Common Traps Misconceptions for Chinese Investors Registering a Company in Singapore, Do You Know?

Registering a Company in Singapore Hidden Traps and Misconceptions for Chinese Investors - Do You Understand Them?

In recent years, with the continuous advancement of globalization, more and more Chinese companies and individuals have begun to look toward overseas markets. Among them, Singapore has become a top choice for many Chinese investors due to its political stability, strategic geographical location, open economic policies, and low tax rates.

However, behind this surge in Singapore company registrations lie numerous hidden traps and misconceptions. Many Chinese entrepreneurs act hastily without fully understanding local regulations and the business environment, often failing to achieve expected returns-and sometimes even falling into legal or financial disputes.

This article will reveal some commonly overlooked risks, using recent news cases as examples.

1. Chasing Low Tax Rates Without Considering Compliance Costs

Singapore is indeed known for its low corporate income tax rate-currently at 17%-and offers certain tax relief policies for startups, earning it the nickname Asia’s low-tax paradise. However, many overlook the fact that a low tax rate does not necessarily mean low overall costs.

According to the 2025 annual report from the Accounting and Corporate Regulatory Authority ACRA, over 30% of foreign companies registered in the past three years were fined or blacklisted for failing to meet local compliance obligations. These include

Submitting annual financial statements;

Holding regular board meetings and keeping minutes;

Appointing at least one local resident director;

Complying with anti-money laundering AML and know-your-customer KYC requirements.

Some Chinese investors try to cut costs by avoiding professional accountants or legal advisors, which often leads to errors in tax filings and audits-or even revocation of their business licenses.

For example, in late 2025, a business owner from Guangdong registered a company in Singapore through an agent, aiming to operate cross-border e-commerce. Due to failure to submit audited reports, the company's bank account was frozen, and funds could not be repatriated back to China, resulting in significant losses.

2. Legal Risks Behind Nominee Directors

Under Singapore’s Companies Act, every registered company must appoint at least one local resident director. As a result, many service providers offer nominee director services, claiming that for just a few thousand RMB, this legal requirement can be fulfilled.

However, such practices carry substantial risks. Although nominee directors do not actively participate in operations, they are still legally liable for the company’s actions. If the company engages in illegal activities-such as false tax declarations, money laundering, or debt default-the nominee director may also face legal consequences.

In early 2025, Singapore police and the Monetary Authority of Singapore MAS launched a special operation targeting illegal nominee director services. Several agencies were investigated, and multiple individuals were arrested. Some Chinese investors who used these services were blacklisted and barred from registering new companies in Singapore for five years.

Even without any wrongdoing, if a company remains inactive for a long time, ACRA may classify it as dormant and proceed with compulsory deregistration.

3. Misconception Offshore Operations Can Avoid Regulation

Many Chinese investors register Singapore companies primarily to establish an overseas platform for capital operations, asset allocation, or cross-border e-commerce settlements. They often mistakenly believe that if no real business is conducted in Singapore, there is little need to comply with regulatory requirements.

This is far from the truth. Singapore enforces strict oversight on all businesses-even those not operating locally. For instance, if a company receives funds from China through a Singaporean bank account, the bank may request detailed transaction background documentation. Failure to justify the source of funds could trigger anti-money laundering investigations.

In September 2025, DBS Bank reported a Singapore-based company with Chinese ties to the MAS after it frequently transferred money to mainland Chinese accounts. The company was later investigated for suspected violations of foreign exchange control rules.

At the same time, China’s State Administration of Foreign Exchange SAFE has tightened supervision over outbound investments. A new regulation issued in early 2025 clearly states that domestic funds used for overseas investment must comply with authenticity and compliance principles; otherwise, they may face fund freezes or tax recovery.

4. Ignoring Cultural and Market Differences - Difficulty in Taking Root

Beyond legal and financial issues, many Chinese investors neglect a key point although Singapore is a majority-Chinese society, its business culture, consumer habits, and management styles differ significantly from those in mainland China.

Singaporeans generally place great emphasis on contractual discipline and efficiency. Strict enforcement of contract terms is common, and flexible or informal approaches often lead to disputes. Additionally, Singapore’s market size is limited, making it difficult for companies relying solely on local sales to sustain long-term growth.

As a result, many registered companies end up as shell entities-without real operations or profits. According to data from the Singapore Department of Statistics, while the number of newly registered companies continued to rise in 2025, so did the number of company closures, reflecting the intense survival pressure faced by some foreign firms.

5. How to Avoid These Pitfalls?

To truly leverage Singapore as an international business hub, investors must be well-prepared from the outset

1. Choose Reputable Service Providers Avoid low-cost agents and opt instead for licensed law firms or accounting firms to assist with registration.

2. Understand Local Laws Study Singapore’s company law, tax regulations, and banking requirements in advance to ensure compliance.

3. Establish Substantive Operations Even during the early stages, consider hiring local staff or partnering with local businesses to build a genuine presence.

4. Plan Capital Flows Strategically Avoid frequent cross-border transfers and maintain clear records of financial transactions to withstand regulatory scrutiny.

5. Monitor Policy Changes Policies in both China and Singapore are constantly evolving. Staying updated helps avoid unexpected risks.

Registering a company in Singapore is not a shortcut to wealth, nor is it a safe haven from regulation. It requires careful evaluation, rational decision-making, and long-term commitment. Only those who truly understand and respect the local system can establish a solid foundation and achieve sustainable success in this competitive market.