Singapore Business Entity Formation: With a corporate tax rate of 17% and limited tax on certain passive income, Singapore is becoming a favorite location of entrepreneurs and business owners worldwide. While US taxpayers still have certain reporting requirements when it comes to owning operating a foreign corporation in Singapore, depending on the type of nature of the business performed, a US business may find itself profiting through a subsidiary or other business formed in Singapore.
The following is a summary regarding the different types of entities that can be formed for a business in Singapore.
Sole Proprietorship: Oftentimes an Entrepreneur will begin as a sole proprietorship in order to determine whether the business can grow or prosper before spending money to form an actual entity. The main issue to contend with involving a sole proprietorship is that the owner of the company can be personally liable for the debts and liabilities of the company.
- Establishing the sole proprietorship is relatively easy.
- The owner will be taxed at the personal income tax rate.
- If the owner is not a resident in Singapore, then they must appoint an authorized representative who resides in Singapore.
Partnership: In Singapore, a partnership can be formed with up to 20 people. As with the sole proprietorship, a partnership is not a separate legal entity and therefore partners can all be held to have unlimited liability for the partnership as well as other partners debts and liabilities stemming from the partnership.
- There are more strict resident/citizen requirements and if the owners do not reside in Singapore, they must appoint an authorized person who is a resident in Singapore.
- The profits from the partnership are taxed at the individual partners personal income tax rate.
Company: Unlike a sole proprietorship or partnership, a Company is a business that is considered a separate legal entity, which has shareholders and directors. The members of a company are not personally liable for the debts of the company either.
- There must be at least one shareholder and one director who is a resident in Singapore (although there may be ways around this requirement.)
- There are significant costs in establishing the company
- There are significant formalities, including appointing a secretary and auditor.
- The company must file annual returns, and as with United States there are requirements for meetings, share allotments, etc.
Limited Liability Partnership: A limited liability partnership has less formalities than a company, but it allows the partners to operate as a separate legal entity in order to avoid certain liability.
- The LLP will continue in perpetuity, even if there is any change in ownership (in other words, a change in ownership does not automatically and the partnership).
- The LLP members will not be personally liable for the business debts among partners.
- The LLP must maintain accounting records and the failure to do so can result in fine or imprisonment.
Limited Partnership: A Limited Partnership in Singapore is somewhat similar to a limited partnership in the United States, in that it requires one general partner and at least one limited partner.
- The Limited partnership does not have a separate legal entity from the partners.
- The Limited partner is only liable of to the amount that he or she contributed to the limited partnership – Gen. partners have full liability.
- LP cannot own property.
- Registration is relatively simple.