GETTING YOUR SINGAPORE EXPANSION STRATEGY RIGHT
A Useful Guide For Foreign Companies And Business Owners Planning To Set Up Operations In Singapore
Introduction – Singapore business environment
Singapore is a popular destination for foreign corporations and business entrepreneurs to tap into Asian growth opportunities. Its pro-business environment, efficient infrastructure, rich talent pool and political stability make this small country at the heart of Southeast Asia a great place to start a business.
Singapore is primarily a knowledge-based economy. Its open immigration policy coupled with a safe and clean environment as well as a world class education and healthcare system help attract professionals from all over the world, adding to the diversity of cultures in the nation. More than 40% of the workforce comprises of non-Singaporeans in this cosmopolitan city.
The World Bank rated Singapore as the world’s easiest place to do business and the Economist Intelligence Unit rated Singapore as the best business environment in Asia Pacific and worldwide. There is no restriction on foreign ownership of business and repatriation of profits. It is one of the least corrupted country in the world and has been identified as an increasingly popular tax haven for foreign investors, attributable to the attractive corporate and effective personal tax rates. There is no capital gain tax and incomes generated from overseas are fully exempted from tax.
Registering your Singapore business
Registering your business with the Government is one of the first steps you need to take once you have decided to start your business. In Singapore, any activity that is carried out on a continual basis for the purpose of gain is required to be registered with Accounting and Corporate Regulatory Authority (ACRA). Exemptions are given to certain Professionals as an individual such as lawyers, doctors and accountants as they are managed by their respective professional bodies.
For foreign companies planning to have a business presence in Singapore, there are 3 company registration options, namely setting up a Private Limited subsidiary company, Branch Office or Representative Office (RO). A RO is only useful in situation where the foreign corporation wish to explore business opportunities in Singapore or the region. RO is not allowed to carry trade or any business activities that generate an income and has a limited validity period of not more than 3-year. The Private Limited structure is the recommended option over Branch Office in most scenarios. Due to the tax benefits available to Private Limited companies and the advantage of liabilities limited to the activities of the Singapore subsidiary only. The table below summarizes the differences of the 3 business structures.
|Private Limited||Singapore Branch||Representative Office|
|Legal Status & liabilities||Separate legal entity from parent company||A registered legal entity that is part of the overseas parent company. Liabilities extended to parent company||A temporary administrative arrangement renewable annually up to maximum of 3-year. Liabilities are that of parent company|
|Business activities & contracting ability||Can be different from parent company and enters into contracts independently from parent company||Follows that of the parent company. Can enter into own contracts.||Can only carry out the following activities:
– Market research
– Feasibility studies
– Liaison work on behalf of parent company.
Limitation on number of employees that can be hired.
|Taxation & tax benefits||Taxed as Singapore resident entity and enjoys all local tax benefits.||Taxed as non-resident. Only Singapore sourced incomes are taxable. Not eligible for tax exemptions and incentives available to local companies||Not applicable as no income can be generated|
|Annual filing & audit requirement||Annual filing of accounts||Annual filing of branch accounts and parent company’s accounts|
|Appointment of Officers||Must appoint at least 1 local resident director||Must appoint at least 2 local resident persons||Must appoint a Chief Representative from Head Office to be relocated to Singapore|
Complying with laws and regulations
The 2 common laws that are applicable to most businesses are Business Registration Act and Companies Act. The requirements for renewal of business registrations and filing of returns depend on which business structure you have chosen. In addition, there are industry specific laws administered by different government bodies that may be applicable to your trade.
Before starting your operation in Singapore, it is important to evaluate if you require licenses and permits for your kind of trade. Additional licenses and permits may be required from the relevant government agencies for the following types of business:
- Financial institutions / financial services business
- Employment agency
- Western medical clinic
- Travel agency
- Real estate agency
- Publishing business
- Telecommunication business
- Private education business
- Food and beverages
- Trading activities
- Retail business involving telecommunications, liquor, cosmetics and other products that can affect human health and safety
Overview of Singapore tax landscape
The headline corporate income tax rate in Singapore is 17%, one of the lowest in the world. The effective tax rate can be significantly lower after accounting for the partial tax exemption benefits for chargeable income of up to S$300,000 and the corporate income tax rebate available to all tax resident companies.
Partial tax exemption scheme:
- 75% exemption of up to the first S$10,000 of chargeable income;
- 50% exemption of up to the next S$290,000 of chargeable income
Corporate income tax rebate
- 30% corporate tax rebate capped at S$30,000 per year of assessment (YA)
- Valid for 3 years from YA2013 to YA2015.
As an illustration, a company with chargeable income of S$1 million would have an effective tax of 11.41% after taking into account the above mentioned tax benefits.
The tax exemption scheme is even more attractive for eligible start-up companies. The first S$100,000 of chargeable income is fully exempted from tax and 50% of the next S$200,000 is exempted from tax for their first 3 YAs.
Other business tax
Besides corporate tax on your Singapore sourced business income, there are other indirect taxes that you need to be aware of. Other common taxes relevant to businesses include Goods & Services Tax (GST), Stamp Duty, Property Tax and Withholding Tax. Understanding of these taxes and their application are important in helping you devise your business processes and structure to avoid incurring unnecessary tax liabilities. It is also important to adhere to the various tax due dates and ensure correct accounting for these taxes as the penalties for non-compliance can be higher than the actual tax dues.
Personal income tax
Individuals, regardless of their tax resident status, are subject to personal income tax on their incomes accrued or derived from Singapore. The relevant tax rates for individuals depend on whether he or she is deemed as a tax resident or non-tax resident for the purpose of income tax.
Singapore personal income tax rates for tax residents are on progressive basis ranging from 0% on the first S$20,000 of chargeable income to 20% of chargeable income in excess of S$320,000. There are various tax reliefs that help bring down the chargeable income of an individual. Many of which are driven by the social objectives of the government
In addition, the government has announced that a personal income tax rebate will be granted to all resident taxpayers in YA 2013:
- Resident taxpayers aged below 60 years as at 31 December 2012 – 30% tax rebate capped at S$1,500
- Resident taxpayers aged 60 and above as at 31 December 2012 – 50% tax rebate capped at S$1,500
For non-tax residents, their Singapore sourced incomes are taxed at a flat 15% and 20% for employment income and all other types of income respectively.
It is also useful to know that all foreign-sourced incomes received by resident individuals are not subject to tax in Singapore. For foreign corporations intending to relocate their employees to Singapore, the Singapore personal income tax is relevant in devising the new compensation package for their employees on a tax equalized basis.
Singapore workforce is well known for its high literacy rate and its people are well versed in English, the primary language in the education system. The government has been adopting an open policy in attracting foreign talents which form a substantial percentage of the middle to high income workers. The rich pool of talents made-up of both locals and foreigners are one key reason why Singapore has been the preferred location for foreign corporations to move their high value activities and to set-up their regional headquarters here.
In planning your human resources for your Singapore operations, it is important to be familiar with the laws and regulations with respect to hiring of foreign and local employees. Non-residents must hold a valid work-pass before they can work in Singapore. There is strict requirement for employers to file tax clearance and to cancel the employment pass of non-resident employees when they leave employment.
For Singaporeans and Singapore Permanent Residents, it is mandatory for both the employer and employees to make contribution to the Central Provident Fund (CPF), a defined contribution retirement plan in Singapore. The maximum CPF cost to an employer is S$17,000 per employee, based on employer’s contribution rate of 20% for employees aged up to 50 years old and the annual wage ceiling of S$85,000. CPF contribution rates for employees aged above 50 are progressively lower. For more details on CPF contribution rates, please refer to the CPF Board website at www.cpf.gov.sg.
Singapore has no statutory minimum wage although the National Wage Council (NWC) recommends guidelines for annual wage adjustments which are widely adopted by government agencies and many private employers.
Why is it essential to get professional help in your Singapore expansion strategy?
Are you in compliance?
To begin with, Singapore law does not allow foreign individuals or entities to self-register a company. You must engage a professional firm to register a Singapore company. Additionally, at least one of the directors must be a resident director i.e. Singapore citizen, Singapore Permanent Resident, Employment or Dependent pass holder. Most professional firms offering incorporation services also provide nominee director service as well.
Obtaining the necessary permits and licenses and ensuring compliance with the relevant laws that govern your trade and business are important to avoid unnecessary delays in your operations and to avoid paying hefty penalties. It is advisable to engage a professional services firm to obtain the necessary licenses and employment pass for your employees so that you do not fall foul of the law.
Is your total investment cost projection reasonable and complete?
Investment and expansion decisions are made based on market and financial analyses. A knowledgeable advisor would ensure you have factored all costs required to execute your expansion plan. With local knowledge, he or she is also able to provide reliable benchmark cost for various cost items such as office space solutions and local salary levels.
Are you deploying resources for the right task?
Often times, corporations would first deploy a business fronting personnel such as Business Development or Sales Director to venture into a new market in executing the expansion strategy. He or she is commonly tasked to set-up the operations in the new market including incorporating a new entity, opening bank accounts, evaluating office space solutions and hiring new employees. Engaging the right consultant helps organizations navigate their expansion journey seamlessly while allowing the Business Development or Sales Director focus on what he or she does best. With the right consultant, you can expect to carry out your expansion plan in a cost effective manner by minimizing pre-operation travels to Singapore. Contact us to find out how we can help in turning your expansion strategy into reality.