Contrasting Subsidiary Company & Branch Office in Singapore

Posted By Singapore Translators | Publised At 08/20/2021
Last Modified: 2nd Sep 2021367

Branch office VS Subsidiary company in Singapore

Establishing a branch office or a subsidiary company in Singapore are the two most common options foreign-based companies are to establish their business presence in Singapore. When you know that you can establish your business presence in Singapore by establishing a branch office or subsidiary company, you now need to understand the comparison between the two to make an ideal choice. Therefore, in this blog post, we have outlined the key differences between the two, their specific nature and features, which will help you, make the best choice for your Singapore company incorporation as per your needs.

Besides this, we have also shared a complete guide on Opening a Tech Company In Singapore.

Contrasting Subsidiary Company & Branch Office in Singapore

Difference between Subsidiary company and branch office

With the help of the below-given difference, you can make the right choice for your Singapore company incorporation

TypesSubsidiary CompanyBranch office
Entity NameThe entity’s name in the case of the subsidiary company need not be the same as that of the parent company.The name of the branch office must be the same as that of the parent company situated in a foreign nation.
Business activitiesThe subsidiary company engaged in all the business activitiesComparatively branch office has the limited option in terms of engaging in business operations as it needs to be the same as that of the parent company.
PreferableIt is suitable for both local and foreign-based companies looking to expand their business operations in Singapore.This option is suitable for a foreign-based company intending to establish its business presence in Singapore.
DisadvantagesContinuing Compliance Obligations e.g. Financial Reports, Audit, AGMS, etcContinuing Compliance Obligations e.g. Financial Reports, Audit, etc
OwnershipThe ownership of this company can be 100% foreign or locally ownedCompletely owned by the head office
Separate Legal EntityThis company has a separate legal entity.This company does not have a separate legal entity.
Cap on Number of MembersYes, a maximum of 50Not applicable
Minimum Setting up RequirementThe minimum criteria for setting up a Subsidiary company in Singapore can be an individual or corporate entity (100% local or international shareholding are granted). In addition, it must have a minimum of resident directors.The minimum criteria should be a minimum of one Singapore resident agent.
Limited LiabilityYesNo
Need for Audited AccountsYes, only if the company does not fulfil the audit exemption criteriaYes
Filing of Accounts with ACRA and IRASYes, they are required to file accounts with ACRA and IRASYes
Tax TreatmentMust be eligible as a Singapore resident. As a result, they will enjoy tax benefits.Generally, tax is charged as a non-resident, tax exemption is not provided.
Tax BenefitsA subsidiary company must have a minimum of one individual shareholder having at least 10% shareholding, is eligible to receive local tax benefits only if eligible for tax residency.Moreover, the branch offices can also be considered Singapore tax residents only if they met the regulations set by IRAS.
Cessation of Business upon Death of a Member/PartnerNo, Equity shares go on in perpetuationNo
Validity PeriodPerpetually until deregisteredPerpetually until deregistered
Normal Registration Time (upon receipt of all required documents)After processing of all the relevant documents is usually takes 3 hours for registeringIt also requires 3 hours to get registered upon processing of relevant documents.
Appointment of OfficersIt is mandatory to appoint at least one local resident director.It is essential to hire at least one authorized agent.
Governing BodyIt is governed by ACRAIt is also governed by ACRA.

Why Set Up a Branch Office?

Similar to the newly registered subsidiary company in Singapore, a branch office grants the foreign-based (or parent company) company to carry their business presence in Singapore as well. This means that Singapore Company will not only be eligible to generate revenue in Singapore but also hold property in Singapore.

Opposed to the subsidiary company in Singapore, the branch office is considered to expand the foreign-based company rather than enjoying its separate legal entity. This means that the branch office will develop on the same name as that of a foreign-based company and enter into the contract by the name of a foreign-based (or parent company) only. It also grants the branch office to hold the branch of the foreign company to undertake the contract and acquire the financing in Singapore.

As already mentioned, the branch office will not have its separate legal entity, due to which it might face some disadvantages. Some of them include:

  1. Lack of limited liability: The foreign-based company will be responsible for all the debts or contracts are undertaken by the branch office.
  2. Nontax resident: Until the foreign-based company is managed and controlled in Singapore, the branch office will not be considered the Singapore tax resident. This means that the branch office will not be able to enjoy tax exemption on the profit earned.
  3. Limited business operations: The branch office will be limited to managing those business operations that the foreign-based (parent company) does not carry out.

Moreover, a branch office is one of the useful ways through which a foreign-based company can establish its business presence in Singapore. It also grants foreign-based companies to undertake the contract in Singapore under their own name and carry out their existing reputation.

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Subsidiary company

A subsidiary company is defined as the Company that is a board of directors, or majority-owned composition (which means the company has the power to hire or remove all or most of the directors) rests in the hands of another company.

In order to consider the particular company a subsidiary, a minimum of 51% of the share should be held by another company. This type of company is also known as a parent company that can be either a Singapore or foreign company.

Why Set Up a Subsidiary Company?

A subsidiary company enjoys its separate legal entity from the parent company. However, it also states that the parent company is not entirely liable for all the debts or legal action against the subsidiary company.

However, suppose the subsidiary company becomes insolvent. In that case, its respective parent company can limit their liabilities and potential risk of the subsidiary assets and restrict the creditors from claiming directly.

The Singapore based subsidiary company can be treated as a local tax resident if all their business operations occur within Singapore. This means the foreign-based company will be entitled to take advantage of its competitive corporate tax regime in Singapore by establishing subsidiaries in Singapore.

Features and characteristics of both the entity

In this article, we will be discussing the features and characteristics of a branch office VS subsidiary company. These two terms are often confused with each other especially in Singapore where many companies have more than one location.

1. Separate Legal Identity and Asset Protection

Singapore branch office is treated as the expansion of its parent company located in foreign countries. The branch office does not enjoy a separate legal entity of its own. However, this means its concerned parent company entitles all the assets and liabilities of the branch office. However, in case of any dispute, the branch office situated in Singapore can be sued. Also, the assets of the branch office will not be secured from the parent company in such a situation.

In comparison, a subsidiary company in Singapore enjoys the benefit of a separate legal entity from its respective foreign country even if its foreign Company holds 100% shares. However, this means that any liabilities or losses faced by the subsidiary company will not be beard by the foreign company. In such a situation, both subsidiary companies and foreign companies will be protected even if the company gets sued.

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2. Activities conducted

The branch office is the expansion of its parent-based company is only granted to carry out those business operations mentioned in the constitution. Accordingly, it cannot carry out any other additional activities that are not aligned with the activities of its respective foreign-based company.

A subsidiary company in Singapore gets liable to perform any activity only if it is specified at the time of incorporating a subsidiary company in Singapore. However, as mentioned above subsidiary company in Singapore enjoys a separate legal entity which means the company doesn’t need to align with the specified activities of the respective parent company located in a foreign nation.

3. Filing Returns

When filing the returns, the Singapore-based subsidiary Company is required to create a set of financial statements. They then submit the statements in eXtensible Business Reporting Language (also known as XBRL) when filing returns with Accounting and Corporate Regulatory Authority in Singapore (ACRA).

In comparison, the branch office of a foreign-based company in Singapore is required to submit the parent company’s audited accounts and the audited accounts of the branch office.

4. Tax exemptions

Registration of the branch office in Singapore will not develop a resident entity just for the tax. Thus, making the branch office ineligible for possible tax exemptions usually applies for the Private Limited companies in Singapore.

In contrast, incorporation of the Singapore subsidiary company considers it as tax-efficient when it comes to operating a separate entity, just like the independent organisation. Singapore subsidiary company enjoys the benefit of tax exemptions and similar to those enjoyed by the Singapore resident company.

Finally, a branch office is mostly the preferred option for multinational companies, insurance companies and banks that are willing to establish the brand name in Singapore as well. However, it is also used for the parent company’s finances to secure business contracts and licenses.

Whereas a subsidiary company is preferred by most foreign-based companies looking to establish a separate business entity in Singapore because its separate nature provides flexibility in the business operation.

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Finally, after reading the above article, you might be aware of all the related details and comparisons between the both. However, before you proceed further and make any decision, it’s recommended to read each detail to avoid any mistakes properly.

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