Singapore Guide

Global Incorporation Guide [GIG] Editorial

April 22, 2014

Located in South East Asia, Singapore is a highly developed and successful free market economy which enjoys an open and corruption-free environment, stable prices, a low tax regime and a high per capita GDP that is the envy of most of the developed world.

Introduction to Singapore

Although most probably think of Singapore the city, the Republic of Singapore is actually a 700 square kilometre island sandwiched between Indonesia and the tip of the Malay peninsula. The city was founded as a British trading colony in 1819 and formed an important strategic trading and naval post within the British Empire in the 19th and early 20th centuries.

In the post-World War 2 period Singapore gravitated towards the Malaysian Federation, which it joined for two years in 1963. However, Singapore became a fully independent state in 1965 and subsequently it has become one of the world's most prosperous countries with strong international trading links and one of the busiest international ports.

Approximately three-quarters of Singapore’s population of 5.5m are of Chinese origin but there are significant minorities of Malaysians and Indians, while the presence of the major global multinationals in the city also ensures a sizeable army of expats from Europe, North America and elsewhere around the globe. English is one of the four official languages spoken on the island, alongside Chinese, Malay and Tamil. As a legacy of its association with the former British Empire, Singapore’s legal system is based on English common law. 

Economic Overview

In 2013, Singapore was ranked by Grant Thornton as the world’s most dynamic economy, mainly on account of its favourable financing environment. However, Singapore was also ranked highest in terms of the quality of its financial regulatory system, its high level of private sector credit, and the lightness of its corporate tax burden.

“Singapore is perfectly placed to act as a gateway between West and East. Business and economic growth prospects are supported by an open, transparent financing environment and a well-educated workforce," the report said.

Singapore’s economy is heavily dependent on exports, and its main industries include electronics; financial services; chemicals; oil-drilling equipment and petroleum refining; ship repair; rubber processing and products; offshore platform construction; life sciences; and entrepot trade. However, Singapore’s aim is to become the leading finance and technology hub in the Asia-Pacific region and Government policy is directed towards achieving this end.

The economy contracted 0.8 percent in 2009 as a result of the global financial crisis, but rebounded 14.8 percent in 2010, on the strength of renewed exports, before slowing in 2011-13, largely a result of soft demand for exports during the second European recession. Nevertheless, GDP per capita, at USD64,500 in 2013, is the third-highest in the world, and GDP growth in 2013 was an estimated 5.3 percent. Over the longer term, the government hopes to establish a new growth path that focuses on raising productivity, and the country has already attracted major investments in pharmaceuticals and medical technology production.

The local currency is the Singapore Dollar (SGD), and there are no exchange controls.

Business Environment

Singapore has excellent telecommunications, a good road network and rail links to Malaysia, Indonesia and Thailand. The country has eight airports, the main one being Changi International which serves destinations all over the world. The Port of Singapore is one of the world’s busiest in terms of total shipping tonnage, transhipment and containers, rivalled only by Shanghai and Hong Kong.

There are five free trade zones (FTZs) located at the Port of Singapore. No duty or taxes are payable on goods stored in an FTZ, but they are payable when the goods leave the FTZ and enter into customs territory for local consumption. Nevertheless, customs procedures for movement of goods within FTZs have been simplified and paperwork reduced.

Foreign investors in Singapore are well served by representatives of most major international banks, and there is an excellent professional infrastructure. Most of the large accountancy firms have offices in the city and there is a thriving market for legal services.

Tax Summary

Singapore has one of the most beneficial tax regimes in the region for a wide variety of business operations, and with its extensive network of double tax avoidance agreements, the city is an excellent base from which to trade with and invest in the fast-rising emerging markets in the Asia-Pac region. Additionally, recent tax measures have been geared towards encouraging investment in small, high tech businesses and attracting foreign investors.

Tax Residence and Rates

A company is resident in Singapore if its central management and control of the business is exercised there. Singapore-resident companies are generally taxed on their worldwide income; non-resident companies are taxed on their Singapore-source income only, which can prove attractive to international holding and trading companies. The corporate income tax rate is 17 percent (18 percent prior to 2010).

There is a partial tax exemption on normal chargeable income (excluding Singapore franked dividends) of up to SGD300,000 which gives a total exemption of SGD152,500.

New start-up companies benefit from full tax exemption on the first SGD100,000 of normal chargeable income for the first three consecutive years of assessment, plus a further 50 percent exemption (from tax year 2008) on the next SGD200,000 of normal chargeable income (in both cases, excluding Singapore franked dividends). Therefore, a new start-up company can qualify for a total exemption of up to SGD200,000 in each of the first three years of business.

Foreign companies that manage their headquarters activities out of Singapore under the International Headquarters Award can benefit from a lower corporate income tax rate of 10 percent. Companies that manage their Asia-Pacific headquarters activities out of Singapore under the Regional Headquarters Award pay corporate income tax of 15 percent. Both awards are subject to a number of conditions, such as Singapore-based personnel.

Companies incorporated in Singapore and engaging in international or regional trading, procurement, distribution and transportation of approved commodities can apply for the renewable five-year or non-renewable three-year Global Trader Programme. Such companies can benefit from reduced corporate income tax of 10 percent on qualifying income, subject to conditions.

There are numerous other tax incentive schemes available in Singapore targeting the shipping, manufacturing, venture capital, financial and insurance sectors, and so-called “pioneer” companies.

Double Tax Treaties

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 the standard rate to a rate which stands at between 10 percent and 15 percent.

Singapore has more than 80 tax treaties in force and most of them contain tax sparing provisions, meaning that the foreign parent corporation of the Singapore subsidiary treats income received from its Singapore subsidiary as if the full amount of corporate income tax had been paid in Singapore even though the subsidiary was subject to a number of favourable fiscal concessions which meant it paid little or no corporate income tax. The treaty with the USA is a notable exception, however.

The greater a country's network of double taxation treaties, the greater its leverage to reduce withholding taxes on incoming dividends. An elaborate network of double taxation treaties is thus a key factor in the ability of a territory to develop as an attractive holding company jurisdiction and a major reason why Singapore has grown into a major global business, investment and trading hub.

Singapore Companies

Most types of Singaporean company are formed under the Companies Act (Cap 50 of the 1994 Revised Edition of the Singapore Statutes).

The Private Company Limited by Shares (a Pte Ltd company) is the most common business structure used in Singapore. The company is a separate legal entity in its own right, and so shareholders are not liable for its debts. The maximum number of shareholders allowed is 50. Although 100 percent foreign ownership is allowed, at least one director must be a Singapore citizen, resident or employment pass holder. Newly set-up companies can benefit from a reduced corporate income tax rate of 0 percent to 8.5 percent on chargeable income of up to SGD300,000 in their first three years.

A Pte Ltd company must register with the Accounting and Corporate Regulatory Authority (ACRA). The registration fee is SGD300, plus SGD15 for company name approval. Accounts must be audited annually and filed with ACRA. An annual tax return must be filed with both ACRA and the Inland Revenue Service of Singapore within one month of the company's annual general meeting.

A foreign company may establish a Branch or Subsidiary in Singapore, although the latter form offers a number of tax and other advantages over the former.

The foreign company's head office is ultimately responsible for a Branch. Moreover, a Branch does not benefit from tax incentives and exemptions enjoyed by local businesses. The Branch must bear the same name as the head office, and must have a registered office address in Singapore. Two ordinarily resident agents in Singapore must be appointed by the Branch to accept notices and service of process. Earnings and capital can be repatriated to the parent company, and income attributable to or derived from activities outside of Singapore are not subject to Singapore corporate income tax. A Branch must be registered with ACRA; registration fees are SGD300 for a foreign company with share capital, or SGD1,200 for one without share capital, plus SGD15 for name approval.

Alternatively, a foreign company can establish a subsidiary as a locally incorporated private limited company, with the parent company as its majority or only shareholder. The subsidiary is a separate legal entity from its parent, and its liabilities do not extend to the parent. The subsidiary can benefit from the same tax incentives and exemptions as local companies.

A Representative Office undertakes marketing and oversight activities in Singapore on behalf of the foreign parent company. Depending on the activity the Representative Office represents, it must register with either International Enterprise Singapore or the Monetary Authority of Singapore. A Representative Office cannot trade within Singapore.

Other Singapore company formats include:

  • Public limited companies
  • Exempt private companies
  • Companies limited by guarantee
  • General partnerships
  • Limited partnerships and limited liability partnerships
  • Business trusts

More detailed information on business and taxation in Singapore can be viewed in the Singapore Knowledge Base of our partner website, www.lowtax.net


Tags: Singapore | tax | business | trade | dividends | investment | environment | Malaysia | Tax | tax incentives | Indonesia | holding company | services | Europe | Asia-Pacific | withholding tax | Hong Kong | India | agreements | financial services | manufacturing

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