Convincing Reasons to Set Up a Singapore Holding Company 

Some of the most well-known businesses in the world operate under a holding company structure. Before considering if you should set up a Singapore holding company, it’s important to understand what exactly a holding company is and why it’s particularly valuable in Singapore.

Read more to learn the benefits and the challenges of establishing a holding company structure in Singapore and if it makes sense for your business. Or if you’d like personalized support setting up a Singapore holding company or determining if a holding company structure is right for your business, click “Contact Us” below.

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What Is a Singapore Holding Company?

In general, a holding company is a company that does not conduct business, but it owns an interest (controlling or non-controlling) in another company or in multiple companies. A holding company can also own assets such as property, patents, trademarks, stocks, artwork, etc. At the same time, all operations are performed by the subsidiary companies that it owns.

If a holding company fully owns another business, the second business is often referred to as its "wholly owned subsidiary." The holding company is often referred to as the "parent" or the "umbrella" company.

A holding company that’s registered in Singapore is considered a Singapore holding company. The subsidiaries and assets owned by a Singapore holding company can reside in Singapore or anywhere else in the world.

What Is an Operating Company?

As its name implies, a holding company’s main purpose is to hold the controlling stock or membership interests in other companies. It doesn’t manufacture anything, sell products or services, or conduct any other business operations. However, the subsidiary companies it owns carry on the actual roles of manufacturing or selling products or otherwise conducting business. These entities are called operating companies.

Holding Company Quick Facts

  • A holding company can be structured in a variety of forms. It can be a limited liability company, a limited partnership, a trust, or a foundation. The most widely used holding company structure is a limited liability company.
  • The holding company often exercises strong control over its subsidiaries through its participation in (or control of) the board of the subsidiary. However, the holding company does not typically manage the day-to-day operations of a subsidiary.
  • The holding company is insulated from the liabilities of the subsidiary. Loss insulation is a key attraction of a Singapore holding company structure.
  • The parent can coordinate and pool the resources of its subsidiaries. If a subsidiary does well, the parent benefits, but if the subsidiary performs poorly, the parent is not punished beyond the loss of the parent's original investment in the subsidiary.

The World’s Top Businesses Choose Holding Structures

Large businesses across all industries and many countries  are often organized through a holding company structure. Such structures can also be used by smaller businesses — even by single entrepreneurs. Some of the world’s most famous businesses that use holdings include:

Singapore Holding Company Examples

Many famous organizations operate as Singapore holding companies, including Alphabet,  American Express, Barclays Plc, BP, Berkshire Hathaway, Citigroup, DBS Group, Flextronics, Goldman Sachs, HSBC, Johnson & Johnson, Royal Dutch Shell, Singtel, Trafigura Group, UBS, Volkswagen.

Johnson & Johnson

Johnson & Johnson is another good example of a successful holding company. It was founded in 1886 and now operates nearly 260 companies across the world through its family of companies, many of which are household brands. See examples of its subsidiaries in the figure below. Johnson & Johnson has several Singapore-based subsidiaries, and it uses Singapore as the regional center for its Asia-Pacific region.
holding company examples

Alphabet

Another example is Alphabet, the parent company of Google. In 2015, Google reorganized its corporate structure, and Alphabet became the parent company of Google and many of Google's subsidiaries. The two original founders of Google removed themselves from executive duties at Google and have assumed the roles of CEO and President at the holding company. Singapore figures prominently in the new holding company structure, with many of Alphabet's subsidiaries based in Singapore, including Google Singapore Pte Ltd and Google Payment Singapore Pte Ltd. The new structure was designed to allow the largest and most profitable business of the group, Google, to focus on its core mission. The structure also provided more freedom for the subsidiaries to operate independently without the oversight or interference from Google or the other subsidiaries.
alphabet holding company structure
At the time of this restructuring, Larry Page a founder of Google and the CEO of Alphabet, described the new holding company as follows:
Alphabet is mostly a collection of companies. The largest of which, of course, is Google. This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main internet products contained in Alphabet instead... Fundamentally, we believe this allows us more management scale, as we can run things independently that aren't very related.
LARRY PAGE

Berkshire Hathaway - a Quintessential Holding Company

Berkshire Hathaway (the company that made Warren Buffet rich and famous) is possibly the most well-known example of a holding company structure. An overview of the company provides a good introduction to the financial mechanics of a Singapore holding company because it uses Singapore as a key jurisdiction in its holding company structure with many of its operational subsidiaries being based in the country.

The company is named after two cotton mills that were founded in the 19th Century, Berkshire Fine Spinning Associates and Hathaway Manufacturing Co. As the textile industry moved out of the United States to the developing world, the two companies merged in 1955. However, the fortunes of the combined company continued to decline. Warren Buffett started buying stocks in the company in early 1960s, and by 1965 he acquired control over it. Then in 1967, Buffet acquired an insurance company, National Indemnity, through Berkshire Hathaway and set it on course to become a giant holding company.

Key Benefits of a Singapore Holding Company

A Singapore holding company provides a number of benefits. Several of these benefits apply to holding companies in general. But some of them may not be supported by the regulations of specific jurisdictions. The regulatory framework of Singapore allows businesses to leverage the following benefits:

Loss Insulation

Holding companies are insulated from the losses of their subsidiaries, so a holding company isn't liable for acts of a subsidiary if the parent didn't actively participate in and have control over the actions of the subsidiary. However, there are exceptions for fraud and negligence).

Singapore's legal and tax regulatory framework provides full support for such loss insulation. Therefore, if a subsidiary company declares bankruptcy, its creditors cannot legally pursue the holding company. Thus, a Singapore holding company offers a very good loss insulation strategy. With such a structure, lines of business that have unique risk profiles can be segregated into a separate subsidiary.

For example, a fast food restaurant chain may own one subsidiary that owns the know-how patents, a second that owns real estate assets, a third that owns brand assets, and other subsidiaries that own and operate individual franchises. If there’s a fire in one of the franchise restaurants that injures customers, the brand and other assets of the business are protected from liability.

Additionally, if you set up the individual companies within your Singapore holding company correctly, the any debt liability of one subsidiary won't affect the other holding companies or the parent company.

Tax-Efficient Holding Company Structures

A Singapore holding company structure can help lower the overall tax bill of the business if  individual subsidiaries are established with a goal of creating a tax-efficient holding company structure. Tax-efficient holding company structures can maximize tax reduction strategies by:

  • Making use of double tax avoidance agreements (DTAAs) (such as the India-Singapore DTAA or the Malaysia-Singapore DTA) across jurisdictions
  • Reducing or deferring the personal taxes of company owners
  • Avoiding capital gain taxes
  • Avoiding taxes on dividends, interests, and royalties (subject meeting conditions)
  • Leveraging tax incentives by aligning subsidiary missions with incentives
  • Using retained earnings across subsidiaries in a tax-optimized manner

Each individual subsidiary files its own tax returns, and the returns are consolidated at the level of the parent company. A properly-designed tax-efficient holding company structure can depress the overall tax liability of the holding company by locating each subsidiary in a jurisdiction that provides the most substantial tax benefits for its line of business.

Furthermore, the losses of one entity can be used to offset profits from another. The group may also use intra-group financing strategies. For instance, a company can lend the retained earnings of a profit-making subsidiary to another subsidiary that’s in growth mode to achieve better tax outcomes. On this front, Singapore provides a particularly suitable jurisdiction.

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List of Tax Benefits Available in Singapore for Holding Companies

Single-tier corporate tax system
Singapore has a single-tier or full-imputation tax system where corporate profits are only taxed once. Consequently, Singapore doesn’t impose any tax on dividends from the subsidiary to the Singapore parent company, and there is no withholding tax when dividends are distributed either to residents or to non-residents. Similarly, interest paid by a subsidiary to the parent is also not subject to withholding tax and is treated as a pre-tax expense. However, royalties and certain technical service fees paid to foreign corporations may be subject to a 10% and 17% tax respectively if no exemption applies and the tax rate is not reduced under a tax treaty. But judicious structuring of corporate entities may achieve optimization of these taxes as well.
Tax exemption of foreign-sourced income
Dividends received from your holding’s foreign subsidiaries may be exempted from corporate tax provided the ‘subject to tax’ and the ‘foreign headline tax rate’ conditions are met. In summary, these conditions require that the subsidiary’s profits should theoretically be taxed at least at 15% in the subsidiary’s country of domicile. No actual payment to the subsidiary’s country of domicile is required due to exemptions or incentives. Consequently, dividends from tax-neutral or low-tax jurisdictions may be taxed in Singapore when distributed to the parent company. And as of now, Singapore has no controlled foreign company rules. The undistributed income of foreign subsidiaries may not be subject to taxation. Once again, these provisions can be used to assemble an international corporate holding structure that can dramatically reduce — and in some cases entirely eliminate — the structure’s overall tax burden.
No capital gains tax
Furthermore, Singapore does not have any capital gains tax, and there is no transfer tax on the sale of shares. As a result, asset or subsidiary sales by the parent is not a taxable event at either the subsidiary level or the holding company level. However, if capital gains constitute the main source of a company’s income and the holding period of the sold asset is relatively short, they may be treated as ordinary income and be subject to income tax. Note that as capital gains are not taxed, capital losses are generally non-tax deductible.
Tax incentives for IP holdings
Singapore offers several tax incentives for IP holdings. The IP Development Incentive (IDI) scheme implies concessionary tax rates of 5% or 10% to qualifying royalty and other IP income until 2023 provided there has been a certain level of expenditure, jobs created, and other economic commitments within Singapore. Furthermore, you may apply for deductions for qualifying expenditures incurred for research and development activities, IP registration, and licensing.
Tax agreement benefits
Singapore has concluded Double Taxation Agreements (DTAs) with over 80 countries. This means that by availing the provisions of DTAs, dividends, interests, and royalties paid to Singapore resident holdings from subsidiary companies located in the treaty countries may be subject to reduced rates. They may even be entirely exempt from withholding tax obligations. However, tax benefits under DTAs are available only if the Singapore holding is considered a tax resident in Singapore. Singapore tax residency is generally assessed through the ‘control and management’ test. This means that the entity is considered to be a resident if strategic decisions are made in, and control and management is exercised in Singapore. For this purpose, the salient determining factor is the place where the board meetings are held. However, for foreign-owned investment holding companies that might not be enough.
Transfer pricing issues
With respect to intra-group transactions, Singapore law requires that these should be executed according to the “arm’s length principle”. That means that prices of transactions between related parties should be equivalent to prices that unrelated parties would have charged in similar circumstances. Companies with gross revenue over SGD 10 million may have to submit transfer pricing documentation on transactions with related parties exceeding certain thresholds if requested by IRAS. You can find more information on Singapore Transfer Pricing regulations in our guide.
Country-by-country reports

Singaporean Ultimate Parent Entities (UPE) of large multinational companies with a consolidated group revenue of S$ 1.125 billion or more also need to file a country-by-country report, which includes key information about revenue, tax paid and accrued, employment, capital, retained earnings, tangible assets, and business activities of the parent company and subsidiaries. All these regulations make Singapore a safe and advantageous location for setting up your tax-efficient holding company. However, it’s important to design the holding structure carefully so that it’s not seen as a tax avoidance scheme. There must be economic rationale and commercial reasons to justify the structure. Otherwise, the anti-avoidance regulations for transfer pricing, thin capitalization, and interest deductibility limitations may come into play. Inter-company transactions should be conducted at arm’s length and be properly documented and reported.

If you’d like professional support designing a Singapore holding company structure that’s both tax optimized and meets Singapore compliance requiremetns, contact us today. A good corporate services partner can help design your corporate structure for tax optimization and can ensure that it continues to meet the compliance obligations in Singapore.

No Limitations on the Domicile of Assets

Singapore holding companies have no limitations on the domicile of assets owned by holding companies. The subsidiaries of a Singapore holding company can be based in Singapore or in any foreign country, providing excellent flexibility for such a structure.

Government Incentives

Singapore offers special government incentives such as the Finance & Treasury Centre (FTC) Incentive, Global Trader Programme, and Pioneer Certificate Incentive & Development and Expansion Incentive for certain Singapore holding companies. This is often referred to as the Headquarter Incentives.

Favorable Accounting Regulations

Singapore holding companies enjoy special accounting treatment for consolidated books, whereby losses from one subsidiary can offset gains from another. A favorable accounting regime for the passive income of a Singapore holding company is also available. In addition, specialized regulations (such as the Financial Holding Companies Act) generally simplify the compliance framework for holding companies.

Asset Protection

By transferring the ownership of valuable assets (such as patents, trademarks, and IP) into a separate subsidiary, a Singapore holding company can provide protection for those assets from frivolous legal attacks. Such a structure also allows the business to buy and sell these patent portfolios easily. Holding companies owned by a high-net-worth individual provide protection of their personal assets, because they're technically held by the corporation and not the person, who is consequently shielded from debt liabilities, lawsuits, and other risks.

Asset Transactions

Segregating assets into separate subsidiaries makes it easier to transact those assets. You can sell the subsidiary as a separate unit without having to restructure your business or engage in complicated accounting reviews and audits to convince potential buyers of the value of the entity since its accounts are already managed separately. The acquisition and disposal of assets becomes markedly easier if the assets are held in a subsidiary.

Intergenerational Asset Transfers

The parent company can also be used for succession planning purposes. Such a transfer can provide tax deferral while ensuring the whole estate easily transfers as a single unit to the next generation. Singapore's regulatory framework is particularly favorable for trust structures that include holding companies. A holding company provides the following advantages for intergenerational wealth transfers:

  • Clear governance rules for family wealth can be established and consistently implemented
  • Diverse assets that may reside in multiple countries can be transferred as a single unit
  • Risk management, asset protection, and wealth preservation can be outsourced to professional manager through a single point of delegation
  • A coherent intergenerational strategy can be developed that integrates asset holdings with other tools such as wills, family office, foundations, residence jurisdiction selection, and lasting power of attorney

Risk Reduction and Financing

By decoupling the failure probabilities of individual subsidiaries, a Singapore holding company structure dramatically reduces the probability of a systemic failure of the whole business. As a result, it lowers the risk of the overall business, reducing its cost of capital. The Singapore holding company can obtain better financing terms than what it would have obtained under a single company structure. Furthermore, holding companies can provide a downstream guarantee for a subsidiary to get better financing terms for a subsidiary's projects, thereby reducing the cost of capital for the subsidiary. A business can design a Singapore holding company structure to isolate capital intensive subsidiaries (which may have significant indebtedness) from the operating subsidiaries. If the indebted subsidiary fails, its troubles don’t carry over to other parts of the overall business, which can continue to operate. Bankers realize this benefit and reward it by offering a lower cost of capital for the overall business.

Centralized and Consistent Control

Usually, the owners of the business control the holding and subsidiary companies through the board of directors. This allows the business to centralize the strategic coordination of the individual businesses while providing them with the flexibility to operate independently. A holding company structure can also be used to ensure consistent ownership and governance policies across subsidiaries. For example, new investors in a business may insist that all patents and IP assets of the business are owned under a single subsidiary so they can be transparently managed.

Confidentiality

By insulating the owners from the day-to-day operations of a subsidiary, owners can maintain secrecy or confidentiality about their participation or their strategy.

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Holding Company Challenges

A holding company structure has some disadvantages as well. These include complexity, lack of transparency, slow decision making, and the possibility of market manipulation. These potential drawbacks apply to holding companies in general and are not specific to Singapore holding companies.

How to Set Up a Singapore Holding Company

If you do decide to move forward with establishing a holding company, your objectives will dictate the right type and structure for it.

Types of Holding Companies

There are only two types of holding companies in Singapore: investment and financial. Each has its own particular registration criteria, but there's not much difference in terms of taxation:

  • An investment holding company is the default structure for companies operating outside the finance, banking, and insurance industries;
  • A financial holding company is meant for owning subsidiaries operating in the finance, banking, and insurance industry.

Types of Corporate Structures

Singapore holding companies can be registered under certain corporate structures available in Singapore, such as private limited companies, public limited companies, limited liability partnerships, etc. In most situations, a private limited company (i.e. a corporation) is the best option due to its separate legal status, its members’ limited liability, and its eligibility for many tax-cut schemes as explained above.

How a Holding Company Structure Works

Investing Through the Holding Company

When it comes to investing in an operating company directly and investing through the holding company, there are important differences to consider. In the latter case, one first invests money in the holding company. It in turn can acquire additional shares of the operating company, increase the subsidiary's share capital, grant a loan to its subsidiary, sell the IP rights, or invest in any other manner.

How Profits Flow

Traditionally, when an operating company distributes profits, it pays dividends to its holding company. The holding company in turn may decide to distribute profits between individual shareholders. Otherwise, it can use it for other investments.

The key difference between owning shares directly versus through the holding company is the timing of when dividends and gains are taxed. By owning shares through the holding company, the entrepreneur has the flexibility to decide when to pay taxes. When investing through the holding company, one can choose to reinvest the untaxed funds of the holding company and achieve a higher return in the long term.

If a holding company wholly owns its subsidiaries, it may set requirements for how much money it must receive from the subsidiary. For example, a holding company may demand S$100 million in payments from its subsidiary every year, allowing the subsidiary to retain the rest for growth. Others may decide to take all of their subsidiaries’ excess cash.

Intercompany Loans

Traditionally, when an operating company distributes profits, it pays dividends to its holding company. The holding company in turn may decide to distribute profits between individual shareholders. Otherwise, it can use it for other investments.

The key difference between owning shares directly versus through the holding company is the timing of when dividends and gains are taxed. By owning shares through the holding company, the entrepreneur has the flexibility to decide when to pay taxes. When investing through the holding company, one can choose to reinvest the untaxed funds of the holding company and achieve a higher return in the long term.

If a holding company wholly owns its subsidiaries, it may set requirements for how much money it must receive from the subsidiary. For example, a holding company may demand S$100 million in payments from its subsidiary every year, allowing the subsidiary to retain the rest for growth. Others may decide to take all of their subsidiaries’ excess cash.

Tax savings

Structuring your investments through a Singapore-incorporated holding company provides great tax benefits. For example, consider a Japanese entrepreneur who’s investing in Japan under two scenarios:

  • Scenario 1: The Japanese entrepreneur makes his or her investments directly in Japanese Company A
  • Scenario 2: The Japanese entrepreneur routes the investments in Japanese Company A through Singapore holding Company B

When Company A distributes dividends to shareholders, tax liabilities differ significantly between the two scenarios. Let’s take a look at the tax liability.

Scenario 1 (S$)

Scenario 2 (S$)

Corporate taxable income amount

100 000 000

100 000 000

Corporate income tax rate (23.2%)

23 200 000

23 200 000

Distributable surplus

76 800 000

76 800 000

Withholding tax on distributed dividends (20.42% for individual shareholders and 5% for Singapore corporate shareholders under the Singapore-Japan DTA)

15 682 000

3 840 000

Surplus

61 118 000

72 960 000

Tax on dividend income (0% for individual shareholder and 0% for Singapore corporate shareholder under the Foreign Sourced Income Exemption)

0

0

Net amount in the hands of shareholders

61 118 000

72 960 000

Is a Singapore Holding Company Appropriate for You?

Should you create a holding company structure that’s based in Singapore? Making such a decision is extremely nuanced. Read more to learn the six factors you should consider before arriving at an answer.

Conclusion

If you decide to use a holding company structure, Singapore is one of the best jurisdictions. Its regulatory framework, tax policies, and legal system are favorable for such structures.

Select a corporate services partner firm in Singapore that will ensure that your structure is correctly designed to pass the economic substance test and will not face any objections from regulatory authorities.

A Singapore holding company can be established online in a couple of days with the help of a good service provider. You only need to supply the necessary information and required documents. Your service provider will take care of filing and submitting the application on your behalf.

How Can We Help?

Are you looking for company incorporation, immigration, accounting, tax filing or compliance services in Singapore? If so, CorporateServices.com can help.

With our deep experience in setting up holding companies, we can help you design the right structure for your business and asset holdings. You’ll get a customized solution tailored to your unique situation that delivers protection, privacy, risk mitigation, tax optimization, and operational efficiency. Please contact us if you need assistance registering a company in Singapore or if you’d like to transfer the administration of your existing company to us.

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