26 January 2021
According to a report released by the World Bank “Doing Business 2020”, Singapore is ranked 2nd overall in terms of the ease of doing business, and 2nd in starting up a business.
Incorporating a private limited company (the most common vehicle to insulate shareholders from the debts of the corporation) can be done fairly quickly once all mandatory due diligence has been met. In general, a corporate service provider can assist with the incorporation of a new company within one to two days through electronic filings with the Accounting and Corporate Regulatory Authority of Singapore (“ACRA”), which is Singapore’s Companies Registry. The incorporation costs are fairly low and there is no minimum paid-in share capital requirement in Singapore. A single resident director is required.
There has been a surge in the number of foreign charitable organisations and VWO (voluntary work organisations) looking to use Singapore as a regional base, by setting up a Company Limited by Guarantee. This may be due to Singapore’s sound reputation for governance and clear guidelines for corporate compliance, which make Singapore a choice location for charitable outreach and core administration activities. Although donations made for “foreign charitable purposes” are not tax deductible, government incentives and a favourable tax regime make Singapore an attractive location for many charities seeking an Asian headquarters.
COVID-19 has instilled an awareness of the need to segregate different segments of business to insulate them from business risks or to enhance business efficacy. As such, there has also been a rise in the number of corporate restructures to set up separate entities (via incorporation or share swaps) each charged with a different line of business or to house a separate business unit. A common structure is for a group to be split into a holding company (shares, key assets, IP rights, franchises or key contracts) and one or more “opcos” or management companies (for operations, payroll, administration or business services).
The inward re-domiciliation regime in Singapore, now in its 3rd year, also encourages established foreign corporate entities to transfer their registration to Singapore (e.g. foreign corporate entities that may want to relocate their regional and worldwide headquarters to Singapore and still retain their corporate history and branding). A foreign corporate entity that re-domiciles to Singapore will become a Singapore company and be required to comply with the Companies Act like any other Singapore incorporated company. Re-domiciliation will not affect the obligations, liabilities, properties or rights of the foreign corporate entities. In general, a foreign corporate entity’s whose total assets exceeds S$10 million will qualify. For more information on Singapore’s inward re-domiciliation regime, please see our article here.
Corporate Compliance
The Compliance Division of ACRA ensures that companies comply with their statutory obligations and, in recent years, ACRA has proactively taken action against non-compliant companies. Important statutory obligations that companies need to comply with include timeous filing of annual returns ("AR") and holding of annual general meetings ("AGM").
Companies and even directors of non-compliant companies have been subject to fines for breaches of the company’s statutory obligations. Some recent cases for non-compliance are:
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In February 2019, an individual was fined a record S$113,400 for multiple offences including knowingly and wilfully permitting 9 companies that he held directorships in to default in holding AGMs and filing ARs.
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In June 2020, two Singapore companies were convicted and fined a total of S$4,500 for, amongst other breaches, failing to hold their AGMs and failing to file their ARs.
Companies in Singapore typically outsource the maintenance of their statutory books and registers, and preparation of their AGM documents to corporate service providers. Bird & Bird ATMD is a registered corporate service provider that provides such services to over 200 companies, and we have a full corporate secretarial team including a Chartered Secretary in our office.
Although appointment of a corporate service provider significantly eases a company’s compliance workload, the company and their directors will still need to work closely with their corporate service provider to ensure statutory timelines are met and the appropriate documents are timeously filed with ACRA.
Stringent Due Diligence
All entities which intend to establish a place of business in Singapore will need to be mindful of the stringent Know-Your-Client (KYC) checks and Customer Due Diligence (CDD) imposed by law on all corporate service providers.
The extent of KYC and CDD required will depend on the risk profile of the client (i.e. the entity or person instructing the corporate service provider). Often, the KYC and CDD will involve checks on the identity of ultimate beneficial owner(s) of the client, and declarations made by the directors of the proposed company and agents of the client that they are not politically exposed persons.
KYC and CDD can be tedious, and may prolong the incorporation process. However, multinationals operating across the globe would be familiar with these requirements, which are aligned to standard practices across the world, and which are necessary to reduce risks of money laundering or suspicious transactions.
All companies and foreign companies are also required to maintain beneficial ownership information in the form of a register of registrable controllers, and to make the information available to public agencies upon request. A controller is defined as an individual or a legal entity that has a “significant interest” in or “significant control” over the company (i.e. more than 25% of shareholding, or voting power, or rights of participation in profits).
The stringent diligence and registry requirements engender transparency and reduce opportunities for the misuse of corporate entities for illicit purposes. This keeps Singapore entities in line with international standards, and bolsters Singapore’s longstanding efforts to maintain its strong reputation as a trusted and clean financial hub.
For further information, please contact:
Sandra Seah, Partner, Bird & Bird
sandra.seah@twobirds.com
