Doing business in Singapore
Strategic location, excellent connectivity, world-class airport and seaport facilities, strong business support, a skilled workforce and a stable political environment are major draws for global businesses to site their headquarters in Singapore
 

By Sridhar Sridharan

Business environment
Singapore is a city-state island country located at the southern tip of the Malaysian Peninsula in South East Asia.

Singapore is a major financial centre in the region and a leading provider of services such as international banking, trade finance, maritime finance, insurance, treasury operations, and asset and wealth management within the region.

Strategic location, excellent connectivity, world-class airport and seaport facilities, strong business infrastructure support, a skilled workforce and a stable political envi ronment are major draws for global businesses to site their headquarters in Singapore and use Singapore as a launch pad for tapping regional and global business opportunities. The World Bank also ranks Singapore as the world’s easiest place to do business.

Businesses with global operations can benefit from Singapore’s wide network of Double Taxation Agreements (DTA), Free Trade Agreements (FTA) and Investment Guarantee Agreements. Singapore attaches great importance to the protection of Intellectual Property Rights (IPR). Singapore’s workforce is generally highly educated, skilled and competitive. The prevalent business language is English.

Economic overview
The inflation rate averaged 6.5 per cent in 2008. The prime interest rate as at 31 December 2008 was 5.38 per cent.

Singapore is committed to maintaining international competitiveness and has adopted the free market system so that the industries can respond quickly to market signals and adjust their strategies accordingly.

The Singapore economy is open to the world, in trade and investment. In 2007, Singapore trade to GDP ratio was 348 per cent, the highest in the world. The Global Competitiveness Report 2008-2009 by the World Economic Forum ranks Singapore fifth in its Global Competitiveness Index.

Singapore supports free trade. This includes proposals aimed at fostering trade among nations like the Asia-Pacific Economic Co-operation and the ASEAN Free Trade Area. To this end, Singapore has a network of 13 FTAs which are designed to position Singapore as an integrated manufacturing hub in this region, promote research and development in Singapore’s knowledge-based economy and drive the services hub. With FTAs, Singapore-based exporters and investors stand to enjoy a myriad of benefits like tariff concessions, preferential access to certain sectors, faster entry into markets and IPR protection.

Many government development agencies, such as International Enterprise Singapore and Economic Development Board provide advice and assistance to further economic development.

Incentives
Singapore welcomes foreign investment and virtually all business sectors are open to investors. Income tax rates have been progressively reduced and are now very competitive. Generally, all businesses are able to apply for various types of incentives in the form of grants, tax incentives, etc. subject to meeting certain qualifying conditions. Specific incentives of a varying nature are also available to encourage the development of certain industries.

Type of business entities
A number of types of business entities are possible. All entities must be registered with the Accounting and Corporate Regulatory Authority (ACRA). In summary, the different types of key business entities and their key differentiating features are as follows:

Companies
Companies are generally limited by shares and a company can qualify as a private or exempt private company as long as the number of its shareholders is less than 50 or 20 respectively. An exempt private company cannot have a corporation as a shareholder. These companies are subject to less stringent rules than public companies.

Sole proprietorship and partnerships
Sole proprietorship and partnership are generally subject to lesser statutory requirements than companies, but the partners and the proprietors do not have the protection of limited liability. A partnership may not have more than 20 partners.

Limited liability partnerships (LLP)
An LLP gives owners the flexibility of operating as a partnership while having a separate legal identity like a private limited company. The LLP has perpetual succession, which means any change in the partners of a LLP will not affect its existence, rights or liabilities.

Branches of foreign companies
A foreign company that wishes to establish a place of business in Singapore can choose to register a branch in Singapore. The foreign company will assume the liability of the branch.

The company must appoint two local agents in Singapore to act on behalf of the company. The agents must be ordinarily resident in Singapore.

Business entity used by foreign investors
The form of business entity which is set up in Singapore by foreign investors can be different and is often driven by their different commercial operations and needs. Nevertheless, a company structure is commonly used for most types of businesses by foreign investors.

A company is formed by filing its memorandum of association and articles of association, together with certain specified forms, with the ACRA. Incorporation of a company can be immediate upon the e-filing of the incorporation documents, only subject to the approval of the company name which can take up to 14 working days. No minimum capital requirements are imposed.

After the business entity is established, it needs to consider its Goods and Services Tax (GST) registration and other applicable licensing requirements. Special licenses are needed for some businesses such as banking, insurance and stock broking.

General applicable tax rules
The Singapore taxation system operates on a territorial basis, i.e. income sourced in Singapore is subject to tax. Capital gains are generally not taxed in Singapore. In addition, foreign income derived is taxable only upon remittance into Singapore.

Both resident and non-resident companies (including branches) are subject to tax at the same standard corporate tax rate currently at 18 per cent* with a partial tax exemption on the first S$300,000 normal chargeable income as follows:

• 75 per cent exemption of up to the first S$10,000; and 50 per cent exemption of up to the next S$290,000.

• There is no further tax on dividends.

Resident companies are also granted tax exemption on certain foreign-sourced income subject to meeting certain conditions. Where a foreign company has a presence in Singapore, the taxation of its income will depend on the nature of the income derived and whether a DTA exists between Singapore and the country of residence of that company.

Withholding taxes (WHT)
There is no WHT on dividends or on the remittance of after tax branch profits to a foreign company. In general, payments for interest, rental of moveable properties, royalty, technical services, director fees and management services to non-residents may be subject to Singapore WHT. Depending on the nature of the payment, the WHT rates lie between 10 per cent to 20 per cent. Certain payments may be exempt from WHT under administrative concessions if specific conditions are met. Applicable DTA may also exempt or reduce the withholding rate.

Individual income tax
Individual income tax is levied at progressive rates, with a maximum marginal rate of 20 per cent. The employment income of non-resident individuals is taxed at 15 per cent or at the resident rate, whichever gives rise to higher tax. Generally, foreign-sourced income, received by both resident and non-resident individuals are exempt from Singapore income tax. Remittances of foreign sourced income through a partnership are generally taxable, unless under specific circumstances.

Goods and services tax (GST)
GST is levied on the supply of goods and services in Singapore, and on the importation of goods into Singapore. It is a value-added tax system. The current prevailing rate is 7 per cent.

Other taxes
Other significant taxes to be considered by the foreign investors include property tax, foreign workers levy, skills development levy, stamp duties and customs and excise duties.

Double taxation agreement (DTA)
Singapore has inked over 60 comprehensive DTAs and limited treaties with other countries. It has a DTA with the Sultanate of Oman that came into force in 2007. Under Singapore rules, a foreign tax credit is limited to the lower of the foreign tax paid and the Singapore tax payable on that income. The credit is generally granted on a country-by-country, source-by-source basis. A unilateral tax credit system, similar to treaty relief, is also available for all foreign-sourced income remitted to Singapore from non-DTA countries.

Labour availability
Singapore’s highly educated and skilled workforce is geared to support its knowledge driven and capital intensive economy. Singapore also has an open immigration policy which gives companies the opportunity to source for the best personnel from anywhere in the world.

Social security
Singapore does not have a general social security system. However, Singapore has a statutory savings scheme called The Central Provident Fund (CPF). Both employers and employees who are Singapore citizens and permanent residents working in Singapore are required to contribute to the CPF. Foreigners are exempt from CPF contributions.

Foreign exchange controls
Singapore does not impose any restrictions on the remittance or repatriation of funds in or out of Singapore.

Import regulations
In general, non-controlled goods may be imported into Singapore without the need for licences. The import of certain goods into Singapore is subject to control by the relevant authorities while the import of certain other goods is strictly prohibited. Traders of such controlled goods must have the necessary licences before they can import the goods.

Summary
A strategic base to the emerging Asian markets, Singapore is a premier starting point for companies seeking business development in the region. With excellent infrastructure, a skilled workforce and an extensive trade network with other economies, Singapore can effectively connect any investor to the world, opening new business opportunities for the investor.
 

The author is a Tax Partner at Ernst & Young.

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