Last updated on April 12th, 2013 at 09:16 am
Singapore is one of the easiest jurisdictions in the world to incorporate a company thanks to streamlined business registration processes. Singapore is also governed by a set of reasonable company laws that work to minimize red tape and allow new companies to flourish. The following information details who benefits from Singapore company law and what legal rights and duties investors should be aware of.
Singapore is one of the most popular jurisdictions for registering an offshore company amongst entrepreneurs, thanks in large part to beneficial company law. Company registration is simplified down to three easy steps that can be completed in just three days, with minimal cost and no minimum capital to be paid-up. As is detailed in the Singapore Companies Act of 1963, which governs all Singapore companies, the first step is to gain approval for the desired company name from the Accounting and Corporate Regulatory Authority of Singapore (ACRA). The only limitations on company name choice are that the name must be unique and it may not be deemed undesirable.
The next step is for the company to submit all necessary documents, including a memorandum and articles of association. Section 19(1) of the companies act requires the memorandum to detail the total share capital invested and the individual liability of each investor, while the articles of association must outline the regulations under which the company will be governed. ACRA may also request documents detailing the particulars of all shareholders and directors, a Statutory Declaration of compliance and the consent of the director and secretary.
This simplified company setup process is a huge benefit to entrepreneurs who may not be familiar with incorporation methods, but perhaps the biggest draw is the ability to legally house tax-exempt profits, as is determined by Singapore law. Even with recent amendments, all new Singapore companies are fully exempt from corporate tax on the first S$100,000, and 50% o the next S$200,000, each year for the first three years. If the Singapore company is properly structured, the investors may also avoid paying withholding tax on profits.
The same set of laws that allow entrepreneurs tax exemption is also a huge boon to tax authorities trying to combat tax evasion. While Singapore is a low-tax jurisdiction, it has adequately combated being labeled a tax haven thanks to a multitude of double taxation treaties that ensure full disclosure with international tax authorities. Companies are required to submit annual financial statements and in some cases, an annual audit is required as well.
This is all bad news for tax evaders but great news for entrepreneurs, as it better provides a legal path to effective tax planning, as the majority of Singapore’s double taxation treaties help to reduce the tax burden on offshore companies. These entrepreneurs will have nothing to hide from tax authorities and can enjoy the improved reputation of Singapore in the international business world that the transparency provides.
The Singapore Economy
The Singapore Companies Act was built around a foundation of international entrepreneurs and Singapore mutually benefitting. Singapore company law is a big part of why Singapore has experienced consistently strong growth for half a century. The Act requires that at least one director of a new company be “locally resident in Singapore’. This resident director must be either a Singapore citizen, a permanent resident or be a holder of an employment pass or dependent pass. This requirement may seem difficult to foreign entrepreneurs, but it can be met with the assistant of a professional corporate services firm.
The Act also protects Singapore from companies that incur irresponsible debts and from capital fight. Singapore Limited Liability companies work as most LLCs do, in that the debts incurred by the company are its own, and no shareholder is responsible for it beyond their investment. However, Sections 339(3) and 340(2) of the Companies Act state that if debts are incurred “without any reasonable or probable expectation that the company would be able to pay the debts” the members and directors of the company can be held personally liable for the debts. Furthermore, egregious breaches of this nature may be considered in violation of section 157(1), classified as dishonest behaviour of the director, which may result in imprisonment.
The Act also prevents companies from returning capital to their members. Members may be paid dividends, but they must be sourced from profits and not from capital. Section 73(1) of the act does allow for capital to be returned if paid-up capital is lost or if shares are in excess of what the company needs.
These policies should be beneficial to any entrepreneur engaging in legitimate business with their Singapore company, as they only stand to enhance the stability and security of the Singapore business environment for years to come. Singapore company laws as a whole are business friendly and reasonable, making a Singapore company an attractive option for entrepreneurs in need of a stable environment to start a company.