Why Foreign Companies Relocate to Singapore?

Besides having one of the lowest corporate tax rates, Singapore is also considered by many as the gateway to ASEAN. In addition, its many business-friendly policies make it easy for companies to set up and run their businesses in this South-east Asia country.

According to latest data in the United Nations Conference on Trade and Development (UNCTAD) 2018 report, global foreign direct investment (FDI) flows fell by 23 per cent to US$1.43 trillion in 2017. FDI flows to developing countries remained stable at US$671 billion, with no expected recovery from the 10 per cent drop in 2016.

Asia has regained its position as the largest FDI recipient in the world, with flows amounting to US$476 billion. And despite the decline in worldwide FDI, the inflows into Asia increased from 25 per cent in 2016 to 33 per cent in 2017. China, Hong Kong and Singapore were the three largest recipients of this increase.

These figures crystalise the fact that businesses are seeking out regions of higher growth potential to satisfy the demands of their stakeholders. In particular, businesses and investors are zeroing on fast growing economies of Asia – including China and the South-east Asian countries – due to their large lucrative markets.

China, long-heralded as the world’s next economic superpower, attracted a total of US$136 billion in FDI in 2017, coming in second after the United States and ranking as the top Asia country with the highest inflow of FDI, followed closely by Hong Kong, which attracted a total of US$104 billion in FDI.

Singapore – Gateway to ASEAN

So where does Singapore stand? Besides being ranked fifth in the top 20 host economies in FDI inflows (and the third Asia country to be ranked), Singapore has established itself as the gateway to ASEAN and a preferred jurisdiction for businesses of all sizes to base their Asian operations. In this article, we examine some of the key driving factors that contribute to Singapore’s success in attracting foreign companies and entrepreneurs to its shores.

Extensive double tax treaties

Singapore has an extensive network of double tax agreements (DTA) with more than 80 countries across the globe. The key benefits of a DTA are a) the avoidance of double taxes, b) lower withholding taxes, and c) preferential tax regime, all of which play an important role in minimizing the tax burden for a holding company structure.

This extensive DTA network, coupled with the absence of capital gains and dividends tax, makes Singapore a very attractive jurisdiction for business investments through a Singapore incorporated holding company.

Attractive tax regime

Singapore’s tax system is viewed as “simple and investor friendly”. The highest corporate tax rate on taxable income is 17%. The tax on capital gains and dividend income is 0%. No withholding tax is levied on post-tax dividends paid from Singapore. Equally important, all foreign-sourced income is tax exempt as long as the income has been subjected to tax in a country with a headline tax rate of at least 15%.

Singapore’s regulatory framework offers a level-playing field for foreign investors, with no foreign ownership restrictions and no foreign exchange controls.

Strategic location with superb connectivity

Singapore has a unique advantage in its geography. The country is strategically located at the crossroads of the main trade and shipping routes of the world, including the major sea route between India and China. Therefore, travelling to most Southeast Asian countries is but a flight away.

Singapore is renowned as a transportation hub, being home to the award-winning Changi Airport and a sophisticated port infrastructure, which has also been consistently awarded the ‘Best Seaport in Asia’ (Asian Freight and Supply Chain Awards). 2018 marks the 30th year that Singapore was awarded the award.

Singapore’s telecommunications infrastructure is also world-class. The country has been ranked by the World Economic Forum, in its Global Information Technology Report 2016, as one of the top economies in leveraging information and communications technologies to boost its country competitiveness. It is one of the two Asian countries within the top 10 in the Report’s rankings of 139 countries worldwide.

Availability of skilled and multilingual workforce

Singapore’s business environment has proven to be highly attractive to skilled and ambitious workers from across the globe. The fast-paced innovative working environment, together with a large local pool of Singapore talent, has only served to reinforce the country’s reputation as having one of the most productive and motivated workforces in the region. This has been proven by rankings in the IMD World Competitiveness Yearbook.

The country is also renowned for being a multiracial society that is as diverse as it is cohesive. Its citizens originate from diverse racial backgrounds, giving it the capacity to offer workforce solutions requiring multilingual and multicultural sensitivities. The people are one of Singapore’s richest resource.

Smart immigration policies

Singapore provides a variety of visa schemes for qualified entrepreneurs and working professionals. The government is always looking to attract foreign investments and augment its local workforce with high-level talent from across the globe, which is in line with the liberal immigration policies of Singapore.

Conducive environment and highly-developed infrastructure

Singapore is one of the most prosperous and stable countries in Asia. The country’s stable political environment, public services convenience, diverse range of facilities, and cosmopolitan ambience makes Singapore an increasingly attractive destination for expatriates with families. The country offers a rich variety of dining and entertainment, tropical gardens, world-class hotels, highly-developed infrastructure, and – very important for ambitious families – a host of internationally recognised schools and universities. Singapore’s high quality of life has been consistently validated in various surveys such as the Mercer’s Quality of Living Survey. The friendliness and warmth of Asia, blended together with a vibrant modern lifestyle, makes Singapore a very good place to live, work and study.

Excellent IP protection regime

Singapore provides a robust intellectual property (IP) rights regime, backed by a trusted legal system and strong IP infrastructure. The government’s IP policy is attuned with the aim of encouraging innovation, creativity and growth of industry and commerce in Singapore.  The IP regime has been recognised by the World Economic Forum’s Global Information Technology Report 2017-2018 as the top Asian regime for the protection of IP. Despite the high international rankings, additional initiatives by the government are underway to improve the country’s IP landscape further and build it as Asia’s IP hub.

Efficient legal system

Singapore’s legal system, which was inherited from the British, has now evolved into a distinctive jurisdiction. The system continues to grow in order to maintain its relevance in the current cultural, economic and commercial climate, by absorbing the common law as well as best practices from other mature legal systems. The Singapore legal system has received global recognition for its efficiency and integrity, and the country is deemed to be the least bureaucratic one in Asia. Businesses in Singapore are not burdened by red tape or the slowing down of operations due to bribery or slow legal process. The government regards access to law as a fundamental economic value, which is cherished and harnessed to enhance the country’s reputation as a premier business centre and a leading legal hub in Asia. Singapore’s commercial legal system is renowned for its fairness and impartiality, making it the natural choice of venue for dispute resolution, especially mediation and arbitration, and trial in Southeast Asia. Furthermore, Singapore’s legal services industry is rich in talent.

Best place in the world to do business

Top institutions monitoring economic  and business activity worldwide agree on Singapore’s attractiveness as a business destination. The country has been ranked #2 by the World Bank as the World’s Easiest Place to Do Business in its 2018 report. It is ranked third by the World Economic Forum in its 2017-2018 Global Competitiveness Index, and was Asia’s leading city in the PwC 2016 Cities of Opportunity Study.

Entry Options for Foreign Companies

Foreign companies looking to establish their presence in Singapore have several options that they could consider, as discussed below.

Subsidiary Company

A Singapore subsidiary company is the preferred registration option for small to midsize foreign businesses that intend to establish their presence in Singapore. Singapore allows for 100% foreign ownership of companies that are incorporated locally. A subsidiary company's structure offers protection against liabilities and can also be very tax efficient.Get a comprehensive overview and the process to setting up a subsidiary in our Singapore subsidiary registration guide.

Branch Office

A foreign company may wish to set up a branch office in order to legally commence its business activities in Singapore. Although a branch office is a registered legal entity, it is treated as an extension of the foreign company, and therefore, its liabilities extend to the foreign company and its income is not eligible for tax exemptions and incentives, which may otherwise be available to tax resident companies in Singapore. Find out more about setting up a branch office in the Singapore Branch Office Registration guide.

Representative Office

Foreign companies interested in exploring potential business opportunities in Singapore and the region have the option to set up a representative office (RO) before committing to any business venture or large-scale investments. The RO is a temporary setup with no legal persona, and therefore it cannot engage in any trading or business activities; only market research and feasibility studies are permitted. The cost for registering an RO is considerably lower, making it an ideal avenue for foreign companies that wish to observe the business environment in Singapore. Learn more about setting up a RO in the Representative Office Registration guide.

See our Singapore Branch vs Subsdiary vs Representative Office guide for a comprehensive overview of the differences between the three types of company setups.

In Conclusion

Singapore continues to attract record investment commitments despite the challenging global economic environment. The country’s extensive network of double tax treaties, strategic location within the centre of all developing markets, together with its economic and political stability, renowned legal system, extensive connectivity and talent resources, innovative business environment, and immense opportunities for business growth within the Southeast Asian region, are just a few factors that drives Singapore’s success as a preeminent business centre of the modern global economy.

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