Doing Business - Singapore vs The British Virgin Islands
Corporate structuring is a key consideration for companies engaged in cross-border trading or investing. Selection of the right jurisdiction is critical for such companies in order to effectively structure their operations and control. Some of the factors which should be evaluated when selecting the jurisdiction in which to incorporate include its business environment, economic competitiveness, tax regime and the political stability of the jurisdiction. Those faced with making a decision between the various possible jurisdictions invariably resort to reviewing international surveys and country reports published by expert agencies such as the IMF, World Bank, EIU. However, such surveys merely provide some cursory guidance, which can provide some preliminary insight into comparable factors. The decision-makers must also pay close attention to the integral nature of their businesses, their stage of growth, target-markets, key concerns, stakeholders and competition when making such an important decision.
Singapore is a city-state located on the southern tip of the Malay Peninsula in Southeast Asia, between the Indian Ocean and the South China Sea. The mainland, along with 63 islets, constitute a land area of 278 square miles constitutes a key maritime and financial centre in a burgeoning part of Asia. The city-state is strategically located along the east-west trade corridor. The country, with a population of 5.9 million, has a thriving economy and has long been regarded as one of the four Asian tigers, alongside Hong Kong, South Korea and Taiwan. Unlike BVI, Singapore has a diversified economy with strong performance in sectors such as Financial services, Information and Communication Technology Services and Manufacturing industries such as oil refining, electronics, pharmaceuticals, oil rigs and chemicals. The country is also regarded as one of the leading logistics hubs and foreign exchange centres in the world.
BVI, with a land area of 57 square miles, is a self-governing British Overseas Territory and consists of approximately 60 islands spread over the north-eastern Caribbean Sea. According to the Central Statistics Office (CSO), BVI has a total population of 28,514. The territory does not have a diverse economy, with financial services and tourism being the only real industries, constituting 60% and 40% respectively of the national income. Despite its small size and population, BVI is one of the most popular offshore financial centres in world. However, most of the companies formed in BVI function as passive asset holding companies, with relatively few that conduct international trading or transactional activities
BVI, despite being a leading offshore financial centre, rarely features in any of the leading international business and competitiveness surveys, in which Singapore, invariably, holds a high rating. Singapore has, in fact, held a top place in the World Bank’s “Doing Business Report for more than a decade as one of the world’s easiest places to do business (and is now second only to New Zealand).
In 2016 Global Financial Centers Index (GFCI) compiled by Z/Yen Group, Singapore was ranked third in the world (BVI was 36th) classifying Singapore as a “global leader” while BVI was classified as a “transnational specialist”. This apparently demonstrates that Singapore’s classification underscores its high ranking in factors such as human capital, business environment, infrastructure, and economic and enterprise ecosystem.
Singapore also has a business friendly tax regime, with a territorial and single-tier taxation policy. Singapore has concluded an extensive raft of double taxation agreements (DTA’s) with other countries, making the withholding tax rates very attractive for taxpayers hailing from jurisdictions with which Singapore has a tax treaty. Singapore has an extremely “clean” image and is on the OECD’s white list, while continuously improving its transparency and cooperation with its counterparts on exchange of tax information.
There are effectively no taxes in BVI, other than payroll tax, stamp duty for real-estate transactions and import duties. In all other respects BVI is either a zero or no tax territory, including no taxes on income, capital gains, sales, profits, inheritances and corporations. The majority of Government revenue is generated from company registration and license fees.
As a British Overseas Territory, BVI cannot sign or ratify international conventions in its own right. Rather, the UK is responsible for BVI’s international affairs and may arrange for the ratification of any convention to be extended to the BVI. Largely, BVI has Tax Information Exchange Agreements (TIEA’s) rather than DTA’s as the latter are effectively irrelevant in the absence of withholding tax in the territory. Although BVI is on the OECD’s white-list, its image is still somewhat that of a tax haven due to its near zero tax policy, and while Singapore made the EU’s Anti Money Laundering (AML) white-list of “equivalent jurisdictions”, (released in 2012 after EU’s third AML directive) BVI did not make the list.
|Headline Corporate Tax Rate||17%||Nil|
|Personal Tax Rate||0% to 22%||Nil|
|Capital Gains Tax||Nil||Nil|
|Duty on Trade||All exports are duty exempt
All imports are duty free except for controlled items
|All exports are duty exempt
Import duty of up to 20% on items including household items, clothing and reading materials
|Withholding Tax||10% to 15%
Recipients from DTA treaty partners enjoy concessionary rates
The timeframe and ease of forming a Singapore company or a BVI company is nearly identical. However, the major difference is in the renewal obligation faced by BVI companies. Unlike Singapore, where companies pay a one-time registration fees during incorporation, BVI companies are required to pay an annual fee (minimum US$350) for the renewal of their business license.
BVI given its small domestic population meets much of its demand for labor through immigrant workers. According to a 2012 estimate, foreigners constitute 67% of the labor force. Singapore is also dependent on immigrant workers but nearly 68% of the workforce is comprised of Singapore residents (Singapore citizens and permanent residents).
Singapore remains open to suitably qualified and skilled foreign workers in order to fill any gaps in its workforce. The competitiveness of Singapore’s workforce is one of the key criteria for foreign companies who prefer Singapore to alternative Asian jurisdictions to locate their companies. The World Economic Forum’s ‘2016 Global Competitiveness Report’ ranks Singapore #2 in terms of labor/employee relations.
|Social Security Contribution||
Employer Contribution Rate: 16% of employee’s basic salary.
Maximum monthly employer contribution: S$960/month
Employer Contribution Rate: 4.5% of insurable earning (capped at US$40,300 as of 2016)
|Payroll Tax||No||Employer Contribution Rate – 2% or 6% of the remuneration/deemed remuneration paid to employees
Self-Employed Persons Contribution Rate: 10% or 14%
Singapore’s IP regime is consistently recognized as one of the most robust in the world by several international surveys. Singapore is ranked fourth in the world and top in Asia for having the best IP protection in the World Economic Forum’s ‘Global Competitiveness Report 2015/2016’. Likewise the U.S. Global Intellectual Property Center’s ‘International IP Index 2016’ had ranked Singapore as top in Asia for our IP environment.
In 2015, BVI revised their somewhat antiquated IP regime and introduced sweeping changes with their Trademark Act which came into effect on 1 September 2015. The overhaul was long overdue and we will have to wait and see how the stakeholders respond to the new regime.
The status of a jurisdiction’s IP regime is reflective of its innovation-enabling environment, i.e. the availability of quality resources, such as human, capital and infrastructure to help promote and incubate innovation efforts.
It has been noted that there is a direct correlation between the strength of the IP regime and the availability of human, technical and financial capital available for innovation activities. Since Singapore’s IP regime is mature and robust, many companies choose it over other jurisdictions as the location for their R&D centers.
Politics and Bureaucracy
Both Singapore and BVI are democratic and politically stable economies. There are no territorial threats or internal tensions in either jurisdiction. Singapore’s bureaucracy is regarded as one of the most efficient in the world and the Political and Economic Risk Consultancy (PERC) had ranked it the best in a 2010 survey. The BVI bureaucracy is comparable and similarly business friendly.
As an island state and territory, Singapore and BVI respectively, offer a vibrant lifestyle amidst stunning nature. Both jurisdictions are comparable when it comes to the quality of life, in terms of housing, personal safety environmental quality, and political and economic stability. Singapore’s far larger population and infrastructure however dictate that public facilities, entertainment, culture and nightlife are far more diverse than BVI’s. Additionally, Singapore as a mature, autonomous and developed country with a significant population offers a comprehensive healthcare system, first class education as well as transportation infrastructure and other services.
Singapore offers a multitude of options when it comes to education, with public, private and international institutions available throughout the country. Likewise healthcare services are robust with world-class specialists, hospitals and caregivers. Visiting BVI requires a flight via Puerto Rico or another Caribbean island which has flights to the USA and/or Europe. Conversely, Singapore, as an international aviation transit hub, commands excellent connectivity and is ranked seventh in the Global Livability Index 2015 compiled by Asia Competitiveness Institute (ACI) at National University of Singapore’s Lee Kuan Yew School of Public Policy.
Singapore is not only an ideal place for locating a business that trades or invests across border but also an excellent location to live, work and play.