Why Setting Up in Singapore Makes Sense for Business in ASEAN
Singapore has long been a preeminent destination for setting up a regional headquarters 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.
Efficient set up
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.
Businesses that are ready to set up can use Bizfile, an electronic filing system that combines all the tax and business requirements on a single form, reducing the need to queue at service centers. Bizfile is managed by the Accounting and Corporate Regulatory Authority (ACRA), which is the statutory body responsible for the monitoring of new companies in Singapore.The time and cost needed to set up in Singapore are comparatively limited. Overseas business people can make a payment through Bizfile; it costs US$254 (S$300) to register a company and US$10 (S$15) to register the company’s name. Most applications are processed within the same business day; however, the process could take 14 days to two months for applications that need to be reviewed by government agencies.
The efficient and cost-effective nature of corporate establishment in Singapore has resulted in more than 37,000 international companies and around 7,000 foreign multinationals operating from the country. It is also part of the reason why the city-state is consistently ranked among the top three economies in the Ease of Doing Business report.
Favorable tax environment
Singapore’s favorable tax regime is internationally recognized for allowing entrepreneurs and companies to enjoy low tax rates and numerous types of tax relief – through incentives, comprehensive tax treaty networks, and exemptions from certain incomes.The country’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 above S$300,000 (US$217,000) and 8.5 percent for profits up to S$300,000 (US$217,000).
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 establishing a holding company in Singapore is its network of 85 double taxation agreements (DTAs) and 24 FTAs.
There are two types of DTA in Singapore: 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 – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam – providing businesses with a greater competitive edge when entering this market.
Furthermore, Singapore also has exclusive access to the largest combined free trade areas due to its agreements with ASEAN as well as its FTAs with China, Hong Kong, India, and the EU. The country is also negotiating new FTAs with the Pacific Alliance-Singapore and Eurasian Economic Union (EAEU).
Although some regional players maintain strong DTA and FTA networks, ASEAN member states have not matched Singapore’s extensive DTA and FTA network. Singapore’s ability to improve and expand its trade relations will allow the country to continue to be a default location for businesses looking to expand in Southeast Asia and neighboring regions.
Singapore vs Hong Kong
The ongoing protests in Hong Kong and the slowing Chinese economy have increased the attractiveness of Singapore’s unique position as a regional hub among the fastest growing economies in Southeast Asia.
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 ( 74) than Hong Kong’s 31, and more FTAs (24) compared to Hong Kong’s seven.
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.
Singapore as a gateway to ASEAN
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.
But there are 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 abroad.
Alberto Vettoretti, Managing Partner at Dezan Shira & Associates, told ASEAN Briefing, “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.”
“Crafting a strategy to maximize profit in ASEAN may seem a particularly daunting task, but selecting an effective investment strategy can help minimize uncertainty and harness ASEAN’s diversity,” continued Vettoretti.
More than ever, Singapore’s importance as a management hub for entry into the ASEAN markets is growing in importance.