Inward Re-domiciliation Regime in Singapore
What is Re-domiciliation?
Re-domiciliation is a procedure in which a foreign corporate entity transfers its registration from its original jurisdiction to a new jurisdiction – in this context, Singapore. This is different from having to set up an overseas branch or incorporating a new legal corporate entity in a foreign country.
The Companies (Amendment) Act 2017 introduced an inward re-domiciliation regime in Singapore that allows foreign corporate entities to transfer their registration to Singapore.
When a foreign corporate entity is being re-domiciled to Singapore, it will become a Singapore-registered company (i.e. given a Singapore unique entity number). This means that all obligations, liabilities, properties or rights of the foreign corporate entity shall be transferred to the now Singapore corporate entity.
In addition, upon successful transfer of registration of the foreign corporate entity to Singapore, the foreign corporate entity shall be regarded as a Singapore company and is required to comply with Singapore laws. Also note that re-domiciliation does not,
- create a new legal entity;
- prejudice or affect the identity of the body corporate constituted by the foreign entity or its continuity as a body corporate;
- affect the obligations, liabilities, property rights or proceedings of the foreign corporate entity; and
- affect legal proceedings by or against the foreign corporate entity.
Corporate entities re-domicile for a variety of reasons. Some of these reasons may be practicality (e.g. ease of doing business in Singapore), business strategy (e.g. Singapore being a politically stable jurisdiction, no foreign exchange controls or debt to equity ratio, etc) legal, or a combination of more than one of the preceding.
The requirements to re-domicile a foreign entity as a Singapore company is set out further in the Companies (Transfer of Registration) Regulations 2017, also summarised below:
- Size criteria: The foreign corporate entity must meet any 2 of the below:
- the value of the foreign corporate entity’s total assets exceeds S$10 million;
- the annual revenue of the foreign corporate entity exceeds S$10 million;
- the foreign corporate entity has more than 50 employees;
- Solvency criteria:
- There is no ground on which the foreign corporate entity could be found to be unable to pay its debts;
- The foreign corporate entity is able to pay its debts as they fall due during the period of 12 months after the date of the application for transfer of registration;
- The foreign corporate entity is able to pay its debts in full within the period of 12 months after the date of winding up (if it intends to wind up within 12 months after applying for transfer of registration); and
- The value of the foreign corporate entity’s assets is not less than the value of its liabilities (including contingent liabilities).
- The foreign corporate entity is authorised to transfer its incorporation under the law of its place of incorporation.
- The foreign corporate entity has complied with the requirements of the law of its place of incorporation in relation to the transfer of its incorporation.
- The application for transfer of registration is —
- not intended to defraud existing creditors of the foreign corporate entity; and
- made in good faith.
- As at the date of the application, the foreign corporate entity’s first financial year end at its place of incorporation has passed.
- There are other minimum requirements such as the foreign corporate entity is not under judicial management, not in liquidation or being wound up etc.
Effects of transfer of registration
If the foreign corporate entity is eligible for re-domiciliation to Singapore and the application has been duly submitted to the Accounting and Corporate Regulatory Authority (“ACRA”), the next stage would be acceptance or rejection by the ACRA. The ACRA reserves the power to reject applications for re-domiciliation on public policy grounds. If that happens however, the corporate entity has a right of appeal to the ACRA.
ACRA has indicated that it may 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 foreign corporate entity is to carry out activities involving the setting up of a private school in Singapore, the application shall be referred to the Ministry of Education.
Upon approval of the application, the foreign corporate entity will be registered as a company limited by shares in Singapore.
Once the foreign corporate entity is registered as a company in Singapore, a document evidencing deregistration of the foreign corporate entity in its place of incorporation must be submitted to the ACRA within 60 days after the date of transfer of registration.
Tax advantages in Singapore
While the ease of incorporating or re-domiciliating a business in Singapore is a prime motivator for investors to flock to Singapore, another central determinant is the highly competitive Singapore tax regime, which has been scrutinized by the Organisation for Economic Co-operation and Development (“OECD”) in light of the Base Erosion and Profit Shifting (“BEPS”) initiative.
Singapore has long since realised that its tax regime is crucial to developing and promoting Singapore as a leading economic hub in the Asia Pacific region, support sustained and non-inflationary economic growth, and attract/ retain highly qualified talent in the country by focusing on essential public offerings such as education, healthcare, housing, infrastructure, etc. We highlight six key tax advantages in Singapore below:
- Other than Hong Kong with a low corporate income tax rate of 16.5%, Singapore boasts a relatively competitive corporate income tax rate of 17%;
- Singapore has an extensive tax treaty network that offers a reduced withholding tax rate for certain categories of income, claiming of foreign tax credits on foreign sourced income if received and subject to tax in Singapore;
- No capital gains tax regime, foreign exchange control regulations or debt-to-equity ratios in Singapore;
- Repatriation of profits to shareholders by way of distribution of dividends would be exempted from tax under the one-tier corporate tax system;
- A wide selection of tax incentive schemes available that offers a reduced corporate income tax rate and cash grant schemes that help businesses with its cashflow; and
- Enhanced tax deductions for qualifying expenses incurred on qualifying activities and tax exemption schemes for certain categories of income that will help lower the effective corporate income tax rate.
The COVID-19 pandemic has probably curbed the movement of individuals when a foreign company is considering whether to re-domicile to Singapore. With the opening up of the Singapore economy again, one will also have to carefully consider its business strategy and developments globally such as the global minimum tax rate policy, before arriving at such decisions.
Should foreign companies decide to relocate to Singapore and would like to find out more on how to proceed with the transfer of its existing registration from its original jurisdiction to Singapore and/ or to navigate the Singapore’s tax landscape, do reach out to us here.