Doing Business - Singapore vs Malaysia

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• Economic Overview
• Business Environment
• Workforce
• Business Language
• Business Incorporation & Set-Up
• Filing Requirements
• Immigration Requirements
• Income Tax
• Corporate Tax
• Tax Exemptions & Incentives
• Withholding Tax
• Foreign-Sourced Income
• Country Rankings at a Glance

Economic Overview

From manufacturing to distribution and technical expertise in the services sector, Malaysia offers opportunities and capabilities across the value chain. A cost-productive workforce, coupled with developed infrastructure and investor-friendly business policies make the country an enticing place for investors.

Singapore’s highly developed economy enjoys stable prices and a per capita GDP higher than that of most developed countries. According to the World Bank’s 2017 Ease of Doing Business Report, Singapore ranks #2 as the easiest place to do business in the world, while Malaysia is ranked #24. From state-of-the-art public infrastructure to convenient online portals and transparent regulations, investors in Singapore are welcomed with a smooth channel for their ventures. A Committee on the Future Economy has also outlined 7 mutually-reinforcing strategies that will take Singapore’s economy forward in the next 10 years. 

Business Environment

Forbes’ Best Countries to Do Business Report 2017 has classed Singapore in 9th place globally, owing to the country’s prominent performance in trade freedom, technology and lightness of a tax burden. On the other hand, Malaysia was ranked 35th in the world, given its strengths in investor protection (#4), monetary freedom (#21) and innovation (#22). The following are some comparisons at a glance: 

• Trade freedom (Singapore) #1; Trade freedom (Malaysia) #68 
• Technology (Singapore) #14; Technology (Malaysia) #46 
• Lightness of a tax burden (Singapore) #7; Lightness of a tax burden (Malaysia) #66 

When it comes to trade, Singapore’s domestic market remains one of the world’s most open. In fact, 99.7 per cent of goods enter Singapore duty-free. Efficient border processes, coupled with quality of transport services and the country’s overall socio-political operating environment, have propelled Singapore to nab the top spot in the World Economic Forum’s 2016 Global Enabling Trade Report, while Malaysia ranked #37.  As former British colonies, both countries’ legal regimes are generally based on the English Common Law System. However, in terms of intellectual property, the World Economic Forum has ranked Singapore as having the best IP protection in Asia (Global Competitiveness Report 2017-2018), based on the infrastructure and incentives put in place by the government to encourage innovation. 

Workforce

Malaysia has a far larger population of 32 million, as compared to Singapore’s 5.7 million. Singapore is nonetheless working on a future economy that is different and leaner, aided by a quicker adoption of technology, faster pace of innovation, and higher productivity. 

In 2017, Singapore’s and Malaysia’s labour force participation rates (LFPRs) were high at 67.7% and 68.0% respectively. Over the last five years, Singapore has recorded a rising share of females in the labour force, and registered its highest female LFPR of 60.4% in both 2015 and 2016. It dropped slightly to 59.8% in 2017. The LFPR for males in Singapore remained fairly stable at 76.0% in 2017. In the same year, Malaysia’s male and female LFPRs stood at 80.1% and 54.7% respectively. 

28.1% of Malaysia’s workforce have attained tertiary education, while 54.6% of Singapore’s workforce are diploma or degree holders. 

Business Language

The presence of any language barrier is an important factor to be taken into consideration when selecting a jurisdiction to incorporate in. While Singapore’s and Malaysia’s average literacy rates are high at 96.8% and 94.6% respectively, most Singaporeans are effectively bilingual, with the main language spoken being English. Citizens in Malaysia speak Malay, with most of them having a basic knowledge of English. 

• Official languages (Singapore): English, Mandarin, Malay, Tamil
• Official language (Malaysia): Malay, with English as a second language

Hence, while a new start-up could benefit from the larger pool of talent in Malaysia, investors may find it easier to converse with Singapore citizens, whose main language of communication is English.

Business Incorporation & Set-Up

Both countries offer the same types of legal entities for business incorporation:

• Private Limited Company
• Limited Liability Partnership
• Branch Office
• Representative Office
• Subsidiary
• Sole Proprietorship

Company formation in both Singapore and Malaysia involves two procedures. However, the process can be completed within a day in Singapore, while it takes 2-3 days in Malaysia.

In Singapore, an entity can be 100% foreign-owned, while in Malaysia, foreign investors holding more than 30% of shares must obtain an approval from a foreign investment committee.

In addition, Malaysia requires the appointment of 2 resident directors (citizens, permanent residents, or holders of work visas) and 2 shareholders while Singapore requires only 1 resident director and 1 shareholder. In both cases, a director and shareholder can be the same or a different person.

Filing Requirements

Annual General Meetings (AGMs) must be held each calendar year in both countries.

• In Singapore, the first AGM must be held within 18 months of incorporation.
• In Malaysia, the first AGM must be held within 18 months of incorporation, or 6 months from the financial year end, whichever is earlier.

Singapore and Malaysia entities must file both Annual Returns and Audited Annual Accounts with their respective company registrars within 1 month of their AGMs.

However, there are some exemptions to filing these returns:

• Exempt Private Companies (EPCs) in Singapore with annual turnovers of less than S$5 million are exempted from these annual submission requirements.
• EPCs in Malaysia with not more than 20 shareholders and with shares not held by another company are exempted from submitting these annual records.

Each year, Tax Returns and Audited Accounts must also be filed with the inland revenue authorities in each jurisdiction respectively.

Immigration Requirements

All foreigners who intend to work in Singapore and Malaysia must have a valid work pass before they start work.

In both jurisdictions, Employment Passes can be issued to foreign professionals, managers and executives. The minimum monthly salary for Employment Pass holders are up to RM 5,000 in Malaysia and from S$3,600 in Singapore respectively.

Foreign entrepreneurs wanting to start and operate a new business in these countries can apply for the EntrePass in Singapore, or a professional visit pass, short-term social visit pass, or temporary employment pass in Malaysia.

Income Tax

Both Singapore and Malaysia use a progressive tax system, where the percentage of tax payable increases with chargeable income.

Chargeable income includes income earned or derived from Singapore or Malaysia. Compared to Singapore, Malaysia has higher income tax rates and a more complex system of indirect taxation. For instance, in Malaysia, chargeable income also includes income received from outside Malaysia. Singapore, on the other hand, does not impose tax on specific overseas income, even if it is credited to a Singapore bank account.

 

Globally, Singapore ranks #11 in the world for its total tax rate, while Malaysia ranked 81 (World Economic Forum’s Global Competitiveness Report 2017-2018).

Corporate Tax

With a range of 0 to 17%, Singapore’s corporate income tax rate remains one of the lowest in the world.

In Malaysia, the corporate tax rate is 24% (w.e.f Year of Assessment 2016). Companies with a paid-up capital of RM 2.5 million or less can enjoy a corporate tax rate of 18% for the first RM 500,000 and 24% in excess of RM 500,000 (w.e.f Year of Assessment 2017).

Tax Exemptions and Incentives

To help new businesses and start-ups in Singapore reduce their overhead costs in their nascent stage, annual incomes below S$100,000 are tax-free for the initial three years. Government grants and schemes are also available to support innovating companies.

In addition, in Singapore, resident companies are eligible for partial tax exemption, which effectively translates to about an 8.5% tax rate on taxable income of up to S$300,000 per annum. The usual 17% corporate tax rate will apply to taxable income in excess of S$300,000.

In Malaysia, Pioneer Status is a form of tax exemption (up to 70% of statutory income) that is granted to companies participating in promoted activities or producing promoted products for a period of 5 to 10 years. Another incentive is the Investment Tax Allowance, which is granted based on the capital expenditure incurred on acquiring industrial buildings or plant and machinery for the purpose of the above activities and products.

Withholding Tax

When a Singapore company or individual makes a payment to a non-resident individual or company for services or work done, 10 to 17% of that income must be withheld and handed over to the Inland Revenue Authority of Singapore (IRAS). Withholding tax does not apply to Singapore resident individuals or companies.

The rate of withholding tax, depending on the types of income paid (e.g. royalties, interest), ranges from 3 to 15% in Malaysia.

Foreign-Sourced Income

Both Malaysia and Singapore levy taxes based on a territorial principle, i.e. companies are taxed on income sources within each jurisdiction.

Foreign-sourced income (branch profits, dividends, service income, etc) becomes taxable only when it is remitted into Singapore, unless the income was already subjected to taxes in a jurisdiction with headline tax rates of at least 15%.

In Malaysia, resident companies are exempted from income tax on foreign-sourced income remitted into Malaysia, except companies in the banking, insurance, air or sea transport industries.

TAX	SINGAPORE	MALAYSIA
Corporate Tax	17% (Eligible new start-ups are given full exemption on their first $100,000 for the first 3 years)	24%
Branch Tax	17% (Partial exemption on first $300,000)	24%
Capital Gains Tax	-	0-30%
Income Tax	0% - 22%	0% - 28%
Withholding Tax - Dividends - Interests - Royalties	0% 15% 10%	0% 15% 10%
Double Taxation Relief	Yes	Yes
Foreign-Sourced Income Tax	May be taxable if received or deemed received in Singapore	No (Except for income from banking, insurance or air/sea transport)
GST	7%	6%

 Country Rankings at a Glance

YEAR	CATEGORY	SINGAPORE’S RANK	MALAYSIA’S RANK	SOURCE
2017	Ease of Doing Business	2	24	World Bank, Ease of Doing Business Report
2018	World’s Freest Economy	2	22	Heritage Foundation’s Index of Economic Freedom
2017-2018	World’s Most Competitive Economy	3	23	World Economic Forum, Global Competitiveness Report
2017	Country with Least Corruption Perception	6	62	Transparency International’s Corruption Perceptions Index
2017	World’s Best Country for Business	9	35	Forbes’ Best Countries for Business Index
2018	World’s Most Competitive Economy	3	22	IMD, World Competitiveness Yearbook
2018	World’s Most Innovative Economy	5	35	INSEAD Global Innovation Index
2016	Country Most Open to Trade	1	37	World Economic Forum, Global Enabling Trade Report
2017	Global Talent Competitiveness	1	28	INSEAD, Global Talent Competitiveness Index
2018	Ease of Paying Taxes	7	73	PWC, IFC, World Bank's Paying Taxes Survey
2013	World’s Lowest Risk City for Employing and Relocating Employees	2	51 (Kuala Lumpur)	Aon Consulting’s People Risk Index
2017	Quality of Life for Expats	4	22	Forbes Tax Misery and Reform Index

On a Final Note

The above analysis reaffirms Singapore’s dominance over Malaysia as a business jurisdiction. By realigning its tax policy, easing the company formation process, wiping out bureaucracy, nurturing an innovative economy, building a formidable workforce, and offering a high quality of living, Singapore has emerged as one of Asia’s most best-friendly locations.