Singapore Holding Companies’ Edge in ASEAN
According to a recently released report by Bank of America Merrill Lynch (BAML), ASEAN’s FDI inflows exceeded China’s by more than US$10 billion in 2013. Cited reasons for ASEAN’s strong performance include its favorable demographics (versus an aging and shrinking Chinese workforce), competitive wages (versus rising wages in China over the years coupled with the much appreciated RMB), and faster growing domestic markets.
These factors are often associated with emerging economies. Yet, of the recorded US$128.4 billion 2013 ASEAN FDI figure, FDI in Singapore accounted for more than 50 percent of the total amount, an approximately 5 percent improvement from 2012.
It is now evident that Singapore will remain firmly poised as the preferred foreign direct investment destination in ASEAN, with several other factors at play. The following examines three such factors that will allow the island nation to maintain its popularity among foreign direct investors seeking an investment vehicle in ASEAN against rising challenges from Singapore’s fellow ASEAN member states.
Extensive Network of Regional and Bilateral Economic Agreements
Most holding companies are incorporated and structured with the intention of deriving optimal tax benefits. Singapore’s extensive network of economic agreements (both FTAs and DTAs) present tremendous opportunities to investors worldwide seeking to utilize Singapore as an entry point to tap into the investment potential of emerging markets in ASEAN and India with minimal tax and duty costs.
Along with the other 9 ASEAN countries, Singapore is a participating member of the Regional Comprehensive Economic Partnership (RCEP). Singapore is also one of four ASEAN member states (along with Brunei, Malaysia and Vietnam) that are additionally part of the Trans-Pacific Partnership (TPP). Beyond these two major regional economic agreements, Singapore has signed more than 20 FTAs and 70+ comprehensive DTAs with countries around the world and is currently engaged in ongoing FTA negotiations with Canada, Mexico, Pakistan, and Ukraine.
None of the other nine ASEAN member states can match Singapore’s extensive FTA and DTA network, and Singapore’s ability to continually improve upon its trade relations with the world will allow it to be viewed as the default location of choice for businesses well into the future.
Singapore Budget 2014: Tax Incentives to Improve Worker Productivity and Achieve Cost Efficiency
Singaporean workers are renowned for having high levels of literacy and being both well trained and competent. Such high-quality workers will not allow the country’s workforce to compete with its fellow ASEAN states through low wages. Instead, the government provides an array of tax incentives and business schemes to improve the workforce’s productivity, which will ultimately translate into the lowering of business costs in the long run.
In the recently announced Singapore Budget 2014, the government extended and enhanced several effective ongoing tax incentives that focus on productivity and innovation. The successful Productivity and Innovation Credit (PIC) scheme will be extended for another three years until the Year of Assessment (YA) 2018. PIC benefits will additionally be extended to cover the training costs of individuals under centralized hiring arrangements with effect from YA 2014. A new PIC+ scheme was also introduced with SMEs as the target beneficiary group through enhanced tax deductions on qualifying productivity and innovation costs. The new PIC+ scheme allows deductions of up to S$600,000 compared to S$400,000 under the old PIC scheme.
Another new ICT for Productivity and Growth (IPG) scheme was announced that will provide tax incentives or subsidies to companies that invest in proven information communication technologies (ICT) or emerging solutions (80 percent of such qualifying costs capped at S$1million), so as to improve the local business connectivity of Singapore-based companies.
Multicultural and Bilingual Singapore
As an emerging market, ASEAN presents a number of challenges and risks to unfamiliar investors. Because businesses can only grow and succeed in stable environments with effective communication channels, Singapore’s multicultural and internationalized society provides investors with the necessary edge to be successful in the wider region.
Singapore shares a number of similar languages and cultures with its ASEAN neighbors as a consequence of the country’s Chinese, Malay, Indian and Eurasian roots. Because of this, Singapore is world-renowned for fostering a highly tolerant society welcoming of racial and cultural differences.
For businesses using the country as a base for regional operations, Singapore’s bilingual and multicultural composition can provide the necessary edge to succeed across the ASEAN region by utilizing the country as an intermediary for FDI. Singapore’s predominantly Chinese environment provides companies with an additional edge for attracting investment from China, and using Singaporean staff to pursue holdings in the Middle Kingdom. Similarly, because most Singaporeans are bilingual in Mandarin and English, or trilingual in Malay, a Singapore holding company is the ideal vehicle for reaching a wider range of markets while maintaining the capacity to communicate with potential investors from English-speaking nations.
This article is an excerpt from the March issue of Asia Briefing Magazine, titled “The Gateway to ASEAN: Singapore Holding Companies.” In this issue, we highlight and explore Singapore’s position as a holding company location for outbound investment, most notably for companies seeking to enter ASEAN and other emerging markets in Asia. We explore the numerous FTAs, DTAs and tax incentive programs that make Singapore the preeminent destination for holding companies in Southeast Asia, in addition to the requirements and procedures foreign investors must follow to establish and incorporate a holding company.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam, in addition to alliances in Indonesia, Malaysia, Philippines and Thailand, as well as liaison offices in Italy and the United States.
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