Which Sunny Shore: BVI or Singapore?
05 Nov 2013
The British Virgin Islands ("BVI") is home to the BVI Business Company ("BC") incorporated under the BVI Business Companies Act (the "Act"). The BVI is a politically stable, flexible and creditor friendly common law jurisdiction. The ease, cost and speed with which BCs can be incorporated and their versatility have led to BCs becoming the preferred corporate vehicle of choice in South-East Asia, where they are used in a wide variety of transactions ranging from secured financings and private equity investments to investments and succession planning vehicles for high net-worth individuals ("HNWs"). The popularity of BCs in Asia was further evidenced by the recent launch of BVI House Asia in Hong Kong, a government representative office of the BVI for the Asia region.
Singapore is currently at the forefront of the economic growth in South-East Asia and is being used by many international investors as the gateway to other jurisdictions in the region, including Indonesia and India. Many investors and HNWs deciding how best to structure their investments and holdings are considering in which jurisdiction to domicile their structures.
In this article, we will examine the advantages of using a BC over a Singapore company, as well as providing an overview of the differences between a BC and a Singapore company and the registration requirements and maintenance of a foreign company in Singapore.
Key Legal Differences between a BC and a Singapore Company
The flexibility of a BC ensures that the day to day administration of the company is both practical and cost-effective. There is no requirement for a BC to have a corporate secretary, local directors or audited accounts, and corporate directors can be appointed. There is also no requirement for the registers of directors and shareholders to be publicly filed.
In Singapore, all of the above are required (i.e. resident directors, audited accounts, filing of registers, etc.) which increases both the administrative burden and cost of maintaining a Singapore company compared to that of a BC.
Repurchase of Shares
As a matter of BVI law, a BC may purchase, redeem or otherwise acquire its own shares in accordance with any provisions for the purchase, redemption or other acquisition of its own shares as may be specified in its memorandum or articles or in accordance with the Act (if the memorandum or articles are silent). The repurchase process is subject to a solvency test, namely that the BC's assets exceed its liabilities and that it is able to pay its debts as they fall due both before and after the purchase/redemption.
A Singapore company may repurchase its own shares subject to the adoption of a prescribed 'whitewash' procedure. Fully paid shares may be redeemed or repurchased if the articles of association so provide, so long as the shares repurchased do not exceed 10% of the total number of such class of issued shares of the company. The repurchase may be funded out of the company's capital or profits so long as the company remains solvent after the repurchase.
Under the Act, the directors of a BC may, by resolution, authorise the making of a distribution to the shareholders at such time and of such an amount as they think fit, subject to the BC satisfying the solvency test immediately after payment of the distribution is made.
In Singapore dividends can only be paid out of profits and there is no statutory definition of "profits", so reference has to be made to case law to determine what constitutes the same.
There is no statutory prohibition under BVI law against the provision of financial assistance by a BC for the acquisition of its own shares as long as the directors act in good faith and in the best interests of the company in providing such financial assistance.
Subject to the adoption of prescribed 'whitewash' procedures set out in the Singapore Companies Act (as amended) (the "Companies Act") and to a number of exceptions such as in relation to dividend payments, financial assistance is generally prohibited in Singapore.
No stamp duty is imposed on the transfer of shares in the BVI (other than in relation to the transfer of shares in a BC which holds BVI real estate).
Singapore imposes stamp duty (which is payable by the transferee) at a rate of 0.2% of the consideration value or total value of the shares transferred, whichever is the higher.
A BC may, by a simple filing, migrate (without re-incorporation or transfer of assets and liabilities) to another jurisdiction having a comparable migration regime.
In Singapore, migration is not permitted for Singapore incorporated companies.
A BC may "merge" with another corporate entity which may be another BC or a company from another jurisdiction having a comparable merger regime. The surviving company from the merger can either be the BC or a company from another jurisdiction. The threshold to approve a merger is approval by a majority of shareholders and the process does not require court sanction.
In Singapore, two or more Singapore companies may amalgamate and continue as one company, which may be one of the amalgamating companies or a new company.
Registration Requirements and Maintenance of a Foreign Company in Singapore
A BC falls within the definition of a "foreign company" under the Companies Act and would therefore be subject to the provisions of the Companies Act.
The Companies Act provides that a foreign company has to register with the Accounting and Corporate Regulatory Authority ("ACRA") before it establishes a place of business or commences business in Singapore as a branch of the foreign company.
To register a foreign company with ACRA, the foreign company needs to lodge the following:
(a) Certified copy of its certificate of incorporation;
(b) Certified copy of its memorandum and articles of association;
(c) List of directors;
(d) If the list of directors includes resident Singapore directors, a memorandum stating the powers of the local directors;
(e) Memorandum with particulars of two or more natural persons resident in Singapore authorised to receive service of process or notices (also known as the agents of the foreign company); and
(f) Registered office hours and situation.
In order to carry on business in Singapore, the foreign company must comply with the following obligations:
(a) Appoint two or more agents to accept service of process and notices on its behalf required to be served on the company;
(b) Maintain a registered office in Singapore which must be open and accessible to the public not less than five hours each business day and to which all communications and notices may be addressed;
(c) Notify ACRA within one month of any changes to the foreign company's constitutional documents, directors, agents, registered office address both of the Singapore branch and in its country of incorporation, company name or the powers of any directors resident in Singapore who are on the board of directors of the foreign company;
(d) Lodge the foreign company's balance sheet with ACRA within two months from the date of its annual general meeting 1. In addition, the foreign company is also required to lodge with ACRA a duly audited statement showing the assets and liabilities arising out of its Singapore operations and a duly audited profit and loss account 2;
(e) Notify ACRA within seven days if the foreign company ceases to have a place of business or to carry on business in Singapore. After the expiration of 12 months, the foreign company will be removed from the register; and
(f) A Singapore branch of a foreign company shall cease its operations if the foreign company has been dissolved or is in liquidation, and the local agents of the foreign company are required to notify ACRA within one month of the occurrence of such event.
There are many considerations when deciding which jurisdiction to use for an investment transaction. Singapore's laws allow Singapore companies to be incorporated quickly and to be able to avail themselves of the many double tax treaties Singapore has around the world. However, flexibility and ease of administration are high on the list of priorities when deciding which corporate vehicle should be used, which often means a BC is considered the preferred vehicle.
With economic growth in South-East Asia predicted to increase, the flexibility, cost-effectiveness and commerciality of BCs will continue to appeal to HNWs and financial institutions as they pursue investment opportunities throughout the region.
1 As a BC is not required under the Act to hold an annual general meeting and prepare a balance sheet, a BC shall prepare and lodge with ACRA a balance sheet within such period, in such form and containing such particulars and annex such documents as the directors of the BC would have been required to prepare or obtain as if the BC were a public company incorporated under the Companies Act.
2 An exemption from this requirement may be granted on certain grounds, for example, if such statements would be of no real value having regard to the amounts involved.
Regional Managing Partner - Asia Singapore
T: +65 6922 8402