Starting a Trading Company in Singapore
Singapore has long been known as an important ‘port of call’ for traders, especially those dealing between the eastern and the western time zones. According to the latest statistics by the World Trade Organization, Singapore is the 14th largest merchandise exporter in the world and has a trade to GDP ratio of 404.9. If you plan to incorporate a Singapore trading company and start an import/export business, this guide will serve as a good starting point.
How to start a trading business?
Step 1: Incorporate a trading companyFor starting a trading business in Singapore, you will need to incorporate a company first. For detailed information on this, refer to Singapore company registration guide.
Step 2: Register with Singapore CustomsAll importers and exporters are required to activate their account with the Singapore Customs before they can import/export goods in and out of Singapore. Account activation is processed within 1-2 working days after submission of the application and you will be issued a Customs approval letter and is valid for as long as your company exists.
Step 3: Apply for licences and permits
For import/export of all goods
For import of all goods (including controlled and non-controlled items) into Singapore, you are required to obtain an IN Permit through TradeNet® before goods are imported into Singapore.
For export of all goods (including controlled and non-controlled items) out of Singapore, you are required to obtain an OUT Permit through TradeNet®
- before the goods are exported out of Singapore if your goods are controlled or are transported via rail or road
- within 3 days of export if your goods are non-controlled or are transported by sea or air
- before exporting goods that have been previously imported under the Temporary Import Scheme
- before exporting goods under the Temporary Export Scheme
Certain special scenarios such as importing/exporting trade samples of uncontrolled items of a total value not exceeding S$400/- on the CIF (Costs, Insurance and Freight) value may be imported/exported without a permit.
For import/export of controlled goods
The import/export of some goods are subject to the control of Controlling Agencies and are known as controlled goods. To import/export controlled goods you require a permit, in addition to the IN Permit and OUT Permit. You can submit the permit applications to the relevant Controlling Agencies through the TradeNet® system or your freight forwarder or cargo agent for processing and approval. Examples of controlled goods include cigarettes and tobacco products, drugs, petrochemicals, animals and food products.
For import of high-technology items
Certain high-technology items are subject to export control by the exporting country and the Singapore importer may be asked to provide an Import Certificate and Delivery Verification (ICDV) by the exporter. Importers can apply for an ICDV from Singapore Customs. Items covered by an ICDV must be imported into Singapore directly, and are not to be diverted to other countries.
For export, transshipment, or transit of Strategic Goods
If you are going to export, tranship or bring in transit Strategic Goods, you must obtain a Strategic Goods Control (SGC) TradeNet Permit. Strategic goods are regulated by the Strategic Goods (Control) Act. The Act covers all goods and technology that are intended or likely to be used for weapons of mass destruction.
For export of local goods
Certain buyers may ask Singapore exporters for a Certificate of Origin (CO), that proves that your goods are made in Singapore. Certificates of Origin are of two types:
- Ordinary Certificates of Origin – to satisfy your buyers that the products exported are wholly obtained, produced or manufactured in Singapore.
- Preferential Certificates of Origin – a document that can help improve the competitive edge of your exports by enabling your buyers to claim preferential tariff treatment when importing your products under one of the Schemes of Preferences or Free Trade Agreements.
You can apply for a CO through TradeNet® or via your freight forwarder or cargo agent.
Taxes and Fees
Customs and Excise Duty
Certain goods that are manufactured in Singapore or imported into Singapore and are subject to customs and/or excise duties are known as dutiable goods. In Singapore, dutiable goods include: intoxicating liquors, tobacco products, motor vehicles and petroleum products. Duties are levied on an ad valorem basis or specific rate basis. An ad valorem rate is a percentage of the Customs value of the imported goods. A specific rate is a specified amount per unit of weight or other quantity such as $300.00 per kg. Duties may be temporarily suspended (up to the point of consumption) under the various Customs schemes.
Note that subject to qualifying conditions duty exemption is granted for wine used at wine exhibitions and conference events approved under the Meetings, Incentives, Conventions & Exhibitions (MICE) Incentive Scheme “BE In Singapore – BEIS” administered by the Singapore Tourism Board. Additionally, motorized bicycles that are not registered as motorcycles or scooters are exempt from excise duties.
Goods and Services Tax
Goods imported into Singapore are subject to prevailing (GST) which is currently at 7%, if the goods are meant for local consumption. GST is administered by the Inland Revenue Authority of Singapore (IRAS) and collected by Singapore Customs. GST on all dutiable and non dutiable goods are payable on an ad valorem basis, i.e. 7% on the value of Goods. The GST taxable is calculated based on the CIF (Costs, Insurance and Freight) value plus all duties and other chargeable costs, whether or not shown on the invoice. GST may be temporarily suspended (up to the point of consumption) under the various Customs schemes. Note that subject to certain criteria GST relief is granted for wine used at wine exhibitions and conference events approved under the Meetings, Incentives, Conventions & Exhibitions (MICE) Incentive Scheme “BE In Singapore – BEIS” administered by the Singapore Tourism Board.
You can charge your customers GST if you register with IRAS to collect GST. You can also get a GST refund on GST paid on imports if the goods are later exported out of the country. You have to be GST-registered with IRAS to qualify for the refund.
Note: There are special schemes such as the ‘Major Exporter Scheme’ (designed to alleviate the cash flow of major exporters who have significant imports) and ‘Import GST Deferment Scheme’ (designed to alleviate the cash flow of taxable traders by deferring the import GST payment at the point of importation) to reduce the burden of GST.
Singapore Customs Fees
Singapore Customs charges procedural and administrative fees.
The most efficient way is to pay all fees, duties and GST to Singapore Customs by GIRO, authorising Singapore Customs to make direct deductions from your bank account.
Trade Financing and Insurance
In Singapore, businesses often resort to loans, letters of credit and insurance to cover the financial risks involved in trading.
Letter of Credit
Letter of Credit (LC) is the common practice in Singapore where payment to the exporter is guaranteed by the buyer’s bank. This is the preferred payment option both among exporters as well as buyers because the exporter’s payment is secured before the goods are shipped and likewise the buyer need not make any payments until the goods are received. Based on the LC other financing options are also available viz:
- Back To Back LC – If an exporter has to procure goods from another third party to fulfill the buyer’s order, he may open an LC with his bank based on the Original LC of the buyer.
- Trust Receipt – An importer can get a loan from a bank based on the LC and the goods it promises he will be getting.
- Packing Credit – A loan or overdraft privilege based on an LC. It can be a form of pre-shipment financing (repayment is made when goods are shipped) or post-shipment finance (repayment is made when the buyer has paid for the goods).
Most banks in Singapore have taken cognizance of the huge import/export industry and offer competitive trade finance services including import products, export products and bank guarantees. Some of the financing options offered by banks are:
- Overdraft – You can overdraw your current account up to a maximum amount agreed with the bank. Interest is paid only on what is overdrawn.
- Revolving line of credit – You can arrange with a bank to have an agreed amount of funds made available to you at a fee. You can withdraw and top up the funds regularly.
- Term Loans – A loan made available against a collateral subject to approval by the bank.
- Transaction Loan – Loans obtained to finance a confirmed order subject to the creditworthiness of the company that placed the order.
- Inventory financing – Loans obtained against unsold inventories.
- Factoring Loans – Factoring agents like banks and financial institutions provide instant payment against your outstanding invoices. A fee of up to 15% is charged for collecting the payment from the clients.
Trade Credit insurance provides companies with protection against the risk of non-payment by buyers arising from commercial and non-commercial risks. Should buyers default on payment further to the stipulated due date and grace period, the insurer will pay upon verifying the validity of the claim. International Enterprise Singapore, a Government initiative, offers trade credit insurance at very attractive premium rates through its TCI Programme.
Depositing and Storing Goods
Free Trade Zones
- Free Trade Zones (FTZs) are designated areas in Singapore’s air and seaports where duties and Goods and Services Tax (GST) are temporarily suspended for the imported goods.
- You only have to pay the duties and taxes when the goods leave the FTZs and enter into customs territory for consumption. All dutiable goods can be stored in the FTZs except for liquors and cigarettes.
- If you import goods to export (re-exporting), then FTZs can help your cash flow greatly as you do not have to pay duties and GST on the imports.
- You should be aware that goods that arrive by rail and road are not deposited into FTZs and are subject to duties and taxes.
Licensed And Zero-GST Warehouses
- You can store dutiable goods in Licensed Warehouses so that GST and duties payable for the goods would be suspended until the goods are removed from the premises and brought into the local market for consumption.
- You can store non-dutiable goods in Zero-GST Warehouses so that GST payable for the goods would be suspended until the goods are removed from the premises and brought into the local market for consumption.
Clearance of Goods
Immigration and Checkpoint Authority (ICA) officers conduct checks on vehicles, cargo and persons entering the country, and refer trade and customs matters to Singapore Customs for follow-up. Clearance procedure depends on the type of cargo and the mode of transport.
Export Clearances for Conventional and Containerized Cargo
For dutiable and controlled goods, you must obtain a Customs OUT Permit from Customs or the Controlling Authority, as appropriate, before export. The Customs OUT Permit will have to be produced to the Immigration and Checkpoints Authority (ICA) officers at the exit checkpoint for the clearance of the goods. The Customs seal placed on the cargo, if any, will be verified by the ICA Officers at the exit checkpoint before release of the cargo.
For export of non-dutiable and non-controlled goods by air or sea, the trader can clear the cargo through the checkpoint first, and declare the Customs OUT permit within three days of export. Where export of such goods is effected by road, the trader should produce the Customs OUT permit at the time of export clearance.
Import Clearances for Conventional Cargo
For import, you should produce the Customs IN Permit (or an import authorisation) with the supporting documents (such as invoice, packing list, bill of lading etc) to the ICA officers at the entry checkpoint for the clearance of the goods.
For import of goods for local consumption, the duties and/or GST have to be paid before the goods can be released for entry.
Import Clearances for Containerised Cargo
The procedure for clearance of containerized cargo differs from that of conventional cargo. There are two types of containerized Cargo viz.
- Full container load (FCL) – a container with goods for one consignee or with goods from one consignor
- Less than full container load (LCL) – a container with goods for more than one consignee or with goods from more than one consignor
Prior to the removal of containers out of the FTZ or Free Trade Zone (FTZs are essentially designated areas in Singapore where the payment of duties and taxes are suspended when the goods arrived in Singapore) obtaining the relevant Customs permits is a pre-requisite.
Procedure for FCL Containers
FCL containers are normally not unstuffed in the FTZ. Containers requiring Customs examination will be sealed at the respective FTZ Out-gates. After the sealed containers have been trucked out of the FTZ, consignees or their transport agents should make arrangements with Singapore Customs for supervision of unstuffing of the containers. Customs seals placed on containers at the time of import should not be broken without the supervision or written permission of Singapore Customs.
Containers not requiring Customs examination will be given SNR (i.e. Sealing Not Required) facilitation and released by ICA officers without being sealed. Unsealed containers may be unstuffed at any time without Singapore Customs supervision.
Procedure for LCL Containers
LCL containers are unstuffed in the FTZ and cleared through the FTZ Out-Gates as conventional cargoes. No Customs supervision is required for the unstuffing of such containers in the FTZ.
Seeking professional help?
Hawksford can help you with registration, annual filings, accounting, tax filings and on-going legal compliance of your Singapore trading company.Choose an incorporation package