Last July 2015, ACRA implemented an enhanced regulatory framework to tighten controls on companies incorporated in Singapore. Here is what to expect in these changes for the incorporation process for Singapore companies.
With its attractive corporate tax rates, pro-business government policies, strategic location, first-world infrastructure and population of highly skilled and bilingual workforce, there are a multitude of reasons as to why Singapore has been successful in attracting foreign investment, leading to its current reputation as one of the world’s leading financial centres.
To remain competitive and remain relevant in the changing global landscape, the Singapore government has taken pains to ensure that its regulations and legislations do not disadvantage the nation-state against financial centres in other jurisdictions, while protecting the rights of minority shareholders and its taxpayers.
For example, following a worldwide crackdown on tax havens such as Switzerland and the Cayman Islands that were actively endorsed by prominent first world countries such as the U.K., the United States and various European countries in 2009, the Singapore government took immediate action to introduce reforms and actively began adopting standards set out by the OECD (Organisation for Economic Co-operation and Development), an organization dedicated to democracy and the market economy. Within the span of a few months, Singapore managed to get onto the OECD’s White List by signing 12 Double Taxation Agreements (“DTA”), enabling foreign investors from these countries to feel rest assured about their funds that were already parked in investments or companies in Singapore, without being questioned about tax evasion.
Since then, Singapore has signed 76 other DTAs with countries all over the world, which has greatly facilitated the increase of cross-border economic activities between Singapore and these jurisdictions. With these DTAs, attractive corporate tax rates and low levels of corruption, Singapore has established itself as an ideal destination for foreign investors, leading to its exponential economic growth.
The Enhanced Regulatory Framework
To remain competitive and relevant in the changing global economy, the Singapore government has continuously updated its legislations and implemented regulations in accordance with international standards. Naturally, while Singapore’s status as one of the world’s most dynamic financial hubs is one of its key attractions, it also leaves the nation-state vulnerable to money-laundering activities, which have increasingly been found to finance terrorist activities.
The process of money laundering is usually carried out by using a service company through which seemingly legal transactions are carried out before being distributed “legally” to the beneficial owners. Given that thousands of companies are incorporated in Singapore each year, coupled with the fact that the process of incorporating a company in Singapore is a relatively quick and painless process, it stands to reason that Singapore is an attractive destination for money launderers as well. This was highlighted in the Singapore National Money Laundering and Terrorist Financing Risk Assessment Report 2013 published by the Monetary Authority of Singapore (“MAS”) in 2013.
Hence, MAS and Accounting and Corporate Regulatory of Singapore (“ACRA”) have been jointly tasked with the responsibility of ensuring that banks, financial institutions and corporate service providers (“CSPs”) who provide incorporation and corporate services have established processes in place to mitigate against the risks of being party to money-laundering activities and raise the professional standards across the industry.
As part of the enhanced regulatory framework, banks and financial institutions have incorporated stricter “know-your-client” practices. While the practice may differ slightly from bank to bank, banks would generally require the following documentation:
- Full Name, Identification Proof (such as NRIC or Passport copy) and Nationality of each of the Directors of the company;
- Full Name, Identification Proof (such as NRIC or Passport copy) and Nationality of each of the Shareholders of the company;
- Full Name, Identification Proof (such as NRIC or Passport copy) and Nationality of each of the Ultimate Beneficial Owner;
- A resolution by the company’s board of directors;
- Copy of the company’s certificate of incorporation;
- Copy of the company’s business profile; and
- Copy of the company’s Memorandum and Articles of Association.
An Ultimate Beneficial Owner (“UBO”) will be the individual(s) who ultimately benefit from the company and is not the same as the holding company or parent company. Hence, if the company in Singapore is intended to be a wholly owned subsidiary of a foreign entity, the UBOs would be the shareholders of the parent company.
In some instances, banks may require items (1) to (3) to be certified. Banks and financial institutions would typically accept certification by an Advocate and Solicitor in Singapore, a Notary Public, or one of their bank relationship officers. Depending on the company and its structure, it may be practical for the company to consider opening a bank account that any one of its affiliated companies already has an existing relationship with, or a bank that operates in a foreign jurisdiction where its foreign director or shareholder is located.
For item (4), most banks would provide the company with a standard bank account opening resolution to be approved by its board of directors. It is considered good practice to ensure that the company keeps an original copy of this resolution in its minute book, which is usually maintained by the company’s company secretary, or CSP. This resolution may set out essential items, such as the names, details and specimen signatures of the authorised bank signatories.
With regards to items (5) to (7), the bank or financial institution may require this to be certified by the company’s company secretary or any one of its directors.
Given that CSPs are typically the service providers who assist entrepreneurs and investors incorporate a company, ACRA and MAS have realised that encouraging CSPs to introduce a screening process for its clients could significantly mitigate the risks of being party to money-laundering. Hence, CSPs are now required to introduce measures to look out for warning signs, such as the following:
- Ensuring that regular contact can be established with their existing clients;
- Conducting web searches to check if existing clients or new clients are Politically Exposed Persons (“PEP”)
- Identifying clients who are excessively secretive with whom they are unable to have face-to-face meetings;
- Unusual instructions pertaining to cash or loans; or
- Unusual or overly complex company structures
Particularly for CSPs such as SingaporeCompanyIncorporation.sg, which provides a comprehensive range of services spanning from incorporation services to accounting and book keeping services, CSPs should also train their employees to be on alert for companies that display the following:-
- Perpetual loss making transactions;
- Unusual patters of transactions with no apparent economic purpose;
- Large amounts of money going in and out of the company’s accounts.
In addition, CSPs have been informed by ACRA to ensure that the following information is provided by the client, before agreeing to assist the client to incorporate a company. With the current technology and relative speed with which money can now be electronically transferred from account to another, a money launderer may only require a week or so to launder the money before disappearing.
- Full Name, NRIC or Passport number, Residential Address and Nationality of individual client
- Proposed business entity’s information, including its business activities
- Full Name, NRIC or Passport number, Residential Address and Nationality of the Ultimate Beneficial Owner (“UBO”), Directors and Shareholders of the company
- Declaration that client is not a PEP
Naturally, with more requirements and regulations coming into play, entrepreneurs and foreign investors may need to accept a slightly longer waiting period before their company can be incorporated in Singapore. For companies that have already commenced business operations in Singapore, it is important to recall if your CSP has already implemented these measures. If otherwise, companies can anticipate that their CSPs will soon be requesting such documentation, in order to be compliant with the new enhanced regulatory framework. If the CSP persists in non-compliance, ACRA has been vested with the authority to revoke the CSP’s license, which would then impact the company’s business operations, as the company may then have to scramble to find a new CSP.
That said, being aware of these requirements and ensuring that all the relevant documentation is ready on hand would definitely ease the process. After all, Singapore still remains as one of the most attractive places in the world to do business, maintaining its top rank in the World Bank’s annual survey of 189 economies on the Ease of Doing Business, for the last ten years. Moreover, as such measures are already practiced in most developed nations; investors all over the world should begin to recognise that the implementation of such measures brings about more benefits than disadvantages.
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