Doing business in Singapore

Why do business in Singapore?

The question you should be asking is: ‘why not?’ Singapore continues to lead the way as the world’s best place to do business and boasts a business-friendly environment and competitive tax regime, making it an attractive destination for businesses looking to expand in the Asia Pacific region – Economic Intelligence Unit 2023 rankings.

Tax efficient

The competitive tax system in Singapore is one of the key reasons for setting up a business in Singapore. Corporate tax rate is capped at 17% on a company’s chargeable income and Singapore follows a single-tier corporate tax system where income that has been taxed at the corporate level will not be imputed to the shareholders (ie dividends are tax-free). Capital gains are not taxed. Many industries also enjoy additional tax benefits on set-up and for an initial period.

Strategic location and gateway to Southeast Asia

Singapore’s strategic position in the heart of Southeast Asia offers foreign investors and businesses crucial access to the Southeast Asian market. The country is situated in an ideal location for businesses to set up their regional headquarters as it is well-equipped to help investors navigate the challenges and opportunities present in the Association of Southeast Asian Nations (ASEAN) markets, with its efficient procedures, integrated supply chain networks and close cultural and linguistic connections with the surrounding countries of ASEAN and the rest of Asia. Travel connectivity through Asia and the rest of the world facilitates face-to-face meetings when those are required.

Highly educated and diverse labour force

The highly educated and productive workforce in Singapore plays a critical role in the sustainability of the economy. As Singapore is primarily a knowledge-based economy, its labour force is recognised for its high level of education, technical proficiency, and diligent culture. Singapore’s flexible immigration policies based on meritocracy have also encouraged the relocation of foreign talent to Singapore, creating a competitive, diverse, and multiracial pool of talent in the workforce.

Political and economic stability

The political and economic stability and rule of law in Singapore have made it a prominent financial hub in Asia, creating an ideal environment for businesses to grow and thrive in Singapore.

Excellent infrastructure and high quality of life

According to the Global Peace Index 2023 report, Singapore has been ranked the sixth most peaceful country in the world. Besides safety, the country offers state-of-the-art infrastructure, affordable and efficient public and private transportation, excellent healthcare, and a world-class education system for residents, making it one of the top choices in the Asia Pacific region for foreign talent to set up businesses and relocate to with their family.

What are some of the available/common investment structures?

As one of the leading financial services hubs, Singapore offers immense opportunities to investors and fund managers around the world including a variety of legal entities and arrangements for different types of investments. The common structures are:

Private limited company

A private limited company is a type of limited liability company which has a separate legal personality from its shareholders and directors. This means that it is subject to corporate tax, can sue or be sued and is able to own property or assets in its own name. It can be used to establish a fund and is generally subject to strict accounting and auditing requirements, compliance of which creates a credible image to investors and financial institutions alike.

The primary advantages of setting up a private limited company in Singapore include no restrictions on foreign ownership, limited shareholders’ liability, and ease of raising capital.

Variable capital companies

Singapore’s Variable Capital Company (VCC) is a corporate structure introduced in January 2020 used to set up funds through a corporate entity. These investment funds typically comprise private equity, venture capital and/or hedge funds, illustrating the diversity in such investment portfolios. In Singapore, all VCCs must be managed by a permissible fund manager.

Some benefits of setting up a VCC in Singapore include flexibility in structuring funds and operational flexibility, cost savings, the option of re-domiciling foreign investment funds in Singapore while maintaining the privacy of its owners.

Family offices

In recent times, Singapore has become an attractive country for ultra-high-net-worth families to establish family offices. According to the 2023 Global Family Office Compensation Benchmark Report prepared by KPMG Private Enterprise, Singapore is home to an estimated 59% of family offices located in Asia. Besides managing the assets of the affluent, family offices also develop long-term investment strategies for wealth preservation and estate planning while enjoying many tax incentives.

What are some recent developments and growth areas?

Amidst a series of transformative global events that have rocked the world including continued geopolitical tensions, rising inflation and interest rates, and increased cross-border regulation, certain developments and growth areas have emerged in Singapore.

Significant Investments Review Bill

The Significant Investments Review Bill (the Bill), which was passed on 9 January 2024, seeks to introduce ownership and control restrictions over entities pivotal to Singapore’s national security interests.

An entity may be subjected to the Bill if it satisfies any of the following: (a) it was incorporated, formed, or established in Singapore; (b) it carries out any activity in Singapore; or (c) it provides any goods/services to any person in Singapore, and the authorities deem it necessary in the interest of Singapore’s national security for the entity to be subjected to the Bill.

Under the Bill, prospective investors must notify the authorities after being a 5% controller and obtain regulatory approval prior to becoming a 12%, 25% or 50% controller, an indirect controller or acquiring as a going concern (parts of) the business or undertaking. Furthermore, regulatory approval must be sought for the appointment of key officers and for the voluntary winding up/dissolution of any entity subjected to the Bill.

Singapore as ASEAN’s fintech hub

Singapore continues to outperform its regional peers and has cemented itself as Asia’s fintech hub. Singapore’s fintech sector attracted a staggering S$34bn in venture capital investments from 2019 to 2022, making it the leader in Southeast Asia.

In November 2023, the Monetary Authority of Singapore (MAS) also unveiled Orchid Blueprint, a protocol outlining the necessary technological infrastructure for future digital money transactions. MAS has also rolled out a pilot scheme involving the issuance of wholesale Central Bank Digital Currencies (CBDC) for interbank settlement with an intention to potentially expand the use of CBDC to cross-border securities transactions.

Sustainability reporting

As the global effects of climate change become increasingly pronounced, the sense of urgency of climate action has grown exponentially, leading to increased legal and regulatory scrutiny on corporate environmental responsibilities.

Following a public consultation in 2021, the Singapore Exchange (SGX) has introduced a phased approach to mandatory climate reporting based on recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Specifically, between 1 January 2024 and 31 December 2024, annual climate reporting is mandatory for SGX issuers in the following industries: (a) financial; (b) agriculture, food and forest products; (c) energy; (d) materials and buildings; and (e) transportation. For other issuers, climate reporting is required on a ‘comply or explain’ basis.

The sustainability report must address the primary components as follows: (a) material environmental, social and governance factors; (b) climate-related disclosures consistent with the TCFD recommendations; (c) policies, practices and performances; (d) targets; (e) sustainability reporting framework; and (f) board statement and associated governance structure for sustainability practices.

What government incentives are there?

As part of Budget 2024, the Singapore government introduced measures to support high-level initiatives to encourage sizable investments in Singapore such as the Refundable Investment Credit (RIC) scheme. To ensure that Singapore’s tax incentives remain competitive globally, additional concessionary tax-rate tiers have also been announced for the Development and Expansion Incentive, the Intellectual Property Development Incentive, the Global Trader Programme, the Finance and Treasury Centre initiative, and the Aircraft Leasing scheme.

With the RIC, companies can receive governmental support from each qualifying expenditure category (including manpower and capital expenditure costs) which can be used to offset their corporate income tax. Under the RIC, companies that have employed at least one local employee in 2023 will receive at least S$2,000 in cash payout capped at S$40,000. To further ease businesses’ compliance burden, the government will also expand the scope of qualifying expenditure of the renovation or refurbishment expenditure to include designer fees or professional fees. The government is expected to release more details on the RIC in the third quarter of 2024.

What are some challenges?

Singapore has successfully reinforced its status as Asia’s leading business destination, hosting regional headquarters for 4,200 multinational firms, surpassing Hong Kong. Despite this success, Singapore faces a new set of challenges as its success has inadvertently caused it to become entwined in global political complexities and susceptible to foreign interference arising from its status as a business hub for multinational firms from major global powers.

In 2023, Singapore’s reputation and standing as an ‘ultra-clean’ financial hub took a hit when one of the world’s largest cases of money laundering, reportedly with assets seized worth over S$2.8bn, was uncovered. To strengthen investors’ trust and confidence in Singapore as a robust, principled, and high-quality financial centre, an inter-ministerial committee will be set up to review and reinforce the government’s anti-money laundering controls and strategies. In addition to the existing measures put in place by the Accounting and Corporate Regulatory Authority overseeing the incorporation of companies in Singapore, there will undoubtedly be increased rigour in bank account opening, anti-money laundering and compliance checks and due diligence processes to be strictly enforced by gatekeepers in various sectors including financial institutions, corporate service providers, and property developers, just to name a few.

In February 2024, the Singapore government invoked the Foreign Interference (Countermeasures) Act (FICA) for the first time against a Hong Kong-born businessman just shortly after FICA took effect. With the Ministry of Home Affairs having assessed that the person is susceptible to being influenced by foreign actors and potentially advancing their interests, he has been designated as a politically significant person who must comply with transparency requirements to make disclosures of political donations exceeding S$10,000 and declarations of his foreign affiliations and migration benefits.

To keep pace with evolving risks and trends that Singapore is exposed to as a global financial hub, it is evident that the government is on heightened alert and ever more cautious with managing geopolitics, foreign influences, and risks in the city-state.

What are some of the forums available for dispute resolution?

Singapore’s reputation as an international dispute resolution hub underscores its commitment to fostering a business-friendly environment conducive to the needs of foreign investors. Complementing the excellent infrastructure and ease of doing business mentioned above, Singapore offers a secure and predictable operating environment. Central to this is its comprehensive suite of dispute resolution mechanisms which cater to the diverse needs of businesses operating on a global scale. In addition to the local courts, the Singapore International Commercial Court is a specialised forum for resolving complex international disputes, combining the advantages of arbitration with the principles of international commercial law. The Singapore International Arbitration Centre (SIAC) serves as a leading arbitral institution, renowned for its neutrality and enforceability of awards. With a supportive legal framework and judiciary, the SIAC has become the choice for parties seeking confidential resolution of their disputes. Finally, the Singapore International Mediation Centre plays a pivotal role in facilitating mediation for commercial disputes, promoting consensual and cost-effective solutions tailored to the parties’ needs.

By offering a comprehensive range of dispute resolution options, Singapore provides businesses with access to the most suitable mechanisms to safeguard their interests and mitigate risks. As businesses increasingly prioritise efficiency, cost-effectiveness, and enforceability in dispute resolution, Singapore’s legal infrastructure satisfies those needs and reaffirms its status as a preferred destination for doing business.

Further information

Our lawyers at Quahe Woo & Palmer are adept and experienced in advising on the formation of businesses looking to establish a presence in Singapore and the Asia Pacific region and structuring, establishing, and operating different kinds of funds. Besides representing corporate and institutional clients on a wide range of local and regional projects, we also advise ultra-high-net-worth individuals, families and family offices on asset protection, estate planning, business and investments structuring and family governance matters, and manage disputes in all dispute resolution forums available in Singapore.

Should you have any queries as to how the regulatory landscape and recent developments in Singapore may affect your business or other matters, please do not hesitate to reach out to us and we will be delighted to assist with your legal needs in Singapore.