Singapore: Related Information
The Country and its Culture
Singapore’s aim is to become a major financial hub in the Asia-Pacific region, and judging by its recent performance in the wake of the global recession it appears to be achieving this goal. The city state is striving to encourage international finance and other businesses to locate there, and offers generous tax incentives to companies that locate their global or Asia-Pacific regional headquarters there. Indeed, while many countries are struggling out of recession, Singapore is predicted to achieve growth of between 7% and 9% for 2010.
The island has excellent telecommunications and good transport links. The Port of Singapore is the world’s largest in terms of total shipping tonnage, transhipment and containers. It is also the world’s third largest petrochemical refiner, and operates South-East Asia’s most technically advanced and efficient shipbuilding and ship-repair facilities. The Singapore Registry of Ships has over 3,000 registered vessels totalling more than 29 million gross tonnes, and offers tax advantages and financial incentives to Singapore-registered vessels under various schemes and funds.
Having reformed its trust laws in 2004, Singapore has stolen a march in the region on rival Hong Kong, which is currently playing catch-up with its own proposed trust law reforms.
Despite meeting the OECD’s tax information exchange agreement requirements, and therefore being removed from the OECD’s grey list, banking secrecy remains enshrined in Singapore law, with heavy penalties for wrongful disclosure of bank clients’ financial details or accounts. Singapore is one of the world’s fastest growing banking centres, with many global banks setting up offices there.
Both individuals and companies can benefit from the various tax incentives on offer, from a 50% tax deduction on investments made by “angel investors” who invest at least SGD100,000 in qualifying start-up businesses, to tax exemption for qualifying non-resident investment funds managed by Singapore-based fund managers.
Singapore is a relatively attractive jurisdiction in which to set up a holding company, provided care is taken to avoid falling foul of the local taxation regime, which imposes profits tax at 18% (from 2008). With an appropriate holding company structure, this is largely if not completely possible.
There is an 'Operational Headquarters Company' scheme offering tax benefits to a company which has a sizeable network of overseas companies in the south-east Asian region and is well established both in its home country and in its industry. The OHC must provide "qualifying" management, treasury or other approved headquarter related services to its subsidiaries, associated or related companies in other jurisdictions. A company which qualifies for this scheme is entitled to the following fiscal benefits:
- Income arising from the provision of "approved services" in Singapore to related companies is taxed at 10% for up to 10 years with a provision for an extension.
- Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at 18% with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the 18% charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. The income of OHC are exempt from any further taxation on the shortfall in so far as that shortfall is caused by the concessionary fiscal status granted to the company.
In February, 2004, the terms of the OHC regime were improved, with the maximum duration of the existing Regional HQ scheme being extended from three to five years. The qualifying criteria for OHC status includes incurring a minimum expenditure of $3 million over three years. The new regulations allow two more years of a tax break, as long as these businesses maintain their current spending levels. MNCs who have recently established their regional headquarters in Singapore can enjoy a 15 per cent tax rate for two more years.
In April, 2004, the government extended the HQ tax regime under the Expansion Incentive for Partnerships scheme. Firms which are able to prove that they intend to expand their Singapore-based operations will receive a 50% tax exemption on qualifying overseas income over a certain amount (determined by the average of the partnership's profits for the provision of services in the region over the three years prior to the application).
Baker & McKenzie tax partner, Edmund Leow welcomed the move, observing that: "Traditionally Singapore has always tried to attract foreign investment from multinational corporations with tax incentives. They have now realized that professional services firms are very important to the economy as well."
The Tax Incentive Scheme for Finance and Treasury Centres, introduced in 2004, is designed to encourage multi-national corporations to use Singapore as a base for conducting treasury management activities. It provides a concessionary tax rate of 10 per cent on income derived from provision of finance and treasury services to related companies. Interest payments on foreign loans obtained from overseas banks or related companies may also be exempted from withholding tax. There are other tax concessions for specific sectors of the finance sector.
Singapore is such a mixture of Anglo-Saxon and Chinese (Confucian) influences, along with Malay and Indian cultures, that it is dangerous to generalize. While the rule of law, which forms the bedrock of Western, and particularly Anglo-Saxon business relationships, is well-established in a formal sense in Singapore, one does well to remember that an extremely high proportion of the population of Singapore (77%) is Chinese.
One consequence of the recent history of the Chinese people as a whole is the dominance of 'the collective' in business situations. The mind-set imbued by the Chinese educational system runs deep, even when an apparently 'modern', hi-technology business is being run. Of course, if you are dealing with a western-educated Singaporean Chinese, things may, but only may, be different.
In Singapore, although less so than in Mainland China itself, a successful negotiation, and a successful business relationship, is therefore dependent on recognizing that a contract, while necessary and important, is only one aspect of the cultural nexus in which a foreign investor is operating. It may be difficult, also, to locate responsibility and decision-making power among a group of Chinese with whom you are negotiating or dealing.
Central to Chinese inter-personal culture is the concept of 'face'. In the collective, position is dependent on reputation, and nothing is more deadly to the self-esteem of a member than loss of face. A foreigner who is seen as the agent of such loss of face has committed a serious and possibly fatal error of negotiation.
While it may be difficult at first to understand the relative positions of individuals in the group with which you are negotiating or dealing, there are some pointers. It is highly probable that the members of a team will enter a room in the order of their relative importance, especially in the presence of a foreigner; and junior members of the team will constantly defer to their seniors in conversation and in bodily behaviour.
Due to the importance attached to 'face', business cards have much greater importance in Chinese societies than in the West, where they have rather taken a back seat, and relative position among a group of Chinese will be reflected in the order in which they present their business cards, as well as on the cards themselves, if you can understand them! When presenting your business card, you should offer it with both hands; likewise, you should take a business card with both hands, study it carefully, and place it respectfully in a pocket or on the table in front of you.
Chinese names consist of a family name followed by 'first' or personal names. Thus Hu Jintao is Mr Hu. First names are only used by family members or close friends. In business, when a person has a title or position, it is customary to adress them with it, thus Chairman Hu. Married women normally retain their maiden names except in very formal situations. Some Chinese adopt westernized forms of their names in business, and expect to be addressed in that way.
It is normal to shake hands when meeting someone, but a nod or slight bow is also often appropriate, particularly for someone you already know. A handshake should not be very forceful; and it may last quite a number of seconds. It is rude to look straight into the eyes of a Chinese person; more proper would be a quick glance, and then lower the eyes as a sign of respect.
Of course, much business in Singapore is conducted among Westerners, and in that case normal international business rules will apply. It is only when coming into contact with Chinese companies and people that the suggestions in this section will apply.
Business etiquette is quite formal in Singapore. It is normally necessary to make appointments well in advance, and punctuality is respected. Do not arrive at a meeting with unannounced companions; details should be sent in advance. This is an aspect of the importance attached to rank and hierarchical position. Remaining calm and smiling is an essential cornerstone of successful negotiating.
All employees will require an employment contract, and Central Provident Fund (CPF) contributions must be made for all staff earning over SGD50, unless they are foreign employees working on a work permit, self-employed sole-proprietors or partners, students or interns, or employees of the business working overseas.
Skills Development Levy (SDL) is payable for all employees up to the first SGD4,500 of their gross monthly salary, at a rate of SGD2, or 0.25% of gross salary, whichever is the larger.
Businesses employing foreign workers must also pay a Foreign Worker Levy (FWL) at varying rates, depending on the sector and skill level of the worker in question; the Ministry of Manpower provides further information on this here:
Tax forms must be prepared for all employees by March 1, for the employee to submit to the tax authority by April 15.
Although both employees and sole proprietors in charge of unincorporated businesses are taxed under the personal income tax system, there are certain differences in terms of tax treatment; for example the self-employed business owner can often claim losses against trade income, which is not an option available to an employee.
The Inland Revenue Service of Singapore generally defines a person as an employee if they: have no personal liability within the business, have no investment in it, and are unable to personally profit or lose money, are paid a regular wage, and can be paid overtime, bonuses, or commissions, must take instruction, and work specific hours, have their working tools and equipment supplied by the person or organisation that is paying them, and must generally get permission from that person to work elsewhere.
Conversely, a self-employed person or sole proprietor is generally deemed to be such if they are financially liable for the business, do substantial amounts of work in their own workspace, pay employees (and are able to subcontract if necessary), have a financial investment in the business, incur costs and losses, but are able to profit as well, can set their own hours, are generally paid on a ‘per job’ basis (with lawyers representing one exception), make their own contributions to the Central Provident Fund, and contribute on behalf of employees.
Sole proprietors should report their business income under ‘Sole Proprietorship’ in the ‘Trade, Business, Profession or Vocation’ section of their tax return.
Under the terms of the Employment Act, the party that wishes to terminate the Contract of Service (NB that there is a distinction between the Contract of Service which exists between employer and employee, and Contracts for Services, which are used by independent contractors undertaking a certain job or project with an organisation, and which do not imply an employer/employee relationship, and are therefore not covered by the Employment Act) should usually give notice in writing.
The notice period will generally have been agreed in the aforementioned contract of service; if it has not, there is a sliding scale, from one day (if the employee has been in their position for less than 26 weeks) up to four weeks (if they have been employed for more than 5 years).
The contract can be terminated by the employer without notice, if salary equivalent to the notice period is paid.
Other circumstances in which employment can be terminated without notice include where the employee has been absent from work for 2 consecutive days without approval, or adequate reason, and where there has been misconduct, defined as breach of discipline, or actions inconsistent with the explicit or implied terms of the contract. In cases of misconduct, an inquiry into the alleged behaviour must take place.
Singapore: Entry and Residence
Visitors to Singapore must meet the following entry requirements:
- A travel document such as a passport or permit, valid for a minimum of six months;
- An onward or return ticket;
- Entry facilities to their next destination; and
- Sufficient funds to stay in Singapore.
Visitors from the following countries require either a business visa or a social visit visa: Afghanistan; Algeria; Armenia; Azerbaijan; Bangladesh; Belarus; Burma (Myanmar); Egypt; Georgia; India; Iran; Iraq; Jordan; Kazakhstan; Kyrgyzstan; Lebanon; Libya; Moldova; Morocco; Nigeria; Pakistan; People’s Republic of China; Russia; Saudi Arabia; Somalia; Sudan; Syria; Tunisia; Tajikistan; Turkmenistan; Ukraine; Uzbekistan; and Yemen. Holders of a Hong Kong Document of Identity, a Macao Special Administrative Region Travel Permit, a Palestinian Authority Passport, a temporary passport issued by the United Arab Emirates or a Refugee Travel Document issued by Middle-East countries must also apply for a visa.
Those wishing to work in Singapore require a Work Pass, which can be one of the following:
- Employment pass – for foreigners earning a fixed monthly salary of more than SGD2,500 and having recognised qualifications.
- Personalised employment pass – for either overseas foreign professionals whose last drawn monthly salary overseas was at least SGD7,000; foreign graduates from institutions of higher learning in Singapore; and those who currently hold an employment pass.
- S pass – for mid-level skilled foreigners earning a fixed monthly salary of at least SGD1,800.
- Work permit – for unskilled foreign workers.
- Dependant’s pass – Employment Pass and certain S Pass holders can apply for this pass for their spouse and for unmarried or legally adopted children under age 21 to live with them in Singapore.
There are various other Work Passes, including for employment of foreign students, training employment, the work holiday programme and work passes for foreign spouses of Singapore citizens.
Foreigners eligible to apply for permanent residence in Singapore are:
- Spouses, unmarried children aged under 21 and aged parents of Singapore citizens and Singapore permanent residents;
- Work pass holders; and
- Investors who have substantial capital investment in the country and entrepreneurs with a proven track record, under a scheme run by the Singapore Economic Development Board which aims to attract foreign investors and businesses to Singapore.
Note that all male Singapore Citizens and Permanent Residents must register for National Service on reaching 16½ years of age. They must serve two years of full-time National Service from 18 years, followed by 40 days of Operationally Ready National Service per year till the age of 50 years (for officers) or 40 years (for other ranks).
Singapore Permanent Residents who wish to travel out of Singapore must obtain a Re-Entry Permit to enable the person to retain permanent residence status while away from Singapore. Failure to do so will result in the person automatically losing their Singapore Permanent Resident status.
Work permits are issued by the Ministry of Manpower. An administrative fee of SGD10 is charged for every work permit application submitted. Applications can be made via WP Online, via an employment agency, or manually.
Foreign visitors seeking employment in Singapore can apply for a one-year, non-renewable visit pass. Fees are SGD30 for processing, SGD60 for issuance, and SGD40 where an extension is applied for. If a visa is required, there is an additional fee of SGD30. Processing time is around four weeks.
An individual is generally assumed to be tax resident if they are present in Singapore for longer than 183 days during a year, or is present in Singapore in the year preceding the year of assessment.
However, there are two and three year administrative concessions in place (for foreign employees, generally). In the former instance, an individual residing or working in Singapore for a continuous 183 days over a 2 year period (except if they are a company director or public entertainer) will be deemed tax resident in Singapore for both years, even if they would not otherwise be deemed to be tax resident due to the start or end date of their stay.
Under the three year concession, a foreign individual residing or working in Singapore for three consecutive years can be tax resident for all three years, even if the number of days spent in Singapore is less than 183 in their departure and arrival years.
Benefits are also afforded under the ‘Not Ordinarily Resident’ scheme for certain expatriate workers, and with the primary benefit being tax exemption on the portion of Singapore employment income corresponding to time spent outside of Singapore on business trips, as long as the worker in question has been resident in Singapore for the two years prior to the year of assessment, spends at least 90 days out of Singapore on business, and has total Singapore employment income of SGD160,000.
Pre-assignment income remitted to Singapore is also exempted, as is the employer’s contribution to a non-mandatory overseas pension fund or social security scheme.
These benefits do not apply to directors’ fees, which are taxable in full, and as the scheme is primarily directed at not ordinarily resident employees, it is likely to be of limited interest to self-employed expatriates and business owners.