Types of business entities in Singapore
The following are the several types of business entities are available for registration in Singapore:
- Sole-proprietorship
- Partnership (General partnership)
- Company
- Foreign company (Branch of foreign company)
- Limited Liability Partnership (LLP)
- Limited Partnership (LP)
- Variable Capital Company (VCC)
- Representative Office (of foreign company)
The different forms of business entities or structures differ in various aspects including limitation of liabilities of the owners, how the income of the business and those of their owners are taxed, registration and compliance requirements of the entities, application of the requirements for registration of GST and, for Representative Offices of foreign entities, restrictions on the activities that may be undertaken in Singapore.
Described below are selected key features and differences between the various types of business structures.
Sole-proprietorship
Registration of a sole-proprietorship is not the formation of a new business entity but is in effect a business name registration of the trader (sole-proprietor). It is not a separate entity apart from the owner. A sole-proprietorship does not have limited liability and the personal assets of the owner will be accessible to meet the liabilities of the business.
Compared to other forms of business entities, the registration and compliance requirements for a sole-proprietorship are relatively simple. The profits of the business are attributable to the owner who will be taxed on the profits of the sole-proprietorship will be taxed as his personal income.
A business is required to maintain and retain sufficient accounting records and documents to enable its income and expenditure to be readily ascertained and verified.
Partnership (General Partnership)
Registration of a partnership is also effectively the registration of the business name of a firm with particulars of the partners of the firm. A partnership is not a separate legal entity apart from the partners. Its partners do not have limited liability. A partner may be an individual or a corporation.
The requirements for registration of a partnership are also relatively simple especially if the partners are all individuals in Singapore. A partnership does not have any constitution to regulate the affairs of the partnership. While there are laws that apply to partnerships, there may be a partnership agreement to govern the relationship among the partners. A partnership agreement should also be drawn up if the profit-sharing ratio is not equal among the partners.
The profits of the business are allocated to the partners who will be taxed on the profits as their personal income. Even though the entity itself is not subject to tax, a partnership will have to a submit an income tax return with details including the allocation of the divisible income among the partners.
A partnership is also required to maintain and retain sufficient accounting records and documents to enable its income and expenditure to be readily ascertained and verified.
Company
Companies are legal entities on their own which are separate from their members (shareholders) and Directors of the companies. Companies can own property, sue and be sued in their own name like any other person.
Companies may be public companies or private companies and may be limited or unlimited with respect to the liabilities of the members. Under normal business circumstances, the personal assets of members of companies with limited liability are protected from claims against the companies.
Public companies with limited liability may be limited by shares or by guarantee, a form of company which is commonly used for charitable and non-profit entities.
Shareholders may be individual or corporate. The minimum number of shareholders is one. Companies in Singapore may be 100% owned by foreigners.
Companies are governed by the Companies Act 1967 and related subsidiary legislation, common law and their own Constitution. The relationships between shareholders may also be bound by any shareholders’ agreements that may in place.
A company must have a registered office address in Singapore and have at least one Director who is resident in Singapore. A shareholder (member) may also a Director of a company. There is no authorised capital for Singapore companies. Shares in Singapore companies do not have any par value.
A company is required to prepare financial statements that comply with the requirements of the Financial Reporting Standards and give a true and fair view of the financial position and performance of the company. The financial statements must be audited by a registered public accountant or accounting entity unless the company (excluding public companies) qualifies for exemption from audit requirements.
A company will be taxed at the prevailing corporate income tax rate on its profits. It will therefore be required to submit its own income tax returns. Dividends paid by Singapore companies are exempt from tax in the hands of their shareholders including foreigners. There is no withholding tax on dividends in Singapore.
Foreign company (Branch of foreign company)
A foreign company must register itself in Singapore before it establishes a place of business or carries on business in Singapore.
The main documents and information required for registration of the foreign company in Singapore includes:
- Certified copy of the certificate of its incorporation or registration in its place of incorporation
- Certified copy of charter, statute, constitution or memorandum or articles or other similar instrument, and
- Particulars of the Directors of the foreign company.
A foreign company is required to have a registered office in Singapore and appoint at least one individual who is resident in Singapore as its authorised representative.
A foreign company is required to prepare statement showing its assets used in and liabilities arising out of its operations in Singapore and a profit and loss account relating to the company’s operations in Singapore. These financial statements are required to be audited unless the branch qualifies to be considered as being dormant in Singapore. Foreign companies are required to lodge the financial statements relating to its operations in Singapore together with its own financial statements (financial statements of the “Head Office”) within 60 days of its annual general meeting.
A foreign company is required to submit income tax returns in Singapore and will be taxed at the prevailing corporate income tax rate on the profits arising out of its operations in Singapore.
Limited Liability Partnership (LLP)
LLP is a relatively new business structure which may be viewed as a hybrid that has features of a general partnership and a company.
As its name indicates, a limited liability partnership (LLP) is a form of partnership. However, one difference from general partnership is that an LLP has a legal personality which is separate from that of its partners. An LLP can acquire property and do anything that a body corporate can do in its own name.
Another difference from a general partnership is that the liability of all the partners in an LLP is limited (except for liability arising in tort for any partner’s own wrongful act or omission). The obligations of the LLP remain solely those of the LLP.
The compliance requirements for an LLP are similar to those of a general partnership except for a requirement to submit an Annual Declaration to the Accounting and Corporate Regulatory Authority (“ACRA”).
Generally, an LLP is treated like a general partnership for income tax purposes even though it has a separate legal entity on its own. The profits of the LLP are allocated to the partners who will be taxed on the income from the LLP as their personal income. An LLP is also required to submit an income tax return for the partnership indicating the allocation of the profits between the partners.
Limited Partnership (LP)
Limited partnerships (LPs) are also a relatively new business structure introduced in 2009 that are suitable as investment vehicles or funds. Unlike an LLP, a LP does not have a separate legal personality from its partners.
A LP must have at least one general partner and at least one limited partner. General and limited partners may be individual or corporate entities. A LP can be managed only by the general partners who will have unlimited liability for the debts and obligations of an LP. Liabilities of limited partners are limited to the amount they agree to contribute to the LP but they are not allowed to participate in the management of the LP.
The profits of a LP are not taxed at the entity level but are allocated to the partners who will be taxed on the profits as their personal income. A LP is required to submit a return for the partnership which will include the capital contribution of its partners.
Variable Capital Company (VCC)
A Variable Capital Company (VCC) is a new form of company that is specifically suited for investment funds.
The capital of a VCC may be increased or decreased easily through the issuance and redemption of shares in the VCC. Shares of the VCC are to be issued, redeemed or repurchased at a price equal to the net asset value of each share. A VCC may be set up as an umbrella VCC with sub-funds that are isolated from each other. The liabilities of any sub-fund can only be discharged by the assets of that sub-fund.
A VCC must appoint a manager to manage its property or to operate the collective investment scheme or schemes in the VCC. The manager of a VCC must be holder of a capital markets licence, Registered Fund Management Company (“RFMC”) or a person who is exempted from having to hold a capital markets licence.
VCCs are required to prepare financial statements that complies with Singapore Financial Reporting Standards and such financial statements must contain separate accounts for each sub-fund. The financial statements required to be audited and there are no exemptions from audit requirements for VCCs.
VCCs are treated as companies for the purposes of income tax. For computation of income tax, each sub-fund is generally treated as is if it is a VCC subject to certain modifications. An umbrella VCC will be treated as a single entity where its taxable income is the total of the taxable income of all its sub-funds.
Representative Office (of foreign company)
A Representative Office (RO) of a foreign company is meant to allow foreign companies to explore and evaluate the business opportunities in Singapore and the region. This is intended to be temporary in nature with licence to operate in Singapore for a period of only 1 year. The RO licence may be extended to up to a maximum of 3 years after which the foreign company is expected to incorporate a subsidiary company or register a branch in Singapore.
The activities of a RO are restricted to conducting market research and feasibility studies on the viability of setting up a permanent entity in Singapore.
Due to the nature of activities that may be carried out by an RO in Singapore, a RO does not generate taxable income in Singapore and is not required to submit any income tax returns. However, employees working in the RO in Singapore are subject to Singapore income tax on their employment income.
Next Steps
The choice of business structure may depend on various factors including the advantages and compliance requirements of each business structure. Compliance costs differ for the various types of business entities. Regulatory requirements may also require certain type of entities to be selected – e.g. a company may be required by authorities for licensing purposes. Joint ventures or strategic partnerships may adopt a general partnership, LLP or a company.
After the most appropriate business structure has been selected, there may be further considerations including the number of entities to incorporate or register and the ownership structure of those entities. If a company is to be incorporated, issues to be addressed include whether the constitution of the company requires any special provisions (e.g. regarding transfer of shares in the company), the shareholding structure and whether a shareholders’ agreement is required to document the arrangements that have been agreed among the parties.
For companies that operate internationally, the impact of cross-border taxation will also need to be assessed. Decisions regarding the structure to be adopted may cover capitalisation, manner of financing the Singapore entity, inter-group transactions and pricing of these transactions.
Conclusion
We trust that the above highlights will provide a brief overview of the various types of business entities that may be registered or incorporated in Singapore.
There is other information which cannot be summarised or was otherwise not discussed in the above material. Let us know if you have any questions or require assistance on your specific scenarios or circumstances. Our Firm will be able to undertake a review and assist you with application of the rules to your case.
Kindly note that we may not be able to provide explanations of the tax rules and regulations or how they may be addressed or applied to specific circumstances unless a detailed review is undertaken.
Contact
Wee Kong Eng
Public Accountant, Tax & GST Consultant
Master of Taxation, CA (Singapore), CIA, Dip. in Law, ATP (Income tax & GST), Assoc CVA
K E Wee & Associates PAC, Public Accountants and Chartered Accountants
Email: kongeng@kewee.com.sg
Mobile: +65 97552868
Office: +65 67200950 ext 111
Disclaimer and limitations
Information is updated as of 13 August 2023 and may be subject to change. The above Information may have been summarized, simplified or paraphrased for easier understanding and to suit scenarios more commonly applicable to client companies. It is not meant to be a comprehensive guide or substitute for professional advice. All opinions or interpretations are solely those of ourselves and our partner firms and may be subject to agreement by the relevant authorities. While effort has been made to ensure the accuracy of the above information, we shall not be liable for loss arising directly or indirectly from any inaccuracy or omission in the information provided.
