Singapore has long been a preeminent destination for setting up a regional headquarters and other foreign company structures to pursue business opportunities across ASEAN and Asia.
The country’s status as a preferred investment destination in Asia can be attributed to its legal and tax regimes – one of the most business and investor-friendly in the world – as well as its financial system, which is highly integrated with international financial markets.
This business landscape has enabled international investors to take advantage of Singapore’s access to some of the largest combined free trade areas through ASEAN, which include ASEAN-China, ASEAN-Hong Kong, and the ASEAN-India free trade agreements (FTAs).
There are, however, a wide variety of factors that add up to make Singapore an ideal location for companies that want to do business in the region.
Strategic location as a gateway to ASEAN
Nestled between Malaysia and Indonesia, Singapore’s strategic location in the heart of southeast Asia provides unrivalled access to transport and trade links to the rest of southeast Asia and beyond. It’s central location makes it an extremely attractive place from which to springboard to some of the world’s most exciting and fastest-growing markets.
Singapore is well-placed to help investors navigate the challenges and opportunities presented by ASEAN markets: its efficient setup procedures, competitive tax environment, and integrated supply chains have helped Singapore surpass traditional holding locations in the region, such as Malaysia, and compete with well-established global investment destinations like Hong Kong.
Meanwhile, Singapore Changi Airport is one of Asia’s biggest transport hubs, recording over 68 million passengers and over two million tons of air freight movements in the pre-pandemic year of 2019.
However, there are also softer factors that make Singapore ideal for businesses that want a regional headquarters to expand into ASEAN and Asia.
Singaporeans share various cultural and linguistic connections with ASEAN members, while English is the main working language. The country’s highly-skilled labor force is equipped to act as intermediaries for investments in Asia while maintaining the capacity to communicate with investors from abrod. Not only can these centers help to bring predictability to regional market entry; more importantly, regional management can act as an effective tool to maximize profits. More than ever, Singapore’s importance as a management hub for entry into the ASEAN markets is growing in importance.
Singapore vs Hong Kong
Singapore offers a transparent common law legal system, low levels of corruption, and a low tax and business-friendly environment. Hong Kong and Singapore’s many similarities have made them long-time rivals battling for the title of Asia’s leading financial center.
Crucially, Singapore now holds advantages in terms of political stability and freedom from outside interference.For businesses that have not yet decided whether to target the market in China or Southeast Asia, Singapore is more likely to have a DTA or FTA that will benefit your business: Singapore has more DTAs (100) than Hong Kong’s (46), and more FTAs (27) compared to Hong Kong’s eight.
Singapore also offers foreign investors a diverse investment community. The country is home to the regional headquarters of some 7,000 multinational firms, with more than half running their Asia-Pacific businesses from the city-state, while Hong Kong had just over 1,000.
Hong Kong will continue to remain important for companies looking to tap the Chinese market, but Singapore will continue to serve as a magnet for multinationals that want to use the country’s innovation-led economy and generous investment and tax regime as a springboard for Southeast Asia.
Extensive tax incentives for businesses
Companies setting up are eligible for various fiscal and non-fiscal incentives if their business is deemed beneficial to the country’s economic development. Applicants must fulfil rigorous requirements, which include committing to certain levels of investments, introducing leading-edge skills, technology, as well as contributing to the growth of research and development and innovation capabilities.
With one of the world’s most business-friendly tax regimes, Singapore has emerged as a major financial and economic hub in Asia. Investors are also drawn by the efficient and cost-effective process to incorporate a company and the country’s transparent legal system.
Singapore offers a range of tax incentives and schemes to encourage specific industries and activities. These incentives aim to foster economic growth and innovation. These incentives help reduce a company’s final corporate income tax rate and include:
- Progressive Wage Credit Scheme
- Start-Up Tax Exemption Scheme
- Double Tax Deduction for Internationalization
- The 100 percent investment allowance scheme
- Startup SG Tech
- Enterprise Development Grant
- Enterprise Innovation Scheme; among others.
Additionally, there are industry-specific incentives for sectors such as biotechnology, maritime, and tourism. It is essential for businesses to understand the eligibility criteria, compliance requirements, and application procedures to fully benefit from these tax incentives and contribute to their long-term growth and competitiveness.
Favorable corporate tax regime
Singapore’s corporate tax regime is one of the most attractive in Asia. Businesses can take advantage of the flat 17 percent corporate income tax rate for profits.
Moreover, as the Singaporean tax system operates on a territorial basis, companies are not taxed on most types of foreign-sourced incomes (such as from dividends or branch profits) that are remitted into Singapore, provided they pay tax in the source country with a rate of at least 15 percent. There is also no capital gains tax.
Strong DTA and FTA networks
One of the biggest benefits of relocating a company to Singapore is its network of around 100 double taxation agreements (DTAs) and 24 FTAs.
There are two types of DTA: comprehensive and limited. Comprehensive DTAs cover all income types and allow for the exchange of tax information, whereas limited DTAs cover income from shipping and air transport. These DTAs also include treaties with ASEAN’s 10 member states, providing businesses with a greater competitive edge when entering this market.
The country is also negotiating new FTAs with the Pacific Alliance-Singapore and Eurasian Economic Union (EAEU).
Highly skilled English-speaking workforce and favorable labor schemes
Singaporeans share various cultural and linguistic connections with ASEAN members, while English is the main working language. The country’s highly skilled labor force is equipped to act as intermediaries for investments in Asia while maintaining the capacity to communicate with investors from abroad. Singapore’s workforce ranked first in Asia Pacific and second in the world in the 2021 INSEAD Global Talent Competitiveness Index and it is the one of the countries with the highest adoption rates of information and communications technology (ICT) in the world.
Companies can also benefit from government schemes aimed at boosting employment and wages of local workers. The government’s Progressive Wage Credit Scheme (PWCS) enables the government to co-fund the wage increases of Singaporean employees earning a gross monthly wage of up to S$3,000 (US$2,211.6) between 2022 and 2026, whereas the Job Support Scheme enables the government to co-fund monthly wages for every local worker.
Transparent legal system and ease of doing business
The transparent nature of Singapore’s business and legal regulations means most of the information a business needs are readily available online. This makes it much easier for overseas decision-makers to learn more about the market during the entry process.
The efficient and transparent business environment is part of the reason why Singapore has consistently ranked in the top three in the World Bank's Ease of Doing Business report, in which it ranked second in 2020. Singapore was ranked third in the WEF’s 2020 Global Competitiveness Report digital legal framework, which indicates that the country’s legal framework is well adapted to digital business models.
The majority of bureaucratic procedures for companies, from establishing to managing to dissolving a company, can be done online through the Accounting and Corporate Regulatory Authority’s (ACRA) online business filing portal BizFile, which also provides detailed information on the information and documents required for various procedures, and step-by-step guides for how to complete them.
Strong IP protection system
Singapore has a strong and transparent legal system for protecting intellectual property (IP) rights, which is overseen by the Intellectual Property Office of Singapore (IPOS). The country has a specialized IP court to handle complex IP cases, as well as a WIPO Arbitration and Mediation Center, the only office of the World Intellectual Property Organization (WIPO) outside of Geneva.
Trademarks, patents, and copyright are protected under the Trademark Act, Patent Act, and Copyright Act respectively, IPOS also offers an efficient system for registering trademarks, patents, and copyright, which can be done online or in person, and enables registration both in Singapore and internationally through the Madrid Protocol, WIPO’s international registration system of trademarks.
FAQ: Using Singapore as a Regional Hub for Managing ASEAN Operations
Why has Singapore risen as a destination for the management of ASEAN expansion?
A myriad of factors contributed to making Singapore among the most attractive economies for investment in Asia. Effective administration of regional operations, integrated supply chain and minimized tax obligations allow Singapore to easily outcompete traditional holding locations such as Malaysia and fellow ASEAN members alike.
What is the benefit of routing investments through Singapore?
Companies operating in ASEAN might find that the cost of transferring profits back to their home country has increased in the absence of up-to-date DTAs.
By contrast, with many DTAs in place and 0 percent withholdings tax of its own on dividends, Singapore allows companies to remit profits from production centers at a lowered rate and then pass profits on to a parent company without further reduction.
What are the options for corporate establishment in Singapore?
Setting up a private limited establishment in Singapore is the most effect option for administering operations throughout ASEAN, whilst other options such as representative offices, publicly listed companies, and joint ventures are also available for foreign investors. The structure of the private limited establishment allows companies owners to maintain full control of regional operations but limit their liability in case of a conflict with its subsidiaries in third party states.
What steps are involved when establishing a company in Singapore?
Companies investing in Singapore must first appoint a filing agent and obtain approval for the company’s name, which should not be identical to a name that already exists. Secondly, a private limited company may be required to appoint a local director, company secretary, or auditors.
The next thing on the list is to set up a registered office, which may be outsourced if the company does not wish to rent an office space. However,this must be an address in Singapore.
They then must formally register with the Accounting and Corporate Regulatory Authority. While specific companies might face additional licensing or need to submit further documentation, all companies are subject to a variety of compliance requirements including holding the first annual meeting within 18 months of incorporation.