Singapore: Corporate Investment

The Government of Singapore provides a comprehensive package of tax concessions and incentives to businesses, whose very nature reflects the direction in which the state is trying to steer economic development. Singapore is a densely populated country with a high standard of living, a shortage of land and a high cost, highly skilled labor force and accordingly the country's comparative advantage lies in the development of high value, export orientated service industries.

In Malaysia by contrast a surplus of land, a large labor pool and low labor costs have resulted in the development of a low value, labor intensive, export orientated manufacturing economy. The result has been that labor-intensive components industries have moved to Malaysia, whereas Singapore has seen the growth of industries engaged in financial services, research & development, the production of computers & robots and computer aided design & manufacturing.

The government plays a key role in driving Singapore's economic development through the granting of fiscal incentives. The allocation of an incentive depends primarily on such considerations as the amount of investment involved, the technical output, the export potential, the employment opportunities and the general conduciveness to Singapore economic activity.

For resident corporations Singapore is not particularly tax-friendly: The corporation tax rate is 17% in 2010 and it is charged on all income derived from sources in Singapore, together with income from sources outside Singapore if received in Singapore .

For qualifying start-up companies, a 3-year tax exemption on the first $100,000 of chargeable income will be available. From the year of assessment 2008, a further exemption of up to S$100,000 out of the next S$200,000 of chargeable income is available.

There are however a number of beneficial tax regimes available to the international investor, described below, both in respect of local operations and in respect of the use of Singapore as an international investment base.

For a country to be an attractive location in which to set up a holding company 4 criteria must be satisfied:

Withholding Taxes on Incoming Dividends: Incoming dividends remitted by the subsidiary to the holding company must either be exempted from or subject to low withholding tax rates in the subsidiary jurisdiction. This is usually achieved by having in place a double taxation treaty to which the subsidiary and holding company jurisdictions are parties. An extensive network of double taxation treaties reduces the rate of withholding taxes levied on dividends remitted by the foreign subsidiary to the Singaporean holding company from a standard rate of 17% to a rate which stands at between 10%-15%. Singapore has approximately 70 double taxation treaties in place.
Corporate Income Tax on Dividend Income Received: Dividend income received by the holding company from the subsidiary must either be exempted from or subject to low corporate income tax rates in the holding company jurisdiction. The amount of corporate income tax payable on dividend income received by a Singaporean holding company from a foreign subsidiary depends on whether or not the dividend remittances come from a subsidiary resident in a jurisdiction with which Singapore has signed a double taxation treaty.
Capital Gains on the Sale of Shares: Profits realized by the holding company on the sale of shares in the subsidiary must either be exempt from or subject to a low rate of capital gains tax in the holding company jurisdiction. In Singapore capital gains tax is only levied on real estate purchased and sold within 3 years, the profitable sale of assets whose purchase and re-sale is so short-term as to be deemed speculative, and companies whose business activity consists in the repeated purchase and sale of capital assets for profit. Where assets are owned by a company and their sale is effected by transferring ownership of the shares in the company a capital gains tax charge may also arise. In practical terms this is likely to mean that no capital gains tax is levied on the profitable sale by a Singaporean holding company of its shares in a foreign subsidiary.
Withholding Taxes on Outgoing Dividends: Outgoing dividends paid by the holding company to the ultimate parent corporation must either be exempt from or subject to low withholding tax rates in the holding company jurisdiction. In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at 20%, 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 20% charge, the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Where a dividend is paid out by a Singaporean company to a foreign parent corporation no further taxes will be levied in most circumstances.

Regional/International Headquarters Awards (HQ Awards)

To qualify for this scheme the company must have a sizeable network of overseas companies in the south-east Asian region and be well established both in its home country and in its industry. The HQ must provide "qualifying" management, treasury or other approved headquarter related services to its subsidiaries, associated or related companies in other jurisdictions. In order to be eligible to apply for incentives under the Headquarters Programme, the applicant company should meet the general criteria below:

The applicant should be, or belong to a group that is, well established in its respective business sector or industry and has attained a critical size in terms of equity, assets, employees and business share.
The applicant should be the nerve centre in terms of organisation reporting structure at senior management levels for its principal activities with clear-cut management and control for the activities.
The applicant should have a substantial level of headquarters activities in Singapore that may include:
- Strategic Business Planning and Development
- General Management and Administration
- Marketing Control, Planning and Brand Management
- Intellectual Property Management
- Corporate Training and Personnel Management
- Research, Development and Test Bedding of New Concepts
- Shared Services
- Economic or Investment Research and Analysis
- Technical Support Services
- Sourcing, Procurement and Distribution
- Corporate Finance Advisory Services
The personnel employed by the applicant for its headquarters operations should be based in Singapore, and would include management, professionals, technical personnel and other supporting staff.

Currently (2010), the Regional Headquarters Award offers a concessionary tax rate of 15% for up to 5 years on incremental qualifying income from abroad. If applicant company satisfies all the minimum requirements by Year 3 of the incentive period, it will enjoy the 15% concessionary tax rate for an additional 2 years on qualifying income.

The applicant company must satisfy all of the following minimum requirements by the milestone indicated and maintain till the end of the incentive period:

paid-up capital of SGD0.2 million and SGD0.5 million by the end of Year 1 and Year 3 of the incentive period respectively.
3 he adquarters services to network entities in 3 countries outside Singapore by the end of Year 1. Network entities refer to any entity within the group, including subsidiaries, sister companies, branches, joint ventures and representative offices as well as franchises.
75% skilled staff throughout the incentive period. Skilled employment refers to at least an NTC2 Certificate qualification.
additional 10 professionals in Singapore by the end of Year 3. Professionals refer to at least a diploma qualification.
average remuneration per worker of SGD100,000 per annum for the top 5 executive designations by the end of Year 3.
additional SGD2 million in annual total business spending in Singapore by the end of Year 3. Total business spending refers to total operating costs minus the costs of work subcontracted outside Singapore, royalties and know-how fees paid overseas, raw materials, components and packaging.
additional SGD3 million in total business spending cumulatively for the first 3 years of the incentive period.
- The level at Year 3 – Year 0
- The level at (Year 3 + Year 2 + Year 1) – 3 x (Year 0)

Finance And Treasury Centres (FTC)

The Tax Incentive Scheme for Finance and Treasury Centres, introduced in 2004, was designed to encourage multi-national corporations to use Singapore as a base for conducting treasury management activities.

The scheme provides a concessionary tax rate (10% at the time of writing) on all fee income received by the FTC from its subsidiaries, related companies and associates outside Singapore (approved network companies) for the provision of qualifying FTC services and qualifying activities conducted on own account, and on interest, dividend and gains from transactions in foreign currency denominated stocks and bonds, foreign exchange trading, interest rate swaps, financial futures and options.

There is exemption from withholding tax on interest payments on foreign currency denominated borrowings by the FTC from overseas banks and approved network companies, provided the funds raised are used for the conduct of qualifying FTC activities. Borrowings from network companies exclude funds borrowed by network companies from sources other than banks.

The FTC must meet the following minimum criteria: Annual total business spending (TBS) of SGD750,000; 3 professional staff employed by the FTC; and 3 qualifying FTC services to 3 or more network companies.

In 2008, the Financial Sector Incentive (FSI) scheme was extended for a period of five years from 1 January 2009 to 31 December 2013, in order to promote the city as a financial centre, particularly in the area of Islamic finance.

Give a 5% concessionary tax rate on income derived from performing specific Shariah compliant activities;
Include trading of Qualifying Debt Securities and Qualifying Project Debt Securities as a qualifying activity under the FSI-Bond Market enhanced-tier award with effect from 16 February 2008; and
Include trading of exchange-traded financial derivatives as a qualifying activity under the FSI-Derivatives Market enhanced-tier award with effect from 16 February 2008; and
Enhance the offshore insurance business incentive scheme to give a 5% concessionary tax rate to an insurer (other than a captive insurer, a marine and hull liability insurer or an insurer underwriting specialised insurance risks) on income derived from offshore Islamic insurance (takaful) or reinsurance (retakaful) business for a five year period from 1 April 2008.

Accelerated Depreciation Allowances

Accelerated depreciation allowances enable a company to reduce its taxable profits, strengthen its asset base and improve its cash flow. The normal rate of annual depreciation for capital expenditure at the time of writing is an initial 20% allowance with the balance being written off at the rate of between 5-20% per annum.

However in certain circumstances accelerated depreciation allowances are available which allow companies to set off 33% per annum of the cost of all plant and machinery for each of 3 years subsequent to purchase. In the case of prescribed automation equipment, robots and certain environmental related equipment (e.g. energy saving equipment) 100% of the assets cost can be set off in the first year.

Singapore: Incentive Schemes

Pioneer industries - Corporations manufacturing approved products with high technological content, providing qualifying services or engaging in countertrade activities may apply for tax exemption for five to fifteen years. Dividends paid out of exempt pioneer profits are not subject to tax in the hands of recipients. Corporations may apply for their post pioneer profits to be taxed at a reduced rate under the Development and Expansion Incentive (see below).

High-value-added or expanding industries - Corporations engaging in new high-value-added projects, expanding or upgrading their operations, or undertaking incremental activities after their pioneer or post pioneer period may apply for their profits to be taxed at a reduced rate of not less than 5% for an initial period of up to 10 years. The total tax relief period is subject to a maximum of 20 years (inclusive of the post pioneer relief period previously granted, if applicable). This is known as the Development and Expansion Incentive.

Export of services - An approved enterprise providing selected services with respect to overseas projects is given tax exemption on 90% of the qualifying export income. The exemption is given for a period of five years, with provision for an extension.

In February 2008, Singapore's Minister for Finance, Tharman Shanmugaratnam, announced improved tax breaks for research and development, start-up companies and SMEs, and the investment sector including Islamic finance.

An increased tax deduction for expenditure incurred on research and development (R&D) done in Singapore from 100% to 150%;
A new incentive to grant companies R&D Tax Allowance for 2009 to 2013, amounting to 50% of the first SGD300,000 of chargeable income for each year;
An initiative to allow start-ups that have yet to make taxable profits within their first three years to convert up to SGD225,000 of the company’s losses (arising from tax deductions for R&D which the company does in Singapore) into cash grants of up to SGD20,250 from the Government;
An allowance to all companies for expenditure incurred on fixtures, fittings and installations, except those relating to structure or expansion of building space, up to a maximum expenditure of SGD150,000 every three years;
An extended unilateral tax credit claim for foreign income taxes incurred on all types of foreign-sourced income earned in countries with which Singapore has yet to conclude an Avoidance of Double Taxation Agreement (DTA); and
A double tax deduction for recruitment and relocation costs of hiring top global talent, for another five years.

To promote the city as a centre for wealth management, Tharman announced the introduction of a new tax incentive that grants tax exemption on locally-sourced investment income and foreign-sourced income received by qualifying family-owned investment holding companies, to the extent that such tax exemption mirrors the tax exemption on qualifying locally-sourced investment and foreign-sourced income exemptions granted to individuals. The incentive is valid from 1 April 2008 to 31 March 2013.

Tharman also announced the removal of Estate Duty from Singapore’s tax regime, a move that he argued would enhance Singapore’s attractiveness as a place for wealth to be invested and built up. This measure was effective as of 15 February 2008. He urged individuals who had accumulated wealth to contribute to society, and take advantage of the enhanced philanthropy incentives introduced last year.

“If we make Singapore an attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners who bring their assets here, it will benefit our whole economy and society, not just the individuals who build up their wealth. It is not a zero sum game," he observed.

Unutilized trade losses and capital allowance for YA 2009 and YA2010 can be carried back to set off against Assessable Income of three immediately preceding YAs up to a limit of SGD200,000.
Businesses that incur qualifying Renovation and Refurbishment expenses in the basis periods for YA 2010 and YA 2011 can deduct such expenses in one year instead of over three years, subject to the cap of SGD150,000 for each relevant three-year period.
Companies Limited by Guarantee (CLGs) will be allowed to qualify for the tax exemption scheme for new start-up companies effective from YA2010.
A new tax framework for qualifying amalgamations will be introduced.
An accelerated write-down of capital allowance (CA) will be allowed on plant and machinery acquired in the basis periods for YA 2010 and YA 2011. CA is computed based on 75% of the capital expenditure for the first YA and 25% of the capital expenditure for the second YA.
Under the Block Transfer Scheme (BTS), withholding tax (WHT) exemption can be granted in respect of interest payable on a loan taken by a shipping enterprise from a lender outside Singapore to acquire a Singapore-flagged ship. This WHT exemption is for ships registered with the Singapore Registry of Ships (SRS) on any date from January 1, 2009 to December 31, 2013.
The tax exemption schemes for foreign investors and qualifying resident funds, tax incentive schemes for approved trustee companies and financial sector incentive companies will be enhanced by expanding the list of specified income and designated investment.
The tax deduction for collective impairment provisions made by banks, merchant banks or finance companies under MAS Notices 612, 811 and 1005 will be extended for a further three years, subject to conditions.

During his keynote address to Singapore’s Fourth Start-up Enterprise Conference in June, 2010, the Permanent Secretary for Finance, Peter Ong, illustrated how the competitive tax regime in Singapore encourages the growth of new start-up companies.

“Singapore offers a very competitive tax regime designed to encourage new start-up companies,” he said. “Under the full tax exemption scheme, a newly incorporated company that meets the qualifying conditions effectively pays only 5.6% on the first SGD300,000 (USD213,000) of the income they earn in their first three years.”

“After this period,” he continued, “start-ups can continue to pay less than 9% tax on the same amount, thereby allowing new entrepreneurs to retain a larger portion of their earnings to be ploughed back to grow their businesses.”

He pointed out that, this year, the government has also unveiled an unprecedented tax benefit in the form of the Productivity and Innovation Credit, to encourage start-ups and small- and medium-sized enterprises (SMEs) to invest in productivity and innovation. As an illustration, for the first SGD300,000 that a start-up invests in staff training, it can deduct SGD750,000 from its taxable income.

The same start-up will enjoy another SGD750,000 deduction should it invest in automation. “The Productivity and Innovation Credit also allows businesses to convert the enhanced tax deduction into a cash payout,” he added, “a move that would come in handy in helping start-ups and SMEs ease their cash flow.”

Ong then illustrated the programme which supplies young start-ups with grants of up to SGD50,000 to start their innovative business, while the Start-Up Enterprise Scheme provides a co-financing option of up to SGD1m in funding start-ups with innovative and viable content.

Singapore: Availability of Skilled Workers and Business Infrastructure

Singapore's labour market is very tight, with skilled workers in great demand, especially in rapidly growing sectors such as financial services and construction. The government puts a strong emphasis on up-skilling and on education in general, but it faces the problem of a rapidly ageing population. Nearly a quarter of Singapore's current workforce are immigrants.

The seasonally adjusted overall unemployment rate fell slightly to 2.1% in September 2010 from 2.2% in June 2010. Among the resident labour force, the unemployment rate was 3.1%, also down by 0.1%-point from 3.2% in June 2010. Both rates represented significant improvements from 3.3% (overall) and 4.8% (resident) a year ago. These figures show that there is effectively no slack in the labour market.

A Labour Force Survey conducted in the middle of 2010 by the Ministry of Manpower’s Research and Statistics Department records a record high in terms of the proportion of the resident population in employment, at 66%. The proportion of residents aged 25 to 64 in employment scaled a new high of 77.1% in 2010. Among prime working age men the figure is 92%.

Needless to say, these figures are reflected in pressure on wages and salaries. The median monthly income from work of residents in full-time employment rose by 4.2% over the year to $2,710 in 2010.

For those looking to enter the technical industries, the Institute of Technical Education (ITE) offers a range of full and part time courses, in addition to traineeships in a number of areas, which combine both ‘on the job’ practical training in an employment environment, and ‘off the job’ technical training, either at an ITE college, or an approved training centre.
For local students and graduates looking to enter other areas, the Management Associate Partnership (MAP) and the Enterprise Internship Programme are available. In the case of the MAP, local university graduates are matched with fast-growing SMEs for an 18-month period, during which the graduate is taught the various aspects of the business. Qualifying SMEs can receive up to SGD15,000 to defray the costs associated with employing and training the graduate.
Under the EIP, students at Singapore-based polytechnics and universities can work with SMEs under short-term internships; SPRING Singapore co-funds the weekly stipend for the student (SGD200 for polytechnic students, and SGD300 for university students).
It is possible to undertake work experience or internships in Singapore; a number of universities and placement agencies both nationally and internationally have agreements in place with employers.
The Work Holiday Programme permit is likely to be of most interest to undergraduates (and those undertaking post-graduate study) aged 17-30, and from an approved university in Australia, France, Germany, Hong Kong, Japan, New Zealand, the United Kingdom, and the United States. The permit is valid for a six-month period, and because of the short duration, there are no restrictions on the areas in which the applicant can work.
The Training Employment Pass should be applied for by those foreign undergraduates or workers seeking to undertake practical training in relation to professional, specialist, managerial, or executive jobs. Where the applicant is an undergraduate (from an approved university), the attachment should be an essential part of their degree course.
For local students and graduates, the Management Associate Partnership (MAP) and the Enterprise Internship Programme are available. In the case of the MAP, local university graduates are matched with fast-growing SMEs for an 18-month period, during which the graduate is taught the various aspects of the business. Qualifying SMEs can receive up to SGD15,000 to defray the costs associated with employing and training the graduate.
Under the EIP, students at Singapore-based polytechnics and universities can work with SMEs under short-term internships; SPRING Singapore co-funds the weekly stipend for the student (SGD200 for polytechnic students, and SGD300 for university students).

Singapore has excellent telecommunications. It is estimated that, with landline and mobile phones combined, there are approximately 175 phones per 100 people. In 2008, there were 3.37 million Internet users.

There are eight airports in Singapore, the main one being Changi International Airport. There is a good road network, with a causeway linking Singapore with Malaysia. There is also a train service linking Singapore, Malaysia and Thailand, with trains running to Kuala Lumpur, Penang and Bangkok.

The Port of Singapore is the world’s busiest in terms of total shipping tonnage, transhipment and containers, handling some 140,000 vessels each year. The port 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 the Approved International Shipping Enterprise scheme, the Approved Shipping Logistics scheme, the Maritime Finance Incentive scheme, and the Maritime Cluster Fund.

There are six Singapore-incorporated banks which are owned by three banking groups: DBS Bank Limited, Far Eastern Bank Ltd, Oversea-Chinese Banking Corp. Ltd, Singapore Island Bank Ltd, The Islamic Bank of Asia, and United Overseas Bank Ltd. Over 100 foreign commercial banks are registered in Singapore, including some 40 or so offshore banks.

Singapore is one of the first countries to have introduced legislation to enable e-commerce, with the enactment of the Electronic Transaction Act 1998. The Act closely follows the UNCITRAL Model Law on Electronic Commerce, and is drafted in such a way that government authorities can introduce electronic filing systems without amending other laws. It also allows public bodies to issue licences and permits electronically.

Singapore’s aim is to be an international e-commerce hub. The Act aims to provide the legal framework necessary to ensure predictability, trust and certainty to allow e-commerce to flourish.

The Act provides a framework that clearly sets out the rights and obligations of parties in the course of e-commerce, as well as the legal aspects of electronic contracts, digital signatures, authentication and non-repudiation.

Under the Act, network service providers are not subject to criminal or civil liability for third-party material where the provider is merely the host of such material. The Evidence Act was, however, amended to allow electronic records to be used as evidence in court proceedings.

In the course of developing a Public Key Infrastructure, the Act provides for the appointment of a Controller of Certification Authorities. The Controller enables regulations to allow certification authorities (including foreign certification authorities) to be licensed under a voluntary regime, subject to strict licensing criteria including financial soundness and security controls.

Lowtax Jurisdictions

Singapore: Corporate Investment

Singapore: Foreign Investment Regime

Regional/International Headquarters Awards (HQ Awards)

Finance And Treasury Centres (FTC)

Accelerated Depreciation Allowances

Singapore: Incentive Schemes

Singapore: Availability of Skilled Workers and Business Infrastructure

Network Tweets

Strategic Partners