST registration in Singapore to bookkeeping services.

Taxation of subsidiaries of holding companies in Singapore

Holding companies are usually created with the purpose of owning various assets in other businesses, known as subsidiaries. From a taxation point of view, these subsidiaries can also be taxed as a resident or non-resident entities, given the fact that there are no restrictions imposed on the holding company to have one or more subsidiaries in and outside Singapore.

This is why when creating a holding company is it important to verify various aspects related not only to its taxation, but also to the imposition of levies on its subsidiaries. Another thing to consider is the types of assets held by the holding.

Holdings can hold various types of assets, among which:

These can lead to specific taxes to be paid by the Singapore holding company and its subsidiaries.

However, Singapore is also known for the many tax benefits it offers, especially for intellectual property ownership, among which patents and industrial models are the most appreciated because of the innovation involved in their applicability in various industries.

If you need information on the taxation of assets held by holding companies, our accountants in Singapore are at your service.

Assessment of holding companies in Singapore

Just like any other company, a holding must also file various tax documents with the Inland Revenue Authority of Singapore (IRAS). These must be filed annually and based on them, the tax assessment will be made.

It should be noted that from a taxation of point of view, a holding company can be registered as a startup and benefit from various tax exemptions in the first years of activity.

Here are some of the most important aspects to be considered when a holding company is treated as a startup from a taxation point of view:

  •           the company must have no more than 20 shareholders;
  •           out of the 20 shareholders, at least one is a natural person and owns at least 10% of the issued ordinary shares;
  •           the company will benefit from a full corporate tax exemption for the first 100,000 SGD in the first 3 years of operations;
  •           another tax exemption of 50% will be available for the next 200,000 SGD for the first 3 years of activity.

Based on these exemptions, a holding company will pay no more than a corporate tax of 5.67% on the first 300,000 SGD during the first 3 financial years.

Further partial tax exemptions are also available. Our accountants in Singapore can offer more information on the tax benefits available for holding companies.

Expenses that can be deducted by Singapore holding companies

Apart from the tax benefits available for holding companies, the IRAS also enables these entities to deduct some of their expenses. These are usually applied to the investments they make and are categorized into:

  •           direct expenses;
  •           indirect expenses;
  •           statutory expenses;
  •           regulatory expenses.

Most of them are direct expenses and refer to management and insurance fees. Also, real estate-related expenses can also be deducted by holding companies. These are usually related to the property tax, but also to the repairs brought to constructions owned by holding companies.

Among the indirect expenses that can be obtained by Singapore holding companies are those related to:

  •           office space rentals;
  •           directors’ fees;
  •           employee salaries and retirement contributions;
  •           various allowances.

Accounting and audit services received by Singapore holdings can also be deducted as regulatory expenses. Listing fees, bank-related charges and secretarial fees can also be deducted by these companies.

Another advantage of holding companies is that they can benefit from double tax reliefs under Singapore’s agreements.

There are also several governmental programs under which holding companies can further apply for additional tax benefits, such as the Headquarter Scheme and the Development and Expansion Program.

If you need more information on the tax advantages offered by holding companies, you can rely on our accounting firm in Singapore.

Holding company advantages in Singapore 

The company formation process in Singapore is a simple one and this is one of the greatest advantages for foreign investors who want to base their holding company here. In a matter of approximately three days, they can have an operating legal entity that will be subject to the local tax laws and the applicability of the double tax agreements.

An important step holding company owners can take is to apply for a Certificate of Residence for their holding structure. This means that the company will benefit from a set of tax breaks on foreign income, provided that the application is approved.

Investors can also ask our accountants in Singapore for complete assistance during this process. In most cases, the IRAS will ask for the following conditions to be met:

  • proof of the fact that the company does not have foreign capital derived exclusively from passive or foreign sources;
  • proof that the company’s Board meetings take place in Singapore as well as all of the other strategic decisions;
  • proof that the company directors are domiciled in Singapore.
  • proof that the company management and control take place from Singapore and that the books and other documents are being kept at an address in the city.

Doing business through a holding company in Singapore, or interposing a Singapore holding between two distinct jurisdictions for the purpose of investing in the second one, can reduce the overall tax burden for the company located in the first jurisdiction. By working through a holding, even if the subsidiary is facing bankruptcy, the overall value of the holding will not diminish in as much as not to justify its usage.

Opening a holding company in Singapore is not only easy but also a decision that allows investors to benefit from the local tax advantages, the business regime, the growing economy, and the location of the city in Asia.

We also invite you to watch the video below:

Tax-related services for holding companies in Singapore

Just like any other type of Singapore business, the holding company needs to register for taxation with the Inland Revenue Authority (IRAS) which is a matter you can rely on our accounting firm. We can also assist with day-to-day accounting and bookkeeping services, as well as monthly, quarterly, and yearly financial statements preparation and filing with the Trade Register and IRAS.

Also, if you have any questions related to the taxation of holding companies, do not hesitate to send us your questions.

Our team provides complete accounting services in Singapore and investors interested in knowing more about the requirements for holding companies can contact us. We can provide complete and personalized counseling according to the purpose for which the holding will be used as well as the effective location of the businesses controlled through the holding. Contact us for more information about how we can assist you in all matters related to taxation.