With its favorable taxation policies and strategic position within Southeast Asia, Singapore offers foreign investors competitive and unprecedented access to the Asian market. Businesses operating in Singapore enjoy over 80 double taxation avoidance agreements, significant tax deductions, and numerous free trade agreements with neighboring Asian nations.
In addition to its political and economic stability, Singapore stands as a prominent financial center within the ASEAN region. For investors with an international business scope, Singapore offers direct access to the global market. Geographically, Singapore is positioned amongst several thriving Southeast Asian economies, as well as the markets of China and India. The city-state has sought to mirror international business and trade standards, such as those presented by the World Trade Organization and the Organization for Economic Cooperation and Development.
Singapore’s economy
Singapore is one of the wealthiest countries in the world, reporting a GDP per capita of US$72,068 in 2021, the highest in Asia.
The city-state has maintained a steady but slowing economic growth over the past five years. However, as is the case in much of the world, it felt the impact of the Covid-19 pandemic, reporting a GDP of US$469.1 billion at the current market price in 2020. This was a 5.4 percent decline, a slump caused in large part hits to the service producing industries and construction sector, and slowing consumption. 2021 has shown signs of brighter outlook for the city state; 7.6 percent on a year-on-year basis, reaching US$393.1 billion. This growth rate is well above pre-pandemic levels thanks to the low base effect from 2020.
Singapore’s largest industry sector is services, contributing close to 70 percent of the country’s total GDP in 2021. Despite this segment’s overall dominance, manufacturing remained the single largest industry sector in both 2020 and 2021, making up 21.5 percent and 22.3 percent of GDP in each year respectively. Despite slowdowns in other pandemic-stricken industries, it saw a 7.3 percent growth in 2020 and a further acceleration in 2021 with 13.2 percent growth. This growth has been attributed to an expansion of biomedical manufacturing, electronics, and precision engineering clusters.
In the services sector, the finance and insurance industry took the largest slice of the economic pie, accounting for 15.7 percent of the GDP in 2020 and 14.6 percent in 2021.
[tips title="Did You Know"]Singapore was ranked number one in the world in the Heritage Foundation’s Index of Economic Freedom in 2021 for the second year in the row, benefitting from an extremely business-friendly regulatory environment, a fair and efficient judicial system, and strong property rights, among other factors.[/tips]
Ease of doing business in Singapore
Singapore is consistently ranked among the top three economies in the World Bank’s Ease of Doing Business report.
The transparent nature of Singapore’s business and legal regulations means most of the information a business needs are readily available online. This makes it much easier for overseas decision-makers to learn more about the market during the entry process.
Singapore’s main working language is English, greatly facilitating communication between foreign businesses and their Singapore staff. Close cultural ties and a deep level of mutual understanding between Singaporeans and citizens of other ASEAN member countries can also significantly help with doing business in the region.
Businesses that are ready to set up can use Bizfile, an electronic filing system that combines all the tax and business requirements on a single form, reducing the need to queue at service centers. Bizfile is managed by the Accounting and Corporate Regulatory Authority (ACRA), which is the statutory body responsible for the monitoring of new companies in Singapore.
The time and cost needed to set up in Singapore are relatively short. Overseas business people can make a payment through Bizfile; it costs US$254 (S$300) to register a company and US$11 (S$15) to register the company’s name. Most applications are processed within the same business day; however, the process could take 14 days to two months for applications that need to be reviewed by government agencies.
The efficient and cost-effective nature of corporate establishment in Singapore has resulted in more than 37,000 international companies and around 7,000 foreign multinationals operating from the country.
Trade and investment landscape
International trade represents an indispensable part of Singapore’s economy. The country’s Port of Singapore is one of the busiest and best-connected seaports in the world, with links to more than 600 ports in 120 countries. The port’s container throughput reached a record high of 37.5 million TEUs, handling a total of 599 million metric tons of cargo.
[video file='https://cdn.jwplayer.com/videos/d1RcdWfJ-sZcHHUE7.mp4' image='https://resource.dezshira.com/resize/900x506/Misc/banners/web_1.jpg' title='The RCEP Advantage: Part 2 - Opportunities in Singapore']
According to the Singapore Department of Statistics, the total volume of import-export reached US$855.1 billion in 2021, of which exports accounted for US$452.7 billion and imports US$402.4 billion – equivalent to 217 percent of the total GDP for that same year. Machinery and transport equipment and chemicals represented the two largest commodity sections traded in 2021.
The import and export of services also represent a significant portion of Singapore’s total international trade, reaching US$449 billion in 2021. Transport services accounted for the single largest exported and imported service sector, representing 29.6 percent and 33 percent respectively. Financial services are the second largest export service at 16.2 percent, whereas telecommunications, computer, and information services was the second largest import service category, representing 11.9 percent of imports.
China is Singapore’s largest trading partner with a 14.1 percent share of merchandise trade in 2021, followed by Malaysia (11 percent) and the US (9.1 percent).
Thanks to its investor-friendly landscape, a favorable tax regime, and a highly-skilled domestic labor force, Singapore has long been a magnet for investors. It was the fourth largest recipient of FDI in the world in 2020, receiving US$91 billion according to the United Nations Conference on Trade and Development (UNCTAD) 2021 World Investment Report. The top investor in 2020 was the US.
[tips title="Did You Know"]Manufacturing, including petrochemicals, electronics, machinery, and equipment, as well as financial, wholesale and retail trade, and business services, are among the most popular sectors for foreign investors in Singapore.[/tips]
Free trade and tax agreements
With its favorable taxation policies and strategic position within Southeast Asia, Singapore offers foreign investors competitive and unprecedented access to the Asian market. As of July 2021, businesses operating in Singapore can enjoy over 88 double taxation agreements (DTAs), significant tax deductions, and 26 free trade agreements (FTAs) with both neighboring Asian nations and major economic powers worldwide.
With its favorable taxation policies and strategic position within Southeast Asia, Singapore offers foreign investors competitive and unprecedented access to the Asian market. As of July 2021, businesses operating in Singapore can enjoy over 88 double taxation agreements (DTAs), significant tax deductions, and 26 free trade agreements (FTAs) with both neighboring Asian nations and major economic powers worldwide.
There are two types of DTA in Singapore: comprehensive and limited. Comprehensive DTAs cover all income types and allow for the exchange of tax information, whereas limited DTAs cover income from shipping and air transport.
These DTAs also include treaties with ASEAN’s 10 member states – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam – providing businesses with a greater competitive edge when entering this market.
The 26 FTAs currently in force consist of 15 bilateral and 11 regional FTAs. These provide Singapore with exclusive access to the largest combined free trade areas due to its agreements with ASEAN as well as its FTAs with China, Hong Kong, India, and the EU. The country is also negotiating new FTAs with the Pacific Alliance-Singapore and Eurasian Economic Union (EAEU).
Although some regional players maintain strong DTA and FTA networks, ASEAN member states have not matched Singapore’s extensive DTA and FTA network. Singapore’s ability to improve and expand its trade relations will allow the country to continue to be a default location for businesses looking to expand in Southeast Asia and neighboring regions.
Singapore’s favorable tax regime is internationally recognized for allowing entrepreneurs and companies to enjoy low tax rates and numerous types of tax relief – through incentives, comprehensive tax treaty networks, and exemptions from certain incomes.
[tips title="Did You Know"]The country’s corporate tax regime is one of the most attractive in Asia. Businesses can take advantage of the flat 17 percent corporate income tax rate for profits above S$300,000 (US$221,243) and 8.5 percent for profits up to S$300,000.[/tips]
Moreover, as the Singaporean tax system operates on a territorial basis, companies are not taxed on most types of foreign-sourced incomes (such as from dividends or branch profits) that are remitted into Singapore, provided they pay tax in the source country with a rate of at least 15 percent. There is also no capital gains tax.
Gain more insights about Singapore’s Free Trade and tax agreements in this section.
Singapore's corporate tax landscape
Singapore’s tax system is internationally recognized as efficient and competitive, which allows foreign investors to enjoy low tax rates and numerous tax incentives. The country operates a single-tier, territorial tax system, which means that foreign-sourced income would not face additional taxes in Singapore. There is also no capital gains tax and there is no tax on dividends.
Singapore imposes corporate income tax (CIT) at a flat rate of 17 percent for both foreign and domestic companies, the lowest among all ASEAN member states. The country practices a single-tier corporate tax system, which means businesses pay CIT only on chargeable income (profits).
The low CIT rate has attracted a dynamic investment community to Singapore, comprising of more than 7,000 multinational firms, with more than half operating their Asia-Pacific business out of the country.
Read more about corporate income tax in Singapore.
Streamlined business process setup
Singapore’s efficient business environment is demonstrated by the ease with which foreign investors can incorporate a business in the country. Registering a company can take as little as one day provided all the files are in order.
Private company limited by shares
The private company limited by shares, commonly known as a private limited company, is the most preferred type of entity among foreign investors in Singapore. This entity is the most flexible, advanced, and scalable type of business form.
There are some key characteristics of a private limited company that makes them an attractive option for foreign investors:
A separate legal entity — the private limited company is a legal identity and separate from its shareholders and directors. Furthermore, this entity can also acquire assets, enter contracts, or enter debts in its own name.
Foreign ownership — this entity can be 100 percent foreign-owned.
Limited liability — the personal liability of the members that contribute towards the paid-up capital is limited to the amount that was contributed towards the paid-up capital.
Tax benefits and incentives — a Singapore private limited company is eligible for various tax incentives. For instance, the corporate tax rate of 17 percent is effective only for chargeable income above S$200,000 (US$147,000) with a 50 percent exemption on the next S$190,000 (US$139,000) of chargeable income. Furthermore, there is no capital gains tax.
Global hub for Intellectual Property and intangible assets
With technology-driven innovation taking center stage in ASEAN, Singapore launched its latest 10-year blueprint to strengthen its position as an intellectual property (IP) hub. Named the Singapore IP Strategy (SIPS) 2030, the blueprint builds on the country’s existing IP environment but will see more coordinated intangible assets (IA) initiatives that stays ahead of technological advancements.
With the global IA value standing at US$65 trillion, SIPS 2030 aims to capture this huge market by working with enterprises to better translate the outputs of their research and development (R&D), including helping companies raise capital using their IA/IP, and getting their products or services to market and society.
The government is also providing holistic IA/IP training and education programs that are curated to meet the needs of industries, particularly those engaged in the digital sector.
Why do foreign companies relocate to Singapore?
Singapore has long been a preeminent destination for setting up a regional headquarters and other foreign company structures to pursue business opportunities across ASEAN and Asia.
The country’s status as a preferred investment destination in Asia can be attributed to its legal and tax regimes – one of the most business and investor-friendly in the world – as well as its financial system, which is highly integrated with international financial markets.
This business landscape has enabled international investors to take advantage of Singapore’s access to some of the largest combined free trade areas through ASEAN, which include ASEAN-China, ASEAN-Hong Kong, and the ASEAN-India free trade agreements (FTAs).
There are, however, a wide variety of factors that add up to make Singapore an ideal location for companies that want to do business in the region. Click here to read about these in detail.
Tax incentives in Singapore
A multitude of Singapore tax incentive relief measures are available to help businesses reduce their overall tax bills. Many of these incentives are for taxpayers involved in specified industries or sectors which are deemed essential to Singapore’s economy.
Applicants must generally carry out high-value activities in the country and will be required to commit to spending on local employment as well as certain levels of local business spending. Such factors include the capacity for the company to contribute to the growth of research and development (R&D), the potential for the business to create a spin-off to the rest of the economy, and introducing or anchoring leading-edge technology, activities, and skills in Singapore.
Overview of Singapore tax incentive schemes for foreign businesses:
| Type of Incentive | Incentive Policy | Overview |
|---|---|---|
| Headquarter and internationalization incentives: | Tax exemption for start-up companies | 75% tax exemption on the first S$100k (US$73,6k) of normal chargeable income (income taxed at prevailing corporate tax rates), plus 50% tax exemption on next S$100k (US$73,6k) of normal chargeable income. |
| Partial tax exemption for companies | 75% tax exemption on the first S$10k (US$7,3k) of normal chargeable income, plus 50% tax exemption on the next S$190k (US$140k) of normal chargeable income. | |
| Common corporate tax relief measures to help reduce tax bills: | International headquarters award | Concessionary tax rate of 5% or 10% on income for businesses that commit to substantive headquarter activities, such as managing, coordinating, and controlling their regional operations from Singapore. |
| Merger and acquisition scheme | Provides the acquiring company an M&A allowance of 25% of the qualifying acquisition value capped overall at S$10m, S$40 million per assessment year, S$80k in stamp duty relief, and S$100k in double tax deduction transaction costs. | |
| Double Tax deduction for internationalization | Up to 200% tax deduction on expenses used for international expansion. | |
| Incentives for manufacturing and services activities: | Pioneer certificate incentive | Eligible companies may receive a concessionary tax rate of 5% or 10% on income derived from qualifying activities, limited to five years. |
| Investment allowance | Businesses can enjoy a tax exemption of up to 100 of fixed capital expenditure incurred. | |
| Incentives for finance and treasury activities: | Finance and treasury center | Finance and treasury activities derived income is taxed at a reduced rate of 8% (international treasury and fund management, investment and economic research analysis, and corporate finance and advisory services). |
| Financial sector incentive | Income derived from high-value-added financial sector activities such as equity market, derivatives market, and bond market transactions and services may be taxed at 5%, while other activities may qualify for a 13.5% tax rate. | |
| Financial sector technology and innovation scheme | Co-funding to develop financial technology (Fintech) that enhances Singapore’s banking industry, with support of up to 70% for qualifying costs such as IP rights, technical software, manpower skilling, and professional services, among others. |
Singaporean industries driving the economy
Advanced manufacturing
Manufacturing is by far the largest industry in Singapore, contributing to between 25 and 30 percent of annual GDP. It was in the 1980s when the country moved from low-value-added production to high value-added products, such as biomedical manufacturing, precision engineering, chemicals, medical devices, pharmaceuticals, and aerospace, among others. Singapore is already the third-largest global exporter of high-tech goods, the fifth largest producer of refined oil, and produces four of the world’s top 10 drugs.
Pharmaceutical and biomedical industries
Singapore’s pharmaceutical and biomedical sectors are fast-becoming leading drivers of economic growth not only for the country’s healthcare industry but also its manufacturing sector.
The country is one of a few that exports more pharmaceutical products (US$8.9 billion in 2020) than it imports (US$3.6 billion in 2020). Eight out of the 10 largest pharmaceutical firms in the world own plants in Singapore, which includes Pfizer, GlaxoSmithKline, Novartis, and Abbott.
German biotechnology company BioNTech, which developed the COVID-19 vaccine —BNT162b2 — with American pharmaceutical firm Pfizer, will establish its Asia-Pacific regional headquarters in Singapore, where it will also set up an mRNA manufacturing facility. The facility will produce several hundreds of millions of mRNA vaccine doses per year, boosting BioNTech’s capacities for vaccines and therapeutics for cancer and infectious diseases. More importantly, it will help build a rapid-response production capability to address the threat of future pandemic threats in the Asia-Pacific region and open the company to a dynamic marketplace with a population of 655 million.
Medical devices
Singapore is a critical manufacturing base for medical devices for global markets. The country has a strong presence of over 25 research and development centers and a local pool of over 3,000 medtech startups. Moreover, Singapore produces 60 percent of the world’s microarrays and one-third of the world’s thermal cyclers and mass spectrometers. The Asia medical technology market is predicted to overtake Europe as the second-largest regional market for medical devices by 2023, contributing to 35 percent of incremental growth.
Investors are attracted by Singapore’s strong base for research and innovation for new business models in healthcare, such as the use of big data to provide better patient-centric care. This, in turn, provides medtech companies with the capabilities to export their products or services to go-to-markets in ASEAN as well as Asia.
Electronics
The electronics sector accounts for some eight percent of Singapore’s GDP with several world’s largest semiconductor and assembly and test companies having manufacturing facilities in the country. Beyond semiconductors, Singapore plays a vital role in the global supply chain for microelectromechanical systems (MEMS), and memory products, among others. Singapore also trains over 13,000 engineers and technicians annually, ensuring businesses have a continuous supply of skilled talent to drive their efforts into new markets.
[faq title="FAQ: Using Singapore as a Regional Hub for Managing ASEAN Operations" ui="accordion"]
Why has Singapore risen as a destination for the management of ASEAN expansion?
A myriad of factors contributed to making Singapore among the most attractive economies for investment in Asia. Effective administration of regional operations, integrated supply chain and minimized tax obligations allow Singapore to easily outcompete traditional holding locations such as Malaysia and fellow ASEAN members alike.
What is the benefit of routing investments through Singapore?
Companies operating in ASEAN might find that the cost of transferring profits back to their home country has increased in the absence of up-to-date DTAs.
By contrast, with many DTAs in place and 0 percent withholdings tax of its own on dividends, Singapore allows companies to remit profits from production centers at a lowered rate and then pass profits on to a parent company without further reduction.
What are the options for corporate establishment in Singapore?
Setting up a private limited establishment in Singapore is the most effect option for administering operations throughout ASEAN, whilst other options such as representative offices, publicly listed companies, and joint ventures are also available for foreign investors. The structure of the private limited establishment allows companies owners to maintain full control of regional operations but limit their liability in case of a conflict with its subsidiaries in third party states.
Read more about corporate establishment in Singapore in this section.
What steps are involved when establishing a company in Singapore?
Companies investing in Singapore must first obtain approval for the company’s name, which should not be identical to a name already exists. Secondly, all private limited companies are required to appoint a director, company secretaries and auditors. The next thing on the list is to set up an office within Singapore’s city limits. They then must formally register with the Accounting and Corporate Regulatory Authority. While specific companies might face additional licensing or need to submit further documentation, all companies are subject to a variety of compliance requirements including holding the first annual meeting within 18 months of incorporation.
What are some common licensing requirements that investors might face upon entry into Singapore?
Depending on the nature of the work that a company wishes to conduct within Singapore, additional documentation and licensing may be required.
Among them, the most common ones are Business Activity License required for most firms operating within the country and Occupational License required for professional services such as lawyers, accountants and securities traders. Other documents also include a Compulsory License required for specialized fields such as travel agencies, school and employment agencies and a Certificate of Corporate Residency which is required for companies seeking to tap into Singapore’s DTAs.
[/faq]
