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Table of contents
Chapter No Description Page no
1 Company registration procedure and its requisites in
Singapore
2010
2
Dubai limited liability company
3
Chapter 1
Company registration procedure and
its requisites in Singapore
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Singapore Company Registration
Most companies in Singapore are registered as private limited liability companies (commonly
known as private limited companies). A private limited liability company in Singapore is a
separate legal entity and shareholders are not liable for the company's debts beyond the amount
of share capital they have contributed (hence the term limited liability). According to Singapore
Companies Act, any person (foreign or local) above the age of 18 can register a Singapore
company.
A properly structured private limited company in Singapore is a very tax efficient corporate body
and hence this form is the most common type of business entity registered in Singapore.
Company Name : The name must be approved before incorporation of the Singapore company
can occur
Shareholders : A Singapore private limited company can have a minimum of 1 and maximum of
50 shareholders. A director and shareholder can be the same or different person. The shareholder
can be a person or another legal entity such as another company or trust. 100% local or foreign
shareholding is allowed. New shares can be issued or existing shares can be transferred to
another person anytime after the Singapore company has been incorporated.
Company Secretary : As per Section 171 of the Singapore Companies Act, every company must
appoint a qualified company secretary within 6 months of its incorporation. It has to be noted
that in case of a sole director/shareholder, the same person cannot act as the company secretary.
The company secretary must be a natural person who is ordinarily resident in Singapore.
Paid-up Capital : Minimum paid-up capital for registration of a Singapore company is S$1.
Paid-up capital (also known as share capital) can be increased anytime after the incorporation of
the company. There is no concept of Authorized Capital for Singapore companies.
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Registered Address : In order to register a Singapore company, you must provide a local
Singapore address as the registered address of the company. The registered address must be a
physical address (can be either a residential or commercial address) and cannot be a PO Box.
Taxation : Singapore registered companies enjoy very attractive tax exemptions and incentives.
This is one of the key reasons entrepreneurs from around the world prefer to form a company in
Singapore. For more information on Singapore tax advantages available to a Singapore company,
refer to Singapore Income Tax guide.( Please refer the taxation aspects in the document below.)
• You must engage a professional firm to register a Singapore company. Singapore law
does not allow foreign individuals or entities to self-register a company.
• There is no requirement for you to obtain any special Singapore visa if you merely want
to incorporate a private limited company but have no plans to relocate to Singapore. You
are free to operate your company from overseas as well as free to visit Singapore on a
visitor visa whenever required to attend to company matters on a short-term basis. But
keep in mind that in such cases, you will need to find a local resident director since each
company must have at least one local director. Professional service firms offering
Singapore incorporation services often offer the services of a local nominee director for
this purpose.
• If you plan to relocate to Singapore to operate your company, you are required to obtain
an Employment Pass or Entrepreneur Pass work permit. For more details, refer to
Singapore Work Permits guide. Once you have obtained your Singapore work permit,
you can act as the local resident director. Often, in order to expedite the company
formation, foreigners request their incorporation services firm to provide a local nominee
director on a temporary basis and then transfer the directorship after they have obtained
their work permit.
• All company incorporation formalities (as well as work permit formalities, if required)
can be handled without your having to visit Singapore. The only exception may be the
bank account opening, depending on the bank you choose. Many of the banks in
Singapore require physical presence of the company principals at the time of opening the
company bank account.
• Company Name
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• Brief Description of Business Activities
• Shareholders Particulars
• Directors Particulars
• Registered Address
The incorporation service firm you engage will typically collect the following documents from
you in order to prepare the necessary company incorporation paperwork:
• For non-residents: Copy of passport, overseas residential address proof, and other Know-
Your-Client (KYC) information such as a bank reference letter, personal and business
profile, etc.
Note that officially endorsed translated versions must be provided for any non-English
documents.
There are two distinct steps involved in the Singapore company registration procedure: a)
Company Name Approval and; b) Company Incorporation. Both steps can be accomplished on
the same day assuming there are no delays related to the name approval or particulars of
directors/shareholders.
To set up a Singapore company, the proposed name for the company must be approved
first. Company name approval is obtained by filing the application with the Company Registrar.
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The service firm you have chosen to register your company will do it for you as the first step in
the incorporation process.
Generally the name approval/rejection notification comes through in less than an hour unless the
proposed name has some certain words (such as bank, finance, law, media, etc.) that might
require the review and approval of a corresponding external government authority. If the name is
referred to an external authority, the name approval can get delayed for 1-3 weeks.
To improve your chances of quick name approval, make sure the name
An approved name will be reserved for 60 days from the date of application. You can extend the
name for another 60 days by filing an extension request just before the expiry date.
There are cases when the incorporation procedure can get delayed if the shareholders or directors
are of certain nationalities, although this happens on a case by case only. The authorities might
require additional information about a shareholder or director before approving the incorporation
of the company. The approval of the company registration can get delayed for 1-2 weeks under
such circumstances.
A registration fee of S$300 is payable to the Singapore Registrar of Companies for incorporating
a private limited liability company.
Certificate of Incorporation
The Company Registrar will send an official email notification confirming the incorporation of
the company. The email notification includes the company registration number and is treated as
the official certificate of incorporation in Singapore. A hard copy of the certification of
incorporation is no longer issued by default as it is not needed in Singapore. If however you do
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prefer a hard copy, an online request can be made to the Company Registrar after the
incorporation of the Singapore company. A fee of approximately S$50 is applicable and the hard
copy can be collected the next day from the office of the registrar.
A business profile containing the particulars of the company can be obtained from the Company
Registrar by making a request online and paying a small application fee. Generally, the
document (a PDF file) is available for download within an hour of the request and contains the
following key details:
• Incorporation date
• Principal activities
• Paid-up capital
• Registered address
• Shareholders details
• Directors details
The above two soft documents (i.e. email notification of incorporation and company business
profile) are sufficient in Singapore for all legal and contractual purposes including opening of
corporate bank accounts, signing office lease, subscribing to telephone/internet services, etc.
Some of the other items you will almost certainly need upon registration of your Singapore
company can be provided by the service provider you use to incorporate your company. These
items can include:
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Bank account opening
After successful registration of your Singapore company, you can open a corporate bank account
in any of the major banks in Singapore such as HSBC, Standard Chartered, Citibank, DBS,
OCBC, UOB, etc. Many of the banks in Singapore these days require physical presence of the
company principals as part of the account opening procedure. You should consider the
following:
• If you are unable to visit Singapore, you should choose a bank that allows opening of the
corporate bank account without your visit to Singapore.
• If you are able to visit Singapore, you have a wider choice of banks to choose from. In
this case, you can explore the features and facilities provided by different banks and
decide on the bank that best suits your needs.
Your incorporation service provider should be able to provide the information on the choice of
banks accordingly.
A Goods and Services Tax (GST) is an indirect tax, expressed as a percentage (currently 7%)
applied to the selling price of goods and services provided by GST registered business entities in
Singapore. GST registration is not mandatory if your annual company turnover does not exceed
S$1 million. To find out more details on whys and hows of GST registration, refer to Singapore
GST Registration Guide.
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long-term plans therefore prefer to register a private limited company in Singapore over other
corporate forms.
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Chapter 2
Singapore tax structure
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Singapore Income Tax: Corporate Tax Guide
Singapore is often cited as the leading example of countries that continues to reduce corporate
income tax rates and introduce various tax incentives to attract and keep global investments.
Singapore has a single-tier territorial based flat-rate corporate income tax system. Effective tax
rates as one of the lowest in the world and the general "business friendliness" of Singapore are
the two important factors contributing to the economic growth and foreign investment into the
city-state.
This guide provides a detailed overview of income tax rates, tax system, and tax incentives for
Singapore companies. To calculate your estimated Singapore taxes and to compare how they
stack up against those in your home country, refer to our online tax calculator.
Since January 1, 2003, Singapore has adopted a single-tier corporate income tax system, which
means there is no double-taxation for stakeholders. Tax paid by a company on its chargeable
income is the final tax and all dividends paid by a company to its shareholders are exempt from
further taxation.
There is no tax on capital gains in Singapore. Examples of capitals gains include gains on sale of
fixed assets, gains on foreign exchange on capital transactions, etc.
Singapore's headline corporate tax rate is a flat 18% at present. However, effective 2010,
corporate income tax rate will be further reduced from 18% to 17%. In order to make Singapore
as an attractive investment destination, income tax rates in Singapore have been going down
consistently as seen below.
Headline income tax rate in Singapore as in many other jurisdictions does not necessarily
provide an accurate indication of effective corporate tax rate. The effective rate is normally
lower than the headline tax rate due to applicable tax exemptions and tax incentives, depreciation
rules, etc.
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General Tax Incentives
Listed below are general tax exemptions/incentives currently available to Singapore resident
companies. Once these tax exemptions are applied to the taxable income, the effective income
tax rate for small-to-midsize Singapore companies is reduced significantly.
• 0% tax on S$100K taxable income .The corporate income tax rate is 0% on the first
S$100,000 taxable income for each of the first three tax filing years for a newly
incorporated company that meets the following conditions:
o be incorporated in Singapore
Income tax filing due date for Singapore companies starting year 2009 is October 31.
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The company has to file a complete set of returns including Form C, audited/unaudited accounts,
and tax computation. The Form C is a declaration form for a company to declare its income
whereas tax computation is a statement showing the adjustments to the net profit/loss as per the
accounts of a company to arrive at the amount of income that is chargeable to tax. For more
details, see Annual Filing Requirements for Singapore Companies guide.
In Singapore, corporate income is assessed on a preceding year basis. This means that the basis
period for any Year of Assessment (YA) generally refers to the financial year ending (FYE) in
the year preceding the YA. For example, in year 2008 you will be filing corporate tax return for
your company's financial year that ended anytime between January 1, 2007 to December 31,
2007. Your company's accounts are prepared up to the FYE each year.
In order to ease the burden on smaller businesses, a) exempt private companies (i.e no corporate
shareholders and individual shareholders < 20) with annual revenue of less than S$5 million; and
b) dormant companies (i.e. no accounting transactions during the year) are exempted from
auditing their accounts and can file unaudited accounts. Where the financial year is less than 12
months, the said limit of S$5 million must be pro-rated.
An Exempt Private Company (EPC) is defined under Section 4(1) of the Companies Act as a
company which has no more than 20 shareholders and its shares are held by individuals only. It's
important to note that all companies (regardless of exempt or not) are required to submit a Form
C, tax computation and the audited/unaudited accounts annually.
Withholding tax
Singapore has implemented a withholding tax law (on certain types of income) to ensure the
collection of tax payable to non-residents on income generated in Singapore. The tax
withholding does not apply to Singapore resident companies or individuals. Under the law, when
a payment of a specified nature is made to a non-resident company or individual, a percentage of
the payment has to be withheld and paid to Income Tax Authorities. The amount withheld is
called the withholding tax.
For more details on withholding taxes, see Singapore Withholding Tax guide.
In additional to the general tax exemptions/incentives listed above, there are certain industry
specific and special purpose income tax incentives and concessionary tax rates offered under the
Singapore Income Tax Act. For overview of these additional tax incentives, refer to Specialised
Tax Incentives in Singapore.
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Tax residence of company
A company is considered as resident in Singapore if the control and management of the business
is exercised in Singapore. Although the term "control and management" is not defined explicitly
by authorities, a generally accepted consensus is that it refers to the policy level decision making
at the level of Board of Directors and not the day-to-day decision making and operations.
The basis of taxation for a resident company and non-resident company is generally the same
with the exception of certain benefits that are available to resident companies. These include:
• A Singapore resident company is eligible for income tax exemption scheme available for
new start-up companies.
A tax treaty between two countries is generally an agreement that specifies how the income
earned will be taxed by the authorities of each country when a company is involved in doing
business in both countries. The main benefit and objective of a income tax treaty is to help
businesses avoid double taxation of their income.
Singapore has concluded tax treaties with more 50 countries and the list continues to grow. The
treaties reflect Singapore's continual efforts to help businesses in relieving double taxation and to
encourage and facilitate the trade and investment opportunities across-borders.
Starting 2008, Singapore has gone a step further in providing unilateral tax credits to Singapore
companies. According to the new policy, all Singapore companies that earned income from
countries that don’t have double tax agreement with Singapore, will be allowed a tax credit on
their foreign-sourced income from those countries.
For more details, see Singapore Tax Treaties and Double Tax Agreements guide.
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Net income vs taxable income
A company's income means gains or profits from any trade or business income from investment
such as dividends, interest and rental royalties, premiums and any other profits from property
other gains of an income nature.
As per Income Tax Act of Singapore, corporate tax is imposed on the income that is A) accruing
in or derived from Singapore; B) received in Singapore from outside Singapore.
Part A is the income that has a source in Singapore. Part B is the income with a source outside
Singapore and received in Singapore. For Part B however, there are certain qualified exemptions
commonly known as Exemptions On Foreign Sourced Income. For more details, see Singapore
Taxation of Foreign Sourced Income guide.
A company's net profit/loss alone does not provide an accurate picture of the taxable income. For
instance, some of the expenses incurred by your company may not be deductible for tax purposes
or some of the income received may not be taxable or it may be taxed separately as a non-trade
source income. For more details, see Calculating Taxable Income for Singapore Companies.
Certain company income may be exempted from tax under the provisions of the Singapore
Income Tax Act. Examples include general tax exemptions available to all companies, exempt
income for certain industries such as shipping income derived by a shipping company, foreign-
sourced dividends, branch profits & service income received by a resident company that satisfies
the qualifying conditions, exemptions on qualified foreign sourced income, etc.
In general, a company can deduct losses against the income for taxation purposes in Singapore.
The loss can be carried forward indefinitely (subject to certain conditions), however, it must be
deducted in the first available year where there is a statutory income. The deduction of the loss
follows the "proceeding year" basis. It's important to note that the losses can be utilized only as
long as there is no substantial change in the shareholding.
The development of international trade and multinational corporations has increased the issue of
double taxation. As a company or individual looking beyond your own country for business
opportunities and investments you would naturally be concerned with the problem of double
taxation. Consequently you would seek to structure your operations at a minimum tax cost. This
is where Singapore's DTAs or tax treaties come into play.
Tax treaties enable you to access relief from double taxation, either by way of tax credit, tax
exemption or a reduced tax rate. These reduced rates and exemptions vary among countries and
specific items of income. Treaty provisions generally are reciprocal (apply to both treaty
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countries). If there is no treaty between your country and Singapore, you may be able to take
advantage of unilateral tax credit. Singapore currently has more than 50 comprehensive DTAs to
take advantage of and provides specific guidelines for double taxation relief on various types of
income.
This article focuses on Singapore's double tax agreements. To get an overall understanding of
corporate taxes in Singapore, see Singapore Income Tax for Companies guide.
Double taxation arises when two or more countries impose taxes on the same taxpayer in respect
of the same taxable income or capital. In other words, the same income is being taxed twice - the
country of source where the income arises and the country of residence where the income is
received. To relieve taxpayers from the burden of double taxation, countries provide various
types of reliefs either under their domestic tax laws or under the tax treaties they have entered
into with other countries.
A Double Tax Agreement (DTA) is a bilateral agreement between two countries to avoid double
taxation, resulting from the application of their respective domestic tax laws.
Benefits of DTAs
1. The main objective of a DTA is to provide certainty regarding when and how tax is to be
imposed in the country where the income-producing activity is conducted or payment is
made. As a result is defines the jurisdictional authority on cross-border transactions.
Only Singapore tax residents and tax residents of the treaty country can enjoy the benefits of a
DTA. If your company is resident in Singapore (i.e. the control and management of its business
are exercised in Singapore) and you earn foreign income from a treaty country, you are entitled
to claim for relief under the relevant tax treaty by submitting a Certificate of Residence to the
foreign country. This is proof of your company being a Singapore tax resident. If on the other
hand, you are a tax resident of a treaty country you will have to submit to the Inland Revenue
Authority of Singapore, a completed Certificate of Residence from Non-Residents (Claim for
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relief from Singapore Income Tax Under Avoidance of Double Taxation Agreement) that is duly
certified by the tax authority of the treaty country.
Although each DTA concluded by Singapore has specific terms and may differ from one country
to another, there are certain key general principles of a typical DTA, as outlined below:
1. Scope of the DTA is limited to tax residents of Singapore and the treaty country. DTAs
are not applicable to non-residents of either country.
2. Taxes covered by the DTA is limited to taxes on income and excludes customs and
excise duties.
4. Income from immovable property, such as rental income from real estate, is usually taxed
both in the country of source (where the property is situated) and country of residence of
the recipient. According to Singapore DTAs, the country of residence will have to allow a
credit for the tax paid in the country of source.
5. Tax Credit. Singapore (as the Country of Residence) will give a tax credit in respect of
the foreign income based on the lower of Singapore tax payable or foreign tax paid. In
addition, foreign-sourced income is also tax exempt in Singapore subject to two
conditions - that the year the income is received in Singapore, the headline tax rate (i.e.
highest corporate tax rate) of the foreign jurisdiction from which the income is received is
at least 15% and that the foreign income has been subjected to tax in the foreign country.
6. Airline or shipping profits derived by an enterprise of one country from the other country
are entitled to either full or partial exemption. Where full exemption is provided for, this
means that the air transport or shipping income will be taxed in the enterprise’s Country
of Residence only.
7. Dividend income may be taxed in the recipient's country of residence and that the country
of source (i.e. the country in which the company paying the dividend is resident) has the
right to tax the dividend income. Normally the country of source would grant full or
partial tax exemption or impose a reduced dividend withholding tax rate. Since Singapore
follows a one-tier corporate system it does not levy dividends withholding tax. Whether
they are taxable in the treaty country would depend on the domestic tax laws of that
country and what the treaty specifies.
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8. Interest will be exempted or taxed at a reduced rate in the country in which the interest
income arises (source country). In the Belgian and Netherlands tax treaties, residents of
these countries deriving interest from Singapore are taxable at the rate of 15% and 10%
respectively. In the Japanese treaty, if the interest arises from a loan that is made to an
approved industrial undertaking, such interest is exempt from Singapore tax, otherwise a
tax of 15% is chargeable. The treaty with Malaysia does not provide for any reduction of
tax on interest.
10. Professional services income is normally taxed in the country of residence of the
individual performing the services. When the individual has a fixed base in Singapore
(office or clinic) his income from the professional services will be taxed in the same
manner as his business profits. Professional services cover physicians, lawyers,
engineers, architects, dentists, accountants, etc. Some tax treaties (e.g. with Australia,
Netherlands, Pakistan) provide tax exemption if the individual is present in Singapore for
not more than 183 days in a tax year and where the services are performed for a resident
of the other contracting country.
11. Income from employment will be taxed in Singapore if the employment is exercised in
Singapore unless: a. the employee is not present in Singapore for more than 183 days in a
tax year b. His employer is a resident of the contracting country c. His remuneration is
not borne by a permanent establishment in Singapore of an enterprise of a contracting
country. Singapore's tax treaty with Malaysia, UK, Denmark, Norway, Federal Republic
of Germany and Sweden requires an additional condition to be fulfilled - the employee's
income must be subject to tax in the other contracting country.
12. The source of directors' fees is in the country in which the company paying the fee is
resident. The full domestic tax rate would apply as there is no exemption or reduced tax
rate.
13. Government payments - Any salary, wage, pension, or similar rewards for personal
services paid by the government of a contracting country to persons performing services
in Singapore on behalf of that government are exempt from tax in Singapore and will
only be taxed in the contracting country.
15. Self-employed persons are liable to Singapore income tax on the full amount of their
income which is earned in Singapore, net of any tax-deductible expenses which they
might have incurred in order to earn that income.
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16. The right to tax gains arising from the sale of immovable property and gains from sale of
shares varies from DTAs signed with different countries.
The methods of relieving double taxation are given either under a country's domestic tax laws or
under the tax treaty. The available methods in Singapore are as follows:
A tax credit will be given for the foreign tax suffered by a tax payer against his domestic tax
imposed on the same income. The amount of tax credit relief is normally restricted to the lower
of the paid/payable in the foreign and home country. This is known as the ordinary credit method
vis-a-vis the full credit method, where the tax paid in the country of source is allowed as a credit
in full.
Tax credit relief is commonly referred to as Double Tax Relief in Singapore. The claim for DTR
should be made while filing annual income tax returns (Form C) and should be shown in the
company's tax computation. Documentary proof (e.g. withholding tax receipts, letter from the
foreign tax authority, or dividend vouchers) to show that the remitted income has been subjected
to tax in the treaty country is required, before DTR claims can be considered.
Tax exemption
Double taxation can be avoided when foreign income is exempt from domestic tax. The
exemption may be given on the entire or part of the foreign income.
Tax exemption for foreign-sourced dividends, branch profits, and service income Sec 13(8)
A Singapore tax resident company can enjoy tax exemption on its foreign-sourced dividends,
foreign branch profits, and foreign-sourced service income that is remitted into Singapore if the
following conditions are met:
• The highest corporate tax rate (headline tax rate) of the foreign country from which the
income was received is at least 15% and
• The foreign income had been subjected to tax in the foreign country from which they
were received. The rate at which the foreign income was taxed can be different from the
headline tax rate.
Furthermore, tax exemption will be granted to all foreign sourced income earned/accrued outside
Singapore on or before 21 Jan 2009 to resident non-individuals and resident partners of
partnerships in Singapore, and received in Singapore during the period from 22 Jan 2009 to 21
Jan 2010.
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To enjoy the tax exemption on the specified foreign income, you need not submit documents
(such as dividend vouchers, notices of assessment issued by the relevant foreign jurisdiction etc)
with your income tax returns to substantiate that their specified foreign income qualifies for the
exemption. Instead you only need to declare in the appropriate section of your income tax returns
that your specified foreign income qualifies for the tax exemption and furnish the following
particulars:
1. Nature and amount of income (i.e. foreign-sourced dividend, foreign branch profits or
foreign-sourced service income)
3. Headline tax rate of the country from which the income is received and
4. Amount of foreign tax paid/payable in the country from which the income is received.
For tax resident individuals in Singapore, all foreign income received in Singapore will be
exempt from tax if the Comptroller is satisfied that the tax exemption is beneficial to the
individuals.
Under this form of relief, income is taxed at a lower rate and is applicable to the following
classes of income: interest, dividends, royalties and profits from international shipping and air
transport.
Relief by deduction
In this case, domestic tax is applied on the foreign income after deducting foreign tax suffered.
Singapore does not allow a deduction of foreign income tax. However a deduction is given
indirectly as under the remittance basis, Singapore would tax the amount of foreign income
received (i.e. net of foreign tax) in Singapore.
Under a DTA, tax credit is usually available in the country of residence only if the income has
been taxed in the country of source. Tax sparing credit is a special form of credit whereby the
country of residence agrees to give a credit of the tax which would have been paid in the country
of source but was not, i.e., "spared", under special laws in that country to promote economic
development.
The tax sparing credit provision is usually found in DTAs between a developing country which
offers tax incentives to attract foreign investment and a developed country which is capital
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exporting. The credit is given by the capital-exporting country under its laws to promote
investments.
If you are a Singapore resident receiving the following foreign income from countries which
Singapore has yet to conclude an Avoidance of Double Taxation Agreement (DTA), you can
now get a unilateral tax credit for the foreign taxes paid on such income under Section 50A of
the Singapore Income Tax Act.
1. Income derived from any professional, consultancy and other services rendered in any
territory outside Singapore.
2. Dividends or
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Unilateral tax credit under Sec 50A would also apply to foreign sourced royalty from non-treaty
countries, provided the royalty is not
All the Double Taxation Agreements concluded by Singapore since 1965 to date are categorized
as follows:
2. Limited Treaties - These agreements cover only income from shipping and/or air
transport.
3. Treaties which are Signed but not Ratified - These are either comprehensive agreements
or limited treaties which are not ratified and therefore do not have the force of law.
Company incorporation requirements and procedures vary across different countries. While
certain jurisdictions have streamlined the process to facilitate company set up by foreign
entrepreneurs, certain other jurisdictions have less desirable administration systems that deter
potential foreign investments. This article throws light on the company formation requirements
in Singapore versus Indonesia including minimum statutory requirements, foreign ownership
policy, incorporation procedure and time-line, compliances etc.
Foreign Ownership
Singapore does not impose any restrictions on foreigners who wish to do business in the country.
It allows 100% foreign ownership (i.e. shareholding) of a Singapore private limited company. In
other words, foreign entrepreneurs do not need a local partner to set up a private limited
company in Singapore.
Indonesia's foreign ownership policy significantly differs from that of Singapore's. Foreign
entrepreneurs can set up a foreign direct investment company in Indonesia (commonly known as
Penanaman Modal Asing, or PMA) either by setting up:
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There is a disinvestment requirement which is imposed on a 100% foreign owned company.
Within 15 years from the commencement of commercial operations, the foreign shareholder is
required to divest at least 5% of the shares to an Indonesian citizen or legal entity.
In the case of a joint venture, the Indonesian partner is required to hold at least 5% of the shares
while the foreign owner can have 95% shareholding in the company.
Additionally, the Indonesian government regulates the fields of business activity that are open to
foreign investment. At present there is a list of business fields:
In keeping with its business friendly image, Singapore mandates minimal and easy to comply
with statutory requirements to set up a private limited company. The basic requirements include:
a local registered address; at least 1 local resident director (a Singapore Citizen, a Singapore PR,
or a foreigner holding a valid work visa or Dependent Pass); a local resident and qualified
company secretary (must be a natural person); a minimum of 1 and maximum of 50 shareholders
(natural persons or corporates); and a minimum paid up capital of SGD 1.00 (no authorized
capital required).
Foreigners who wish to incorporate a company in Indonesia must comply with the following
requirements: a local registered address; at least 1 director (need not be a local resident);
minimum of 2 and maximum of 50 shareholders (natural persons or corporates) and a
commissioner. Although there is no mandatory minimum share capital requirement, authorities
normally approve companies with a minimum share capital of USD 100,000 - USD 250,000.
Incorporation Procedure
Singapore is one of the easiest places in the world to set up a business. Company registration in
Singapore is quick and efficient and can be completed within 1 day via electronic means. There
are only two major steps involved in company formation - name approval and filing
incorporation documents. Name approval is secured by filing an online application with the
Company Registrar. Generally, the name approval (or rejection) notification will be known
within one hour. Once the name is approved, incorporation documents must be filed with the
Company Registrar. If all documents are found to be in order, the Company Registrar will send
an official email notification (including the company registration number) confirming the
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incorporation of the company, just within a few hours of documents submission. The email
notification is treated as the official certificate of incorporation in Singapore.
After incorporation, the company must register for Goods and Services Tax, if applicable, (an
indirect tax of 7% applied to the selling price of goods and services) with the Inland Revenue
Authority of Singapore. Tax registration can be done within 1 day. It must also obtain the
necessary business licenses or permits, if applicable. Business licenses can be procured within 1
week. The final step is to open a corporate bank account.
3. Obtain a Letter of Domicile from the landlord of the office premises and the regional
government office, which states the address of the company.
4. Register with the tax department for VAT (an indirect tax of 10% applied to the selling
price of goods and services) and obtain a tax registration number.
6. Submit the executed deed, letter of domicile, tax registration number and bank statement
to the Ministry of Justice and receive approval within 2-3 months. Upon approval the
company is considered a limited liability company.
9. Obtain a Permanent Business License (IUT) valid for 30 years from the BKPM.
Incorporation Time-line
Company incorporation in Singapore can be completed in a record time of less than 24 hours,
with minimal formalities. In Indonesia, it can take anywhere between 3-6 months to incorporate
a company.
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In Singapore, annual returns along with audited annual accounts must be filed with Companies
Registrar and tax returns along with audited accounts must be filed with the Singapore tax
department each year. However, dormant companies (i.e no accounting transactions for the
financial year) and exempt private companies (not more than 20 shareholders and shares are not
held by another company) with an annual turnover of less than SGD 5 million are exempt from
audit requirements for both annual returns and tax returns. These companies can file unaudited
accounts.
In Indonesia, companies must submit annual returns along with audited annual accounts to the
Companies Registry. Tax returns along with audited accounts must be filed with the Indonesian
tax authority each year.
The Singapore government has put in place an open immigration policy to facilitate the
relocation of foreigners who wish to set up a business in the country. Foreign entrepreneurs who
wish to re-locate to Singapore to run their company can easily do so under the Employment Pass
Scheme or the Entrepreneur Pass Scheme. Most entrepreneurs find it relatively easy to qualify
under either of these two schemes. However, relocation to Indonesia is not so simple and
straightforward.
A foreign entrepreneur who wishes to relocate to Indonesia to run his company must first submit
a Foreign Manpower Utilization Plan to the Indonesian authorities. The Plan will outline his
position in the company, the duration of his term, details of other foreign employees etc. It is on
the basis of the Plan that work permits are issued. Once the plan is approved, the entrepreneur
must obtain a Visa for Limited Stay from the Indonesian embassy or Consulate in his country of
residence. Upon arrival at Indonesia, he must apply for the Limited Stay Permit and a Work
Permit in order to stay in Indonesia to run his company.
On a Final Note
27
Chapter 3
Indonesian business and its incorporation procedure
28
Ever since Indonesia's independence, foreign companies have made major investments in
Indonesia to develop its resources, build infrastructure, establish manufacturing facilities for
export and/or provide products and services for the domestic market. The intricacies of setting up
a company and making an investment in Indonesia are many.
To establish a business in Indonesia, if you do not require a local legal entity for the investment
proposed, you could choose to appoint an Agent or Distributor, or set up a Representative Office.
Many foreign investors at the early stage of entering the Indonesia market choose to set up an
Agency Agreement or Representative Office, then later after the business starts to grow they will
apply for a Foreign Direct Investment Company (FDI) status.
This is referred to most commonly in Indonesia by its Indonesian acronym PMA, or Penanaman
Modal Asing.
Representative Office
A Representative Office can be established depending upon the line of business and the
necessary licenses issued by the related government department. The limitation of a
Representative Office is that they are not allowed to conduct direct sales and cannot issue Bills
of Lading.
Representative offices are set up primarily for marketing, market research, or as buying or selling
agents. The related government ministries are:
• Representative Office from Ministry of Industry & Trade - for bilateral trade
To establish a Representative Office with permission from the Ministry of Industry and Trade,
the company's head office needs to issue three letters:
• Letter of Intent - stating the intention of the company to establish a representative office
• Letter of Statement - stating that the Chief Representative will follow Indonesian
regulations
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The three letters must be stamped by a notary public and approved by the Indonesian Embassy in
the home country of the firm. Upon approval, the Indonesian Embassy will issue a Letter of
Notification (Surat Keterangan). Upon completion of the four letters the process can continue to
the related government ministry in Jakarta, to incorporate a fixed license for 2 years.
Foreign Direct Investment, most often referred to by its Indonesian abbreviation - PMA, is
governed primarily by the Foreign Capital Investment Law No. 1 of 1967, amended by Law No.
11 of 1970. As a legal basis, the law is fairly accommodative to various deregulatory policies and
measures to date, and those that will be taken by the government in the foreseeable future.
In addition to Investment Law No. 1/1967, PMA companies as well as other companies, in their
business operations are still subject to sector/industrial policies as required by corresponding
ministries.
The Investment Coordinating Board (BKPM), the government body which processes and handles
FDI companies, issued an important deregulation package on PMA in May 1994 referred to as
PP-20/1994. It was seen as a very significant step toward a much more conducive and attractive
investment environment in Indonesia. The regulation:
You can obtain a copy of the FDI application in English from Indonesian embassies overseas or
from the Investment Coordinating Board office either from the head office in Jakarta or from
regional offices in the provinces.
For those companies choosing to make a 100% foreign investment, there is a requirement that 15
years from the commencement of commercial operations, the 100% foreign shareholder must
sell at least 5% of the firm to an Indonesian entity. A company which is initially 95% foreign
owned is not subject to any divestment requirement.
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Foreign investment companies are basically free to choose where in Indonesia they will set up
operations, with the proviso that factories must be in areas zoned for industry or in an industrial
estate.
The life of foreign investment companies has been extended by allowing the renewal of the fixed
operating license (IUT) for an additional 30 years. In other words, the initial licenses are valid
for 3 years (SPPP BKPM), plus 2 x 30 years, for a total of 63 years.
Step 1. Prepare and send the application with required documentation, compiled according to the
investment plan. Set up a joint venture agreement if you are making the investment with
Indonesian partners.
Step 2. Obtain the Initial License (SPPP BKPM), valid for 3 years.
Step 5. Prepare and send the 6-month report (LKPM) to the provincial BKPM office as well as
UUG (HO) nuisance act to the regional office of BKPM
A Limited Liability company is established either under foreign shareholders or through a joint
venture with Indonesians or wholly owned by Indonesian shareholders and must be approved by
the Ministry of Justice. It doesn't matter who is the owner of an Indonesian Limited Liability
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company, they must comply with Indonesian law and are considered an Indonesian company and
the company can subsequently be changed or sold to the shareholders, foreign or Indonesian.
To get license of Change of Capital and Change of Owner the applications should be submitted
to BKPM. According to BKPM, there's no charge to arrange licenses.
Offshore Incorporation
In some situations, it may be to an investor's advantage to incorporate their firm offshore, while
operations are carried out in Indonesia. The advantages and disadvantages of offshore usually
focus on the facilities offered by tax havens in nations like Mauritius and the Cayman Islands.
Your management consultant can assist you in making this important decision.
Another important matter is the Taxation and Labor Law. It is compulsory to report taxes on a
monthly basis and follow Indonesian labor law.
As you can see from this very brief introduction, the process is a complicated and lengthy one
and can be a virtual mine field to those who are unfamiliar with dealing with Indonesian
ministries. It is essential to acquire the advisory services of a professional investment consultant
which specializes in assisting foreign companies who want to establish businesses in Indonesia.
Applications for KITAS and KITAP, and other permits, should be submitted to:
PERSONAL TAXATION
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MAIN PERSONAL RELIEFS
Description IDR
Taxpayer 1,728,000
Spouse 864,000
Employees' contribution to Jamsostek for old age savings (2% of gross Full Amount
income)
TAX RESIDENCE
NON-RESIDENTS
Non-resident individuals are subject to withholding tax (Article 26) at 20% (subject to treaty
provisions) on Indonesian source income. This includes, amongst others, the estimated net
income of the sale of property in Indonesia (other than securities traded in stock exchanges, and
land and buildings). Sales transactions of shares in stock exchanges are subject to withholding
tax at 0.1% of the transaction value.
COLLECTION OF TAX
Employers are required to withhold tax monthly (Article 21) from salaries paid to employees,
based on their income and personal reliefs entitlement. Tax is also withheld from pensions and
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severance payments at 15%, and from commissions paid to non-permanent employees at 10%.
An "exit tax" (Rp. 250,000 per exit from Indonesia by plane, Rp.100,000 by ship or Rp. 50,000
by land) is another form of prepayment in respect of an employee's income tax. If the exit tax is
borne by the employer the amount paid is prepayment for the employer's income tax.
Income tax (Article 21) must also be withheld from fees paid to independent individual
consultants, such as: lawyers, notaries, accountants, consultants, architects, doctors, actuaries and
valuers. The effective withholding tax rate is 6% of the fees.
BENEFITS-IN-KIND
Benefits-in-kind e.g. car, housing, etc. provided by the company are not taxable in the hands of
an employee and not deductible for the company. However, benefits-in-kind are taxable in the
hands of employees if provided by non-taxpayers for Income tax purposes. These include:
(i). Certain mining companies and production sharing contractors, which are subject to tax under
the 'old' tax laws;
(ii). Representative offices of offshore companies not constituting taxpayers.
The cost of providing benefits-in-kind in 'remote' areas is a deductible expense, without being
taxable in the hands of employees. The same principle applies to BIK required for job
performance such as protective clothing, uniforms, transportation costs for staff to and from the
place of work, meals and accommodation for the crew of a ship and the like.
JAMSOSTEK
Indonesia does not yet have a comprehensive social security system. However, the Government
has introduced a Worker's Social Security program (Jamsostek).
Employers are responsible for the entire contribution for the occupational accident security, and
death security programs. There are five classifications by industry with contributions for accident
security ranging from 0.24% to 1.74% of wage depending on the classification of the employer.
The contribution for death security is 0.3% of wage.
The premium for old age security is jointly borne by the employer and the employee; the
employer's share is 3.7% of the wage and the employee's share is 2% of the wage.
Employee contributions to Jamsostek are collected by the employer through payroll deductions.
Health maintenance security is a new feature under Jamsostek. It is optional i.e. a company
which provides better company health insurance to its employees can elect not to join the health
care program under Jamsostek. The contribution for health care program under Jamsostek is
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6.0% for a married employee (max. Rp 60,000 per month) and 3.0% for an unmarried employee
(max. Rp 30,000 per month).
CORPORATE TAXATION
TAX RESIDENCE
COLLECTION OF TAX
All "tax resident" companies, businesses and permanent establishments, are required to pay tax
by monthly installments. Tax on interest, royalties, rental, dividends, insurance premiums paid to
an offshore insurance company, gains on the sale of property in Indonesia, service fees including
fees to contractor, are collected by means of withholding tax. The withholding tax is a payment
on account of the recipient's income tax liability if the recipient is a tax resident in Indonesia, and
a final tax if the recipient is a non-resident.
At year end, when submitting the tax return, taxpayers will have to pay, based on the self-
assessment system, the amount of tax calculated in the annual tax return to the extent this amount
exceeds the tax already paid during the year and or deduction on withholding by third parties
BUSINESS PROFITS
Business profits are computed on the basis of normal accounting principles as modified by
certain tax adjustments.
Generally, a deduction is allowed for all outgoings and expenses incurred for obtaining,
collecting and maintaining taxable business profits.
DEDUCTIONS DISALLOWED
These include : Benefits in kind (e.g. free housing, company provided car) except for 'remote'
areas.
Private expenses.
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Provisions/reserves - except for certain provisions for banks, leasing and insurance companies
and provisions for reclamation costs for mining companies.
Distribution of profits.
LOSSES
Losses may be carried forward for a maximum of five years. However, for a limited category of
businesses and investments in certain regions, loss carry forward is extended to ten years. A
carry back of losses is not possible.
PROFIT DISTRIBUTION
i).Resident Recipients
Individuals: 15% withholding tax, which is considered an advance payment of the income tax of
the recipient.
ii). Non-Resident-Recipients
20% (lower for treaty countries) withholding, which is the final tax liability of the non-resident
recipient.
Certain businesses have deemed profit margins for tax purposes, as follows:
On gross
36
Article 23 withholding and Article 25 monthly installment payments may be reduced accordingly
(e.g. a rate of 2.64% applies to most international shipping charter payments).
Employees in the oil and gas drilling sector are taxed on deemed salaries according to their job
title as follows :
As with all tax systems, there are a whole range of exceptions to "normal" treatment. In
Indonesia such exceptions include, for example, the tax treatment of Production Sharing
Contracts, Gold and Coal Mining Contracts of Work, and Foreign Aid Projects. Partnerships,
sole proprietorships and other business forms are subject to special tax treatment, but are
basically within the general tax framework outlined in this booklet. Investment funds and venture
capital companies enjoy certain exemptions from income tax.
INCENTIVES
Stock Exchanges
Bank Interest
Income Tax on interest from Indonesian banks is fixed at a final 15% for both companies and
individuals.
Merger
Tax free mergers are permissible for banks and companies going public.
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A final 5% income tax on sales value applies to individual
Government structure
There are 33 provinces in Indonesia each with its own governor. Provinces (which are further
subdivided into regencies) have their own local governments and legislative bodies. Since
regional autonomy laws were passed in 1999, provinces and regencies have extensive power
over their own affairs, however foreign policy, defense (including armed forces and national
police), legal system, and monetary policy, are still under control of national government. Since
2005, heads of local government (governors, regents, and mayors) have been directly elected by
popular election. There are 349 regencies in Indonesia.
A Sub-district is an area within a regency. The head of sub-district is called "Camat"'. A Camat
is a civil servant, responsible to the regent.
Chief of village, is called "Kepala Desa" and has authority over the local people in accordance
with acknowledged local traditions of the area and is elected by popular vote.
IndoAdvisors has extensive experience in dealing with regional and local government leaders
and we have established strong working relationships with local leaders in connection with
projects we have worked on in the past. A significant amount of local autonomy is vested in local
government in these areas and their support is essential to the success of any project located
within their area of influence.
The Incorporation of a limited liability company is governed by the Company Law No. 1 of
1995 (the "Company Law").
Under the Company Law shareholders of an Indonesian company have limited liability in
respect of the liabilities of the company once the Deed of Establishment (which contains the
Articles of Association) of the company has been approved by the Minister of Justice and
Human Rights ("MOJ").
Upon signing the Deed of Establishment before a notary public, a company is considered to be
established and can trade in its own name. However, in the period between signing the Deed of
Establishment and the receipt of MOJ approval for the Articles Of Association, the company is
considered to be a kind of unlimited liability company whose founders (shareholders) have
unlimited personal liability for the actions and liabilities of the company.
This personal liability is extinguished once the MOJ approval is obtained and a general meeting
of shareholders is held to approve, ratify and adopt all prior actions and liabilities undertaken in
the company's name. Directors also have personal liability during this "company in formation"
period. Their personal liability remains longer, namely until the new company is registered in the
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Company Register maintained by the Department of Industry and Trade and published in the
State Gazette.
Accordingly, once MOJ approval has been obtained for the company's articles of association,
shareholders in an Indonesian company are only liable for the company's obligations to the
extent of their subscribed share capital, namely up to the nominal value of the shares held by
them. The reference to "PT" in all Indonesian company names is an abbreviation for Perseroan
Terbatas which means "limited (liability) company" and therefore equates to "Ltd".
However, even after MOJ approval of the company's articles of association has been obtained,
the Company Law provides that the benefit of limited shareholder liability may be lost in certain
circumstances.
FOREIGN COMPANY
A foreign direct investment company in Indonesia (known locally as "Penanaman Modal Asing"
or PMA), can take the form of a 100% foreign owned limited liability company or can be
established as a limited liability company through a joint venture with Indonesian partners.
Foreign Company, most often referred to by its Indonesian abbreviation- PMA, is governed
primarily by the Foreign Capital Investment Law No. 1 of 1967, amended by Law No. 11 of
1970 and the Company Law No.1 of 1995.
The Corporate Law requires that there are at least two shareholders in a PMA company, or any
limited liability company. The shareholders can be two individuals, two companies, or a mixture
of both. Therefore, in the case of a PMA company with full foreign ownership, the foreign
investor initially planning the investment in Indonesia must invite another foreign party to
participate in shareholding of the proposed company.
The Investment Coordinating Board (BKPM), the government body which processes and
handles FDI companies, issued an important deregulation package on PMA in May 1994 referred
to as PP-20/1994. It was seen as a very significant step toward a much more conducive and
attractive investment environment in Indonesia. The regulation:
39
4. Stipulates the sectors which are closed to FDI investment
One can obtain a copy of the FDI application in English from Indonesian embassies overseas or
from the Investment Coordinating Board office either from the head office in Jakarta or from
regional offices in the provinces.
For those companies choosing to make a 100% foreign investment, there is a requirement that
15 years from the commencement of commercial operations, the 100% foreign shareholder must
sell at least 5% of the firm to an Indonesian entity. A company which is initially 95% foreign
owned is not subject to any divestment requirement.
The life of foreign investment companies has been extended by allowing the renewal of the
fixed operating license (IUT) for an additional 30 years. In other words, the initial licenses are
valid for 3 years (SPPP BKPM), plus 2 x 30 years, for a total of 63 years.
1. Step 1. Prepare and send the application with required documentation, compiled
according to the investment plan. Set up a joint venture agreement if you are making the
investment with Indonesian partners.
2. Step 2. Obtain the Initial License (SPPP BKPM), valid for 3 years.
Establish Articles of Association with a Public Notary detailing proof of capital investment, and
send it to the Ministry of Justice for approval and issuance of State Gazette
5. Step 4. Key expatriate positions (work permits) and Fixed Operating License (30 years)
6. Step 5. Prepare and send the 6-month report (LKPM) to the provincial BKPM office as
well as UUG (HO) nuisance act to the regional office of BKPM
40
7. Step 6. Incorporate facilities- Master list/APIT or property ownership
A Limited Liability company is established either under foreign shareholders or through a joint
venture with Indonesians or wholly owned by Indonesian shareholders and must be approved by
the Ministry of Justice. It doesn't matter who is the owner of an Indonesian Limited Liability
company, they must comply with Indonesian law and are considered an Indonesian company and
the company can subsequently be changed or sold to the shareholders, foreign or Indonesian.
To get license of Change of Capital and Change of Owner the applications should be submitted
to BKPM. According to BKPM, there's no charge to arrange licenses.
41
Chapter 4
Dubai and its prospectus in the business spectrum
42
Dubai Introduction
The basic requirement for all business activity in Dubai is one of the following three categories
of licence:
These licences are all issued by the Dubai Economic Department. However, licences for some
categories of business require approval from certain ministries and other authorities: for
example, banks and financial institutions from the Central Bank of the UAE; insurance
companies and related agencies from the Ministry of Economy and Commerce; manufacturing
from the Ministry of Finance and Industry; and pharmaceutical and medical products from the
Ministry of Health.
More detailed procedures apply to businesses engaged in oil or gas production and related
industries.
Practising some trade activities (e.g. jewellery and insurance) requires the submission of a
financial guarantee issued by a bank operating in Dubai.
In general, all commercial and industrial businesses in Dubai should be registered with the Dubai
Chamber of Commerce and Industry.
Fifty-one per cent participation by UAE nationals is the general requirement for all Dubai-
established companies except:
• In the Jebel Ali Free Zone, Dubai Internet City, Dubai Airport Free Zone, Dubai Media
City or the Dubai International Financial Centre;
• Where wholly owned AGCC companies enter into partnership with UAE nationals;
However, speaking in October 2004, following a visit by then US Trade Representative Robert
Zoellick to the United Arab Emirates, Mohammed Al Muzakki, undersecretary with the UAE
43
Ministry of Economy and Trade revealed that the government may consider allowing 95%
foreign ownership of companies in sectors seen as beneficial to the regional economy.
"We are studying this law and might change it. Foreign ownership might increase to 95 percent
of the project. But this will depend on a case-by-case basis, and the company's ability to transfer
technology and its services to the country."
In the past, each emirate followed its own procedures governing the operations of foreign
business interests. In practice, however, Dubai and the other emirates followed the same general
system, whereby foreign companies operated in one of three ways: with a local sponsor, through
a partnership with a UAE national or company, or through a private limited company or public
shareholding company incorporated by Ruler's decree.
In September 2005, Khalaf Al Habtoor, member of the Dubai Economic Council, revealed that
the UAE's Ministry of Finance and Industry was putting the finishing touches to new company
laws.
The legislation being finalised by the UAE authorities will amend partnership rules, foreign
ownership thresholds and IPO rules.
Under current rules, when a firm decides to float on the stock market, it must list at least 55% of
its shares, leaving its former owners holding a minority stake. This has led many family-owned
enterprises to avoid listing.
However, the proposed legislation would bring the listing threshold as low as 25%.
Al Habtoor, who consulted on the law during its development phase, confirmed that:
"The federal government is revising the company law which will bring down the listing ceiling,
making it flexible for us...A change in this, offering flexibility, will help the UAE's family
businesses to go public."
Since 1984, steps have been taken to introduce a codified companies law applicable throughout
the UAE. Federal Law No. 8 of 1984, as amended by Federal Law No. 13 of 1988 - the
"Commercial Companies Law" - and its by-laws have been issued. In broad terms the provisions
of the Law are as follows:
The Federal Law stipulates a total local equity of not less than 51% in any commercial company
and defines seven categories of business organisation which can be established in the UAE. It
sets out the requirements in terms of shareholders, directors, minimum capital levels and
incorporation procedures. It further lays down provisions governing conversion, merger and
dissolution of companies.
44
The categories of business organisation defined by the law are:
Partnership companies are limited to UAE nationals only. The Dubai government does not
presently encourage the establishment of partnerships-en-commandite or share partnership
companies.
In February 2008, the DIFC Authority (DIFCA) released for public consultation the Exempt
Companies Regulations, a new set of regulations proposed under the Companies Law of 2006
and the Insolvency Law of 2004.
The new regulations are designed to assist financial institutions to carry out, among other things,
securitisation transactions using the existing DIFC legal and regulatory framework.
Commenting on the imminent adoption of these regulations, Dr Omar Bin Sulaiman, Governor
of the DIFC, noted: "With the increasing number and growing sophistication of transactions
taking place in the Dubai International Financial Centre, the DIFC has again proved its
commitment to international best practices - this time in the area of securitisation and other
structured finance transactions."
"Through the adoption of these regulations, the DIFC demonstrates its willingness to support key
players in their sectors of activity and respond to their requirements in a flexible manner while
remaining faithful to its founding principles of integrity, transparency and efficiency."
"The simplicity of these new regulations also demonstrates the robustness of the existing
legislative system, where it is now possible to introduce new areas of activity with relatively
minor changes to our existing framework."
"As the DIFC continues its emergence as a leading international financial centre we are
committed to providing the most mature, sophisticated infrastructure and legal framework to
promote the development of a highly prosperous financial industry. By proposing the new
regulations we aim to encourage securitisation transactions at the centre and cater and encourage
the expansion of the products and services available at the DIFC."
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Both Islamic finance and conventional finance transactions in the region often require the use of
special purpose vehicles (SPVs). These SPVs, otherwise known as transaction-specific
companies, are usually incorporated with the intention of being restricted in their operations,
with no employees other than special directors.
The use of SPVs in the DIFC under the new regulations is simply for the purpose of facilitating
sophisticated financing activity. This is likely to have a favourable impact on the region's
increasing demand for SPVs, in both conventional and Sharia-compliant products.
In September 2009, Prime Minister of the UAE and Ruler of Dubai, Sheikh Mohammed Bin
Rashid Al Maktoum enacted updates to the Dubai International Financial Centre’s (DIFC)
Companies Law and Insolvency Law.
The updates in the Companies Law cover certain registration requirements specified by the DIFC
Registrar of Companies while the updates to the Insolvency Law incorporate changes in
applications and procedures for winding up Protected Cell Companies (PCCs). PCCs are self-
insurance structures that provide a simple and cost-effective solution to companies wishing to
establish a captive insurance company.
The updates to the Companies Law include the abolition of the procedure for approval of a
company’s Articles of Association by the DIFC Registrar of Companies and the requirements for
recognised companies to file an annual return. It also provides clarifications on the right of
shareholders and directors to participate in shareholder or directors meetings. The Insolvency
Law has been updated to include minor amendments arising from the introduction of the
proposed updates to the Companies Law and the amended Insolvency Regulations of 2009.
Omar Bin Sulaiman, Governor of the Dubai International Financial Centre said: “The updates to
the two laws form part of DIFC’s efforts to constantly update its legal framework to meet the
changing needs of the industry and to stimulate the growth of new sectors and niche areas in the
financial services industry.”
DIFC also issued new regulations that incorporate the updates to the Companies Law and
Insolvency Law. The new regulations will help the insurance industry in offering innovative new
products and services out of the financial district.
The enactment of the laws comes following the completion of a public consultation process, as
part of which DIFC invited public comments on proposed updates in the laws.
A joint venture is a contractual agreement between a foreign party and a local party licensed to
engage in the desired activity. The local equity participation in the joint venture must be at least
51%, but the profit and loss distribution can be prescribed. There is no need to license the joint
46
venture or publish the agreement. The foreign partner deals with third parties under the name of
the local partner who - unless the agreement is publicised - bears all liability.
In practice, joint ventures are seen as offering a suitable structure for companies working
together on specific projects.
The law stipulates that companies engaging in banking, insurance, or financial activities should
be run as public shareholding companies. Foreign banks, insurance and financial companies,
however, can establish a presence in Dubai by opening a branch or representative office.
Shareholding companies are suitable primarily for large projects or operations, since the
minimum capital required is AED 10 million (USD 2.725 million) for a public company, 40
million for banks and 25 million for insurance and investment companies, and AED 2 million
(USD 0.545 million) for a private shareholding company. The chairman and a majority of
directors must be UAE nationals and there is less flexibility of profit distribution than is
permissible in the case of limited liability companies.
A minimum of 55% of the shares of a Public Shareholding Company must be offered to the
general public, but this may soon change (see above.)
A limited liability company can be formed by a minimum of two and a maximum of 50 persons
whose liability is limited to their shares in the company's capital. Such companies are recognised
as offering a suitable structure for organisations interested in developing a long term relationship
in the local market.
Companies Law stipulates that an LLC may engage in any lawful activity except for insurance,
banking and the investment of money for others.
In Dubai, the minimum capital is at the time of writing AED300,000 (USD82,000), contributed
in cash or in kind. While foreign equity in the company may not exceed 49%, profit and loss
distribution can be prescribed. Responsibility for the management of a limited liability company
can be vested in the foreign or national partners or a third party.
The following steps are required in establishing a limited liability company in Dubai:
• Select a commercial name for the company and have it approved by the Licensing
Department of the Economic Department;
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• Seek approval from the Economic Department and apply for entry in the Commercial
Register;
• Once approval is granted, the company will be entered in the Commercial Register and
have its Memorandum of Association published in the Ministry of Economy and
Commerce's Bulletin;
• The company should then be registered with the Dubai Chamber of Commerce and
Industry.
The Commercial Companies Law also covers the formation and regulation of branches and
representative offices of foreign companies in the UAE and stipulates that they may be 100%
foreign owned, provided a local agent is appointed.
Only UAE nationals or companies 100% owned by UAE nationals may be appointed as local
agents (which should not be confused with the term "commercial agent"). Local agents -- also
sometimes referred to as sponsors -- are not involved in the operations of the company but assist
in obtaining visas, labour cards, etc and are paid a lump sum and/or a percentage of profits or
turnover. In general, branches and offices of foreign commercial companies are not licensed to
engage in importing activity except for re-export or in the case of products of a highly technical
nature.
To establish a branch or representative office outside of the free zones in Dubai, a foreign
commercial company should proceed as follows:
• Apply for a licence from the Ministry of Economy and Commerce, submitting an agency
agreement with a UAE national or 100% UAE owned company.
• Before issuing the licence, the Ministry will forward the application to the Economic
Department to obtain the approval of the Dubai government and will forward the
application specifying the activity that the office or branch will be authorised to
undertake in the UAE, to the Federal Foreign Companies Committee for approval;
• Once this has been done, the Ministry of Economy and Commerce will issue the required
Ministerial licence specifying the activity to be practised by the foreign company;
• The branch or office should also be entered in the Foreign Companies Register of the
Ministry of Economy and Commerce;
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• Finally the branch or office should be registered with the Dubai Chamber of Commerce
and Industry.
Branches and representative offices of foreign professional firms may be 100% foreign owned
provided UAE nationals or 100% UAE owned companies are appointed as local agents. As
mentioned previously, such agents are not involved in the operations of the firm but assist in
obtaining visas, labour cards etc and are paid a lump sum as remuneration. The Economic
Department is the authority in charge of licensing such branches or representational offices.
49