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31 October, 2017
- Foreign companies allowed to re-domicile instead of incorporating subsidiary or registering branch in Singapore
- New tax rules to be introduced to address tax position of re-domiciled companies
On 10 March 2017, amendments to the Companies Act were passed to allow a foreign company to transfer its registration from its place of incorporation to Singapore. This regime is also called re-domiciliation and is akin to that of a company changing its citizenship while retaining its corporate history and identity. The new re-domiciliation regime came into force on 11 October 2017 with the introduction of the new Part XA of the Companies Act, the promulgation of the Companies (Transfer of Registration) Regulations 2017 (Re-domiciliation Regulations), and the implementation of a new application procedure set out by the Accounting and Corporate Regulatory Authority (ACRA).
For background information and the rationale for the re-domiciliation regime's introduction, please refer to our earlier Client Alerts: "Amendments Passed for the Companies Act and Limited Liability Partnerships Act" and "Forthcoming Changes to the Regulatory Regime for Companies and LLPs".
We summarise below the recently released criteria for a successful application for re-domiciliation, as well as the application process.
Further, we also provide a high-level update on the tax considerations for a company that is re-domiciled in Singapore.
The rules in respect of the tax treatment for re-domiciled companies are in the Income Tax (Amendment) Bill 2017 which is now at the final stages awaiting formal legislation into law.
Criteria for application for re-domiciliation
Inward re-domiciliation is restricted only to a foreign public company limited by shares or a foreign private company limited by shares (applicant company). The applicant company may be allowed to re-domicile as a company limited by shares governed by the Singapore Companies Act if its application meets the following minimum requirements set out in the Companies Act and the Re-domiciliation Regulations:
Size criteria: Re-domiciliation is geared towards an applicant company with likely prospects for a positive commercial contribution and the applicant company must meet any two of the following three criteria: (i) the value of its total assets exceeds SGD10 million; (ii) its annual revenue exceeds SGD10 million; or (iii) it has more than 50 employees. Where the applicant company is a parent company, the foreign corporate group will have to meet any two of these three criteria on a consolidated basis, determined in accordance with applicable accounting standards. If the applicant company is a subsidiary, then either the applicant satisfies the size criteria on a single entity basis, or its parent (Singapore-incorporated or registered in Singapore through a transfer of registration) meets the size criteria.
Solvency: There should be no ground on which the applicant company could be found to be unable to pay its debts (including debts that fall due during the period of 12 months immediately after the date of its application for re-domiciliation) and the value of its assets must not be less than the value of its liabilities (including contingent liabilities).
The applicant company cannot be otherwise financially distressed: no receiver or manager may be appointed to have possession of, or have control over, any of the applicant company's property and the applicant company must not be under judicial or administrative management (ongoing or pending), under administration or have made a compromise or arrangement with its creditors, nor be in liquidation or wound up (ongoing or pending). This solvency criteria will not apply to an applicant company that satisfies ACRA that it will apply to court, after redomiciliation, for certain debt restructuring measures under the Companies Act. For more on these measures, see our Client Alerts: "Singapore Restructuring & Insolvency Reform Update: A New Hub for Insolvency and Restructuring" and "Singapore's Bold New Restructuring Laws Take Effect".
Authorisation: The law of its place of incorporation must authorise the transfer of the applicant company's incorporation and the applicant company must comply with these laws. ACRA has earlier identified this criteria as one of the minimum requirements that an applicant company must satisfy in the jurisdiction of its incorporation prior to taking steps towards the re-domiciliation, to ensure that the applicant company:
- has obtained all consents (including shareholders’ consent) and all necessary waivers;
- has given notice to all existing stakeholders and contract counterparties regarding its re-domiciliation; and
- has fully met all its filings and other statutory obligations required in its original jurisdiction.
The stakeholders of the applicant company will know that their rights, in the event a re-domiciliation application is made, are safeguarded primarily by those laws of the original jurisdiction.
Good faith: The re-domiciliation application must be made in good faith and not be intended to defraud the applicant company's existing creditors.
Application process
The Re-domiciliation Regulations require applicants to first complete the prescribed form known as Application for Transfer of Registration under Section 358(1) (Application Form) available online at:
https://www.acra.gov.sg/redomiciliation_application_form/
A non-refundable fee of SGD1,000 is payable to ACRA for each application.
The Application Form adopts a similar process to the incorporation of a Singapore private limited company, save for the additional information to be provided by the applicant company, such as:
- its registration history;
- share capital details, and where the shares are payable otherwise than in cash, the basis of allotment (for example pursuant to a contract or scheme of arrangement); and
- any group share allotments.
The directors of the applicant company will be required to execute written declarations that:
- the applicant company meets the minimum requirements set out in the Re-domiciliation Regulations; and
- each director consents to act as a director of the applicant company after it has re-domiciled and agrees to be personally responsible for all of that director's obligations arising from the Companies Act in relation to the applicant company; and
- the director is neither disqualified nor disbarred from acting as a director.
In addition to the directors' declarations, the application must be accompanied with certified copies of the following supporting documents:
- the applicant company's charter or constitution; and
- its certificate of incorporation in its place of incorporation.
Re-domiciliation and post-registration
ACRA expects the process to take up to two months from the date of submission of all required documentation, to process the application for transfer of registration. This includes the time required for referral to another government agency for approval or review. For example, if the intention of the applicant company is to carry out activities involving the establishment of a private school in Singapore, the application will be referred to the Ministry of Education.
Thereafter, an applicant company that is successfully registered as a Singapore company must, within 60 days after the issue of the notice of transfer of registration, submit to ACRA evidence that it has been de‑registered in its jurisdiction of incorporation.
Effects of re-domiciliation
Re-domiciliation does not:
- create a new legal entity;
- prejudice or affect the identity of the body corporate constituted by the re-domiciled company or its continuity as a body corporate;
- affect the obligations, liabilities, property rights or proceedings of the re-domiciled company; or
- affect legal proceedings by or against the re-domiciled company.
Any bearer shares and share warrants issued prior to re-domiciliation will be void.
After registration, the re-domiciled company must comply with all the obligations under the Companies Act, save for certain modified obligations with regard to the provisions on the constitution, publication of name and registered hours, annual general meeting, financial statements and appointment of auditors.
Shareholders and directors of the re-domiciled company should also be aware of recent amendments to the Companies Act which now require all non-exempt corporate entities to disclose their beneficial owners and controllers, and nominators of nominee directors.
Tax Considerations
Further to the changes to the Companies Act described above, the tax treatment of re-domiciled companies is contemplated to be introduced shortly via a new Section 34G and Section 34H.
Section 34G will apply only to a company that has not previously carried on trade or business in Singapore prior to re-domiciliation, and provides guidance on the tax treatment of the company's tax attributes, for example, bad debts, expenses, impairment losses, capital allowances, and intellectual property (IP) expenditure. Specifically, Section 34G prescribes conditions to satisfy before re-domiciled companies can take losses, deductions and allowances which straddle the re-domiciliation.
Section 34H provides for tax credits that could be awarded to companies successful in their re-domiciliation to Singapore. These credits are meant to offset Singapore tax payable on income that was also subject to tax in the original jurisdiction of incorporation, thereby resolving double taxation issues. It also provides for the tax authority's power to clawback credits should prescribed conditions not be fulfilled. Our Firm will be issuing a separate client alert on these new provisions shortly.
For further information, please contact:
Andrew Martin, Principal, Baker & McKenzie.Wong & Leow
andrew.martin@bakermckenzie.com
