Singapore Becoming Top Choice for Indian Firms

With another recent spike in investments, Singapore is now on pace to garner the distinction of being the most preferred place for India-based companies looking to invest and expand their operations overseas.

According to recently released numbers for the second half of 2011, Singapore accounted for a fifth of the US$20 billion in outbound foreign direct investments (FDIs) from companies in India. That figure was a 20% jump from the previous year in attracting investments from Indian companies.

Singapore had already seen a steady increase in Indian investments over the last few years, recently overtaking the USA as the second-ranked destination for outbound FDIs from India. Analysts project that it will soon catch up to Mauritius, which has long been a preferred destination for India companies due to its favorable tax treaty with India. Mauritius accounted for a fourth of outbound FDIs from India during the second half of 2011.

Many of India’s biggest corporations are seeing Singapore as the next big step in the global expansion of their businesses. Last year, Tata Communications set up a S$210 million data center and telecommunications facility in the city-state, and plans to infuse S$440 million more over the next few years.

Singapore is no stranger to business relations with India. In fact, Indians comprise the largest foreign business community in the city-state. Indian-owned businesses in Singapore have multiplied fourfold to over 4,000 since 2001.

Why do so many Indian firms and entrepreneurs set up businesses in Singapore?

One of the key reasons is Singapore’s simple and affordable corporate tax system. The city-state’s corporate tax rate is approximately 8.5% for profits up to S$300,000 and a flat 17% rate for profits above that number. In comparison, India’s corporate income tax rate is 30.9% for taxable income up to INR 10 million, and 33.9% for taxable income above INR 10 million. Also, unlike in India, there is no dividend tax or capital gains tax in Singapore.

In addition, the Double Taxation Avoidance Agreement between Singapore and India allows entrepreneurs and companies from India to set up operations in Singapore with a fair tax treatment of business income that avoids the potential double-taxation implications.

Another reason why there are many Indian businesses setting up in Singapore is simply the ease of starting and running a business in the city-state. Unlike India, the Singapore government encourages entrepreneurs to set up their own companies through various tax and investment incentives, and does not restrict the inflows and outflows of capital. The efficient physical, legal and political infrastructure with minimal red-tape and bureaucracy allows for a quick, smooth and predictable business operations process.

Singapore is also considered to be one of the top spots for Indians looking to emigrate. With almost 10% of its population composed of individuals of Indian ethnicity, there is a sizable local community awaiting any Indians who decide to relocate to Singapore. As a result, Indian companies have an easier time relocating and integrating their employees into Singapore’s cosmopolitan society. The quality of life in Singapore is also leaps and bounds ahead of India, as evidenced by a recent ECA International report naming Singapore as the most livable city in Asia for expatriates.

One other advantage for Indian businesses who decide to set up in Singapore is the city-state’s strategic location. Singapore is situated in the heart of Southeast Asia, just a few hours flight away from major markets such as China and Indonesia, as well as other technology and financial hubs like Hong Kong and Japan. The city-state’s ports also rank as some of the busiest in the world in terms of both passenger and cargo traffic.

Learn more about how the business environment in Singapore measures up against India with GuideMeSingapore’s comparative study.