If you are thinking of setting up a company in Singapore, there are several legal entities to incorporate in the country. However, the decision often comes down to choosing between setting up a Private Limited Company (Pte Ltd) versus a Sole proprietorship.
This article will explore key differences between these two entities as well as provide advantages and setbacks for each to help you determine the best fit for your business venture in Singapore.
What is a Private Limited Company in Singapore?
Benefits of starting a Private Limited (Pte Ltd) Company in Singapore
A Private Limited Company is the most common type of legal entity in Singapore, as it allows up to 100% foreign ownership while limiting your liability only to the extent of your share investment. A Pte Ltd also has the distinct advantage of remaining unaffected by changes to corporate structure and management, as the entity is separate from shareholders and directors.
Beyond a more flexible ownership structure, Singapore also offers Pte Ltd an exemption from capital gains tax and a reduced tax rate for your first SGD 300,000 of taxable income. This is achieved through tax exemption brackets:
- SGD 0 – 10,000: 75% exemption / SGD 7,500
- SGD 10,001 – 200,000: 50% exemption / SGD 95,000
- SGD 200,001 – 300,000: 50% exemption / SGD 50,000
Key requirements for setting up your Pte Ltd in Singapore
A Private Limited Company in Singapore offers flexibility in terms of ownership, allowing anywhere from 1 to 50 shareholders and virtually no minimum capital requirements (the minimum amount being SGD 1.00), However, when setting up a Pte Ltd in Singapore, you still need to meet the following requirements:
- At least one shareholder (individual or corporate) and one director who is a resident of Singapore. The shareholder and director can be the same individual.
- Per Singapore law, you must appoint a company secretary with relevant experience in corporate compliance within 6 months of incorporation. The individual must be a resident of Singapore.
- You must have a registered physical address in Singapore for your business which is accessible to the public.
- Foreign-owned companies are mandated to use a registered filing agent or a corporate service provider to submit company registration to the Accounting and Corporate Regulatory Authority (ACRA)
Emerhub’s local experts can help you ensure that you properly meet all requirements and can help with subsequent steps like determining an adequate amount of capital to meet your planned operations and applying for an Employment pass. Our team will also act as your corporate service provider and handle the entire incorporation process on your behalf.
How is Sole Proprietorship in Singapore different from setting up a PT LTD Company?
A sole proprietorship is, as the name implies, a business registered with only one person. Due to the simple structure of the business, the company registration is straightforward and simple, making it popular with investors. Keep in mind, that there are certain factors to consider before starting a sole proprietorship:
- Foreign ownership is technically not allowed and the legal entity can only be registered by a Singaporean citizen or a permanent resident of Singapore. Alternatively, it is possible to set up a sole proprietorship if you hold an Entrepreneur visa, also known as EntrePass.
- A sole proprietorship is not eligible for corporate income tax incentives, as any income derived from the company is taxed at your personal income tax rate, which can vary from 0 to 22%.
While this type of legal entity means that you have full control over your venture, you also have to contend with the higher liability risk. This is the main point of difference from a Pte Ltd in Singapore, as a sole proprietorship does not separate ownership and legal entity, meaning that in the event of financial losses, debts, or legal trouble, your personal assets can be at risk.
Determining the right legal entity in Singapore for your needs – a pros and cons analysis
The argument of sole proprietorship vs Pt Ltd in Singapore is a very subjective one, hence why both legal setups are popular among foreign investors. When determining the best way for you to expand your business into Singapore, it is recommended to properly weigh the pros and cons of each type, and factor in your specific business objectives:
| Legal entity | Pros | Cons |
| Sole proprietorship | Easy to set up and dissolve You retain full control over your business by being the only owner Minimal compliance requirements (no mandatory audits and annual reporting) Flexibility to change business structure | High-risk investment – the owner is fully financially liable Does not allow foreign ownership / Must be a citizen, permanent resident, or EntrePasse holder Subject to the owner’s personal income tax rate, which can be higher than the CIT rate Not a separate legal entity to the owner |
| Private Limited Company | Limited liability to only the invested amount Separate legal entity from owner(s) Potential eligibility for tax benefits and government incentives Ease of raising capital through shareholders | More stringent setup process Decision-making may be subject to shareholder approval Higher compliance requirements (annual reports, audits, mandatory officers) |
Most businesses choose to incorporate in a Private Limited structure, due to the protection it gives. Sole Proprietorship is chosen primarily for small personal business ventures.
Emerhub’s local experts can help you determine the right type of legal structure for your planned investment in Singapore. Our team can also help you navigate through key steps, like opening a corporate bank account and ensuring ongoing financial compliance for your company in Singapore.
Ready to set up a company in Singapore? Contact us via the form below to get in touch with our company registration team!
Frequently asked questions
The standard corporate income tax (CIT) rate in Singapore is 17%. This rate does not apply to sole proprietorship, which is instead taxed based on the owner’s personal income tax rate.
Since the sole proprietorship is not a separate entity, it is subject to your personal income tax rate. This is determined by Singapore’s progressive income tax system based on which bracket applies to your total taxable income.
Technically, since these are two different legal structures, you can at any time shut down your sole proprietorship and incorporate, thus starting your pte ltd company. Remember, however, that the reverse is not true, as once you have registered a separate legal entity as a pte ltd, it cannot be converted into a sole proprietorship.
A private limited company technically has a minimum capital requirement of SGD 1. However, it is considered best practice to register at least the amount of capital needed to cover your operational costs in the targeted industry.
There are no capital requirements for a sole proprietorship, but due to the higher liability of your investment, it is recommended to also have enough capital to meet your operational requirements and any potential economic setbacks that may arise in the selected industry.
