Choosing a Business Structure

There are a number of alternative structures through which business can be conducted. Choosing the most appropriate structure for your business requires careful thought. Below we provide an overview on some of the most commonly asked questions and key matters to be considered.

Why does it matter?

The operating structure determines a business’s legal, financial reporting, auditing and taxation status. To assist with the future growth and development of the business while meeting the various needs of its owner(s), the operating structure requires careful selection to avoid the need to amend it at a later date that may be difficult and expensive to implement due to legal costs and taxation implications.

What are the most common options?

• Self-employment as a sole trader
• Partnership (General and limited partnership)
• Company

What are the major differences between these types of business entities?

What are the factors I should consider when deciding which entity is best suited to conduct my business activity through?

• Your present circumstances
• Your commercial objectives
• The risks of the venture
• The level of control you desire
• The taxation implications of holding the investment through that entity
• The taxation implications of profit and any future sale of the investment
• The funding arrangements
• Whether the business is new or already established
• The administration requirements and costs
• The expected continuity of the structure
  
  

What are the general requirements for company set up?

• Minimum 1 shareholder / 1 director / 1 company secretary
• Shareholders may be corporations or individuals
• can be 100% foreign owned 
• At least one director must be a resident in Singapore. (i.e. Singaporean/ Singapore Permanent Resident/ Employment Pass holder (if required, we can act as your company's local nominee director for a fee)
• Both the shareholder and director can be the same person
• The company secretary has to be Singapore resident
• Minimum initial paid-up share capital is S$ 1.00
• Must have a local registered address in Singapore

What information you need for company set up?

• Proposed name of company;
• Principal activities of the Company;
• Registered office address;
• Particulars of directors and shareholders; and
• Number of shares to be issued to the shareholder(s).

Click our incorporation questionnaire to complete the required details

How long does it take to incorporate a company?

The timetable for the incorporation process; under normal circumstances are set out as follows -

The time frame for incorporation (with local director/ shareholder) is usually around 3 working days (1 day for name reservation and 2 days for incorporation, subject to all requested information made available to AM Corporate Services beforehand and receipt of payment on our invoice).

However, if the documents have to be sent overseas for execution by the directors / subscribers, the time taken will depend on when these documents can be returned to us for submission to ACRA.

Please note that with effect from 13 January 2003 the ACRA does not issue hardcopy of Form 9 (Certificate of Incorporation). Only an e-Notice confirming incorporation will be transmitted to the applicant’s email address.

If you require a hardcopy of certificate of confirmation of incorporation from ACRA, this can be purchased from ACRA at S$50.

Can there be any delays in the timeline to incorporate?

Although it is not the norm but exceptions do exist. On rare occasions, the authorities may take more time to approve the company name or to incorporate the company. These delays can be as follows:

• Delay in the name approval. Sometimes ACRA can refer the approval of the name to other government agencies and as such the name approval process can get delayed for up to 2 weeks.

• Delay in the company incorporation. Sometimes ACRA can delay the company incorporation based on the particulars of the foreign directors. Further information or documentation may be requested.

Are there any special conditions for having a single director being the sole shareholder of the company?

None. Director and shareholder can be same person. The only restriction is that you have to appoint a qualified company secretary.

 What important issues I need to consider after setting up the Company?

• Business license: Certain business requires one or more licenses and you can check by visiting http://www.business.gov.sg/EN/StartingUp/LicencesNPermits/index.htm., Fortunately, very few business activities in Singapore require business licenses. We can assist with application of relevant business licenses if required for your business. 

• Opening of bank account soon after your company formation. This will help you with injecting funds into the company, receiving payments from customers, and paying your company bills. We can assist with the bank account opening process.

• You will need to decide whether you should register for Goods & Services Tax (GST). GST registration is not mandatory unless your annual turnover exceeds S$1 million. We can advise and assist you to register for GST, if required.

• In you are importing and exporting goods, you will need to obtain a Central Registration (CR) number. The CR number is for use in all import, export and transhipment permits, certificates and any other documents issued by the Singapore Customs. We can help obtain a CR number for your company if required.

• You should get basic stationary and marketing materials ready for your company as soon as possible. These include such items as business cards, letter heads, website, brochure, etc.

• If you plan to bring any foreign employees, you will need to apply for their employment pass (EP) before they can commence their employment with your newly formed Singapore Company. We can advise and assist you with EP applications.

• Renting an office space and acquiring office equipments to commence your business. 

• Holding the first board of directors meeting within 3 month of the company’s incorporation to ratify pre-incorporation matters such as confirmation of registered address, adoption of company’s common seal, issuance of subscribers shares, appointment of directors/ company  secretary/ company auditor and other routine matters.

• Review and sign the terms of engagement of the company secretary, company auditor, tax agent, bookkeepers, if you require all or some of these services.

How do I engage your services for setting up a company in Singapore?

1. Review and select your required package by visiting our company set up service packages page.

2. Once we receive your instruction / order and the duly completed incorporation questionnaire, we will work with you to clarify any other information (if required). At this point, we will also email you our formal quote for our services along with payment instructions.

3. Upon the receipt of the questionnaire and your payment, we will be able to commence our service immediately.

What are the types of pass available and what are they?

 Singapore's Work Pass framework distinguishes three types of work pass:

• Work Permit
• S Pass
• Employment Pass
• Personalised Empolyment Pass
• EntrePass

Work permit
Unskilled or semi-skilled foreign workers pursing employment in Singapore are required to obtain Work Permits in accordance with the Employment of Foreign Workers Act. The Work Permit (WP) is for foreigners who:-

Want to work in Singapore; and

• Earn a monthly basic salary of not more than $1,800
• Who are from an approved source country (depending on the sector which the worker is going to be employed in).

S Pass
The S Pass was created to bridge the gap between the Employment Pass and the Work Permit. S pass applications are evaluated on a points system. The evaluation system contains four main categories, namely, salary, educational qualifications, number of years of working experience and job type. Salary is a critically important factor for S pass qualification: a foreign national's monthly wage cannot be below S$1,800.

S pass holders who earn more than S$2,500 may apply for dependant pass for their family members (spouse and unmarried children below 21 years).

Employment Pass

Foreign highly skilled professionals, managers, executives, specialists or entrepreneurs who wish to work in Singapore need an Employment Pass to commence employment. The subtypes of employment passes (P1, P2 and Q1) are defined by the salary level, skills and qualifications of the foreign nationals.

Singapore's Work Pass Framework sets apart P1, P2 and Q1 employment passes.

The P Pass is intended for foreign nationals who hold acceptable degrees, professional qualifications or specialist skills and are seeking professional, administrative, executive or managerial jobs.

A P1 Pass is issued if the applicant's monthly base salary is more than S$7,000 and a P2 pass is issued if the applicant's monthly base salary is S$3,500 to S$7,000.

A Q1 Pass is issued to foreign nationals whose monthly basic salary is more than S$2,500 and who possess acceptable degrees, professional qualifications or specialist skills. The employment pass is tied to specific employer. Any change of employer requires a fresh application.

The processing time for employment pass application takes about 5 weeks. Processing time may take longer during peak periods or when additional information is required. It has to be renewed upon the expiry of the approved period.

It is important to note that Singapore law obliges the majority of pass holders of passes that no longer meet eligibility criteria to formally cancel them by surrendering the passes to the appropriate authority.

Personalised Employment Pass (PEP)

This is a relatively new form of pass and foreigners who wish to work in Singapore may be eligible for the PEP if they are:

• Overseas foreign professional whose last drawn fixed monthly salary overseas was at least $7,000. The last drawn fixed monthly salary overseas should be no more than six months from the time of the application
• Former P1 Pass Holders who are residing overseas. Former P1 Pass holders should not be unemployed for longer than a continuous period of six months at the point of application.
• P2 Pass holderswho have worked on a P2 pass in Singapore for at least two years. They should have earned a fixed salary of at least $30,000 in the preceding year.
• Foreign graduates from institutions of higher learning in Singapore in Singapore with at least two years' working experience on a P or Q1 Pass. They should earn a fixed salary of at least $30,000 in the preceding year.

The processing time for PEP application takes about 5 weeks. Processing time may take longer during peak periods or when additional information is required.

The PEP will be issued only once. It is valid for five years, and is non-renewable.

Maximum unemployment period for PEP holder cannot exceed six continuous months.

The PEP holder is not allowed to start his/her own business or engage in any entrepreneurial activities.

Do drop us and email or give us a call and we should be able to advise further on this.

What is EntrePass (Entrepreneur Pass)?

Entrepreneur Pass (EntrePass)

The EntrePass is a form of Employment Pass for foreign entrepreneurs who wish to start business and relocate to Singapore.

Application for EntrePass is usually done prior to incorporating a company in Singapore. Once the pass is approved, the company must be incorporated within 30 days of the in-principle approval letter. If the EntrePass application is rejected, you are not obliged to set up a Singapore company.

The processing of EntrePass takes about 6 to 8 weeks. Approval is granted for between one to two years. It can be renewed upon expiry.

The applicant must be sponsored by a well-established Singapore registered company or alternatively the applicant can furnish a Banker’s guarantee of S$3,000 once the application is approved.

A comprehensive business plan of not more than 10 pages detailing the following must be submitted with the application:-

• Business idea – a short, self-explanatory summary covering the proposed business concept;
• Product/service – the product and service offering;
• Market analysis – the target market in terms of key customers, competition and market growth potential;
• Market plan – how the product/service will be marketed or distributed;
• Operation plan – resources needed to run the business;
• Financial projections – projected sales and net profit before tax for three years and breakeven point;
• Management team – key drivers of the business; and
• Supporting documents – e.g. licensing agreements, product certifications, endorsements etc.

Your EntrePass allows you to bring your immediate family (spouse and unmarried children below 21 years) to Singapore to live with you. You need to apply for Dependant pass for them and this can be submitted together with your application.

What are the major criteria for the issuance of an employment pass?

The Singapore Employment Pass (“EP”) comes with a valid stay visa for up to two years. The immediate family of the applicant will also be provided with a Dependent Pass to live, work and study in Singapore.
The Employment Pass is approved using the following criteria, based on a point system:

• Declared Salary of the applicant
• Age
• Position
• Educational Qualifications
• Skills
• Work Experience
• State of the company

The outcome of the application under EP is obtained within a shorter period of time and the probability for approval is higher compared to an Entrepass application.

However, while incorporating a company a local Nominee Director is a prerequisite until the application is approved.

What are the major criteria Entrepreneur Pass?

For an Entrepass the educational qualification is of little consideration while the applicant is assessed on the credibility of his proposed Business Plan and his business experience. 

Key factors are as follows:

• Entrepreneurial track record
• The credibility of your business idea and the business plan
• Viability of the plan
• Efficacy of the management team
• Salary expectations (adequate to cover living costs)
• Minimum paid-up capital of S$50,000
• Applicant to hold at least 30% of shares in the company
• Current citizenship
• How Singapore will benefit from your business
• Number of staffs you will be employing, etc

Thus, a well prepared (which includes the above factors) Business Plan and the accompanying testimonials will play a significant role when officials determine the outcome of the application.

There is no stipulation on the minimum capital injections or minimum turnover. No local Director or Shareholder is required to form your Company in Singapore, if your application is successful.

Can a spouse on dependent pass work in Singapore?

Dependant pass holders do not have an automatic right to work in Singapore. They must apply for a work pass independently. The employing company is required to submit the Letter of Consent application form to the Work Pass Division of the Ministry of Manpower.

Can you guarantee the approval of work passes?

We do not give any guarantees.  All approvals or rejection are made by government authorities based on factors such as listed above and we don't make any false promises.

Can you assist with Permanent Residency (PR) applications?

Yes, we will be able to assist with PR application.

The most common way to obtain PR in Singapore is through the Professional, Technical Personnel and Skilled Worker scheme. If you are a holder of the Employment Pass, EntrePass or S Pass, you and your spouse and unmarried children (under the age of 21) are eligible to apply for permanent residence.

The Global Investors Program (GIP) is administered by the Singapore Economic Development Board to bring direct foreign investment into Singapore. Under this scheme, there are two options that an investor can choose. First option is that an investor can either invest S$2.5 million in a new business start-up or expansion of an existing business operation. The second option is that the investor can invest S$2.5 million in one or more GIP-approved funds (up to a maximum of 3 funds). The investor is also required to maintain the investments for a minimum period of 5 years commencing from the date of final approval of Permanent Residency.

The Foreign Artist Talent Scheme is administered by the National Arts Council and Immigration and Checkpoints Authority of Singapore to attract foreign artists with exceptional talents to move in to Singapore.

For more information on PR application procedures, do drop us and email and we will revert to your accordingly.

How are income taxed in Singapore (scope of tax)?

Singapore tax system is on a territorial basis. A company, regardless of whether it is a local or a foreign company, will be taxed on its:

1. income accruing in or derived from Singapore; or
2. income received in Singapore from outside Singapore

Basis period

Income is assessed on a preceding year basis. This means that the basis period for any Year of Assessment (YA) generally refers to the financial year ending in the year preceding the YA.

Example, your company's basis period for YA 2010 is from 1 Jan 2009 to 31 Dec 2009.

What is the definition of a company under Income Tax Act?

For taxation purposes, a "Company" includes:

A business entity incorporated or registered under the Companies Act or any law in force in Singapore. It usually has the words "Pte Ltd" or "Ltd" as part of its name; or

1. A foreign company registered in Singapore such as a branch of a foreign company; or
2. A foreign company incorporated or registered outside Singapore.

A company does not include sole-proprietorship and partnership businesses registered in or outside Singapore

What is taxable income?

A company is liable to pay tax on income accrued in or derived from Singapore or income received in Singapore from outside Singapore in respect of:

1. gains or profits from any trade or business
2. income from investment such as dividends, interest and rental
3. royalties, premiums and any other profits from property
4. other gains of an income nature

What is not taxable?

Capital gain is not taxable. Examples of receipts that are capital in nature are:

1. Gains on sale of fixed assets
2. Gains on foreign exchange on capital transactions

Income may be exempted from tax under the provisions of the Singapore Income Tax Act. Some examples are:

1. Exempt shipping income derived by a shipping company
2. Foreign-sourced dividends, branch profits & service income received by a resident company that satisfies the qualifying conditions.

What does resident and non resident status means for a company?

In Singapore, the tax residence status of a company depends on where the control and management of its business is exercised.

A company is tax resident in Singapore if the control and management of its business is exercised in Singapore.

Generally, a Singapore branch of a foreign company is not treated as a Singapore tax resident since the control and management is vested with an overseas parent company.

The basis of taxation for a resident company and non-resident company is generally the same. However, there are some benefits that a resident company can enjoy that a non-resident would not. These include:

1. It is entitled to benefits conferred under the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded with treaty countries.
2. It can enjoy tax exemption on foreign-sourced dividends, foreign branch profits, and foreign-sourced service income under section 13(8) of the Income Tax Act.
3. It can enjoy the tax exemption scheme for new start-up companies.

What are the tax and effective tax rates?

Corporate tax rate is 17% with effect from YA 2010.

What are full exemption (New Start-up Companies) and it’s requirements?

From Year of Assessment (YA) 2005 to (YA) 2008

With effect from YA 2005, qualifying new companies can enjoy full tax exemption on normal chargeable income (excluding Singapore franked dividends) of up to $100,000, for any of its first three consecutive YAs.  The first YA refers to the YA relating to the basis period during which the company is incorporated.

In addition, from YA 2008 onwards, a further 50% exemption will be given on the next $200,000 of normal chargeable income (excluding Singapore franked dividends) derived by these companies.

To qualify for full tax exemption for a relevant YA, a company must –

• be incorporated in Singapore;
• be a tax resident* in Singapore for that YA;
• have no more than 20 shareholders throughout the basis period for that YA where:
• all of the shareholders are individuals beneficially and directly holding the shares in their own names; OR
• at least one shareholder is an individual beneficially and directly holding at least 10% of the issued ordinary shares of the company.

* With effect from YA 2010, the exemption scheme for new start-up companies will be extended to include companies limited by guarantee, subject to the same conditions.

For companies incorporated on or after YA2010

For example, if your company was incorporated on 1 Jul 2009, its financial year end is 30 Jun and assuming it fulfils the above conditions.

Tax Exemption Scheme for New Start-up Companies (Enhanced)

Chargeable Income after exemption is ($300,000 - $200, 000) $100,000.
Any new company that does not meet the qualifying conditions would still be eligible for partial tax exemption.

What is partial tax exemption for existing company?

With effect from the year of assessment 2008, a partial exemption on up to $300,000 of a company's chargeable income (excluding Singapore franked dividends) that is subject to tax at the normal corporate tax rate is given as follows:

• up to the first $10,000, 75% of the income shall be exempt from tax;
• up to the next $290,000, 50% of the income shall be exempt from tax.

The above partial exemption does not apply to: 
(a) chargeable income of a company that is subject to tax at a concessionary rate as a result of a tax incentive that has been granted. 
(b)  income earned by a non-resident company that is subject to a final withholding tax.

Chargeable Income after exemption is ($300,000 - $152,000) $148,000

Are dividend taxable (One-tier corporate tax system)?

What is individual income tax?

You need to pay income tax on all income you have earned / received in Singapore.

Overseas income which was received in Singapore (including those paid into a Singapore bank account) on or after 1 Jan 2004 is not taxable. This does not apply to overseas income received in Singapore through partnership in Singapore.

Income tax is assessed based on a preceding year basis. For example, for Year of Assessment 2007, you will be taxed on the income earned in year 2006.

How do you define foreigners ?

Foreigners refer to individuals who are not Singapore citizens or permanent residents.

Foreigners are liable to tax in Singapore on all income accrued in, or derived from Singapore. The extent of your tax liability will depend on your tax residency status.

How much tax you need to pay?

The amount of income tax you need to pay depends on how much you earn in Singapore and whether you are considered a tax resident or non-resident for income tax purposes. 

Who are tax residents?

You are considered a tax resident for a particular Year of Assessment (YA) if you are:

1. a Singaporean; or
2. a Singapore Permanent Resident (SPR) if you have established your permanent home in Singapore; or
3. a foreigner who has stayed/worked in Singapore for 183 days or more in the year preceding the YA, in a capacity other than that of a director of a company.

Tax residents may claim expenses, donations and tax reliefs to help them save tax.

If you are a tax resident, your total income less deductions (expenses, donations and tax reliefs) will be subject to tax at progressive rates ranging from 0% to 20%. 

Who are non-residents?

You are considered a non-resident for a particular YA if you are a foreigner:

1. who stayed/worked in Singapore for less than 183 days in the previous year
2. who is a director of a company (without any employment pass)

Non-residents may claim expenses and donations to save tax. However, non-residents are not eligible to claim tax reliefs.

If you are a non-resident, your employment income is taxed at 15% or the resident rate whichever gives rise to a higher tax amount.

Director fees, consultant fees and all other incomes are taxed at 20%.

What are the Tax rates for resident individuals (For YA 2007 onwards)

What is GST? 
GST (Goods and Services Tax) is a tax on domestic consumption. The tax is paid whenever customers buy goods or services from GST-registered businesses.

GST was first introduced in Singapore on 1 April 1994.  Effective from 1 Jul 2007, the GST rate is 7%.  The table below shows the GST rate over the years.

When do I need to register for GST? 

You are liable to register for GST when your annual taxable turnover exceeds S$1 million or you are currently making taxable supplies and your annual taxable turnover is expected to exceed S$1 million.

Who is responsible to determine a trader's liability to register?

The onus is on the trader or businessperson.

Can I register if my taxable turnover is below s$1 million?

You need not register for GST if your annual taxable supplies do not exceed S$1 million. However, you can apply for voluntary registration if your annual taxable supplies are below S$1 million or if you have not started making taxable supplies but expect them to exceed S$1million in the next 12 months.

Should SME apply for voluntary GST registration?

Your voluntary registration is subject to the conditions that:
i. You make or intend to make taxable supplies; and
ii. You carry on a business and intend to make such supplies in the course or furtherance of that business.

After you have voluntarily registered for GST, you must remain registered for at least 2 years. The Comptroller may also impose other conditions on your GST registration.

Before you decide to apply for voluntary registration, it is advisable to consider carefully your ability to comply with all the responsibilities and obligations of a GST-registered person, and the costs you need to incur to comply with the GST law.

Points to note;

• Increase in compliance cost (new accounting system, filing of GST returns and record keeping, etc);
• Have to invest the time and resources to train staffs in accounting for GST;
• Heavy penalties for non-compliance (eg, failure to file on time); and
• Voluntary registration will inevitably increase in its sales prices (risk of losing price sensitive clients).

What are the Tax services you provide?

We provide taxation services to individuals, corporations, partnerships, clubs, associations etc. Our tax consultants are both qualified and experienced to deal with your tax compliance and tax planning issues. 

Our tax consultants will assist you to plan your tax affairs to minimize the incidence of tax and also to give you valuable advice on individual and cross border transactions.

Some of our tax services include:

• Tax compliance for companies, partnerships, sole proprietors, individuals;
• Filing of Estimated Chargeable Income (ECI);
• Assisting in the preparation of Income tax computation;
• Assistance in the submission of Tax Returns within the time frame;
• Corporate tax planning, review and restructuring ;
• Tax objections and appeal in respect of disputes on tax assessed;
• Assistance in payroll compliance and Form IR8A reporting;
• Individual tax planning;
• Advice on withholding tax, double tax agreements, etc;
• Registration / advice on Goods and Services Tax; and
• Advice on other tax related matters.

How do I engage your services for tax matters ?

If you wish to discuss further or take up our tax services, please send your email enquires to enquiries @ amcorp.com.sg. Our tax consultants will provide you with a quote and their scope of services.

DISCLAIMER: Whilst every effort has been made to ensure that the information provided is correct and up-to-date, no warranty is given that it is free from error or omission. Information given is of a general nature, and may not be applicable in a specific situation or for individual circumstances. Accordingly, we disclaim liability for any act done or omission made on the information provided and any consequences for any such act or omission. For specific legal advice, you should seek professional legal assistance.