Singapore has long established itself as a premier global business hub, attracting multinational corporations and entrepreneurs from around the world. Several factors contribute to Singapore’s reputation as an ideal place for business expansion or relocation, including its political stability, open and supportive business policies, skilled workforce and an advanced infrastructure. These key attributes collectively provide entrepreneurs and corporations with confidence that they can achieve marketing targets that meet their shareholders’ standards. Located at the heart of Asia, Singapore is an ideal destination for businesses to grow with many using it as a springboard to enter other emerging markets across the pacific.
This article delves into the key features of Singapore that makes it an attractive destination for foreign corporations considering starting a company in Singapore. By highlighting these attributes, it aims to provide insights into why Singapore remains a top choice for business seeking a stable, supportive, and strategically advantageous environment for their operations.
1. Double tax agreement (DTA)
Under the DTA framework, companies that are engaged in international business transactions and have paid taxes in a foreign country may benefit from relief from being taxed again on the same income in Singapore. The double tax agreement (DTA) is designed to prevent the issue of double taxation, where a business could otherwise be taxed on the same income by multiple countries.
Singapore has established a comprehensive network of over 90 networks of DTAs with countries all around the world. This extensive network reflects Singapore’s commitment to facilitating international trade and investment by mitigating the complexities and costs associated with cross-border solutions for the companies involved, which often includes provisions for reducing withholding tax rates on dividends, interest, and royalties.
The benefits of DTAs extend beyond mere tax relief. They also contribute to greater transparency and certainty in international tax matters, fostering a stable and predictable business environment. This certainty allows companies to plan their international operations more effectively, knowing that they will not face unexpected tax liabilities in multiple jurisdictions.
2. Legal system and security
Singapore offers foreign corporations a profound sense of safety and security, largely due to its reputation for having one of the most stable political environments in Asia. Singapore’s political stability is supported by a robust and efficient judicial system that is renowned for upholding anti-corruption laws with the highest standards of integrity and fairness. This gives foreign corporations the confidence to choose Singapore as their business headquarters, knowing that their interest will be protected by a dependable legal system.
Furthermore, Singapore boasts a remarkably low crime rate, contributing to a high level of personal safety for its residents and business professionals alike. The city-state’s effective law enforcement and stringent security measures create a safe living and working environment, which is crucial for both local and international businesses.
Lastly, Singapore’s reputation as a leading global business hub is further reinforced by its world-class arbitration facilities. In the event of cross-border disputes, businesses can rely on Singapore’s sophisticated arbitration infrastructure to resolve conflicts efficiently and impartially. This capability adds another layer of confidence for businesses, knowing that they have access to high-quality legal recourse in international disputes.
3. Tax regime
Singapore’s tax system is highly attractive to foreign corporations due to its open and fair regulatory framework. With no foreign exchange controls and restrictions, Singapore’s tax system ensures that businesses can operate without the complications often associated with currency movement and capital flow. This openness is complemented by a tax regime that is both competitive and investor friendly.
One of the key advantages of Singapore’s tax system is its relatively low corporate tax rate. Compared to other countries, it has a lower corporate tax rate on taxable income (which is charged at 17%). This lower tax rate helps reduce the overall tax burden on businesses and makes Singapore an appealing destination for foreign corporations looking to optimise their tax expenditures.
Furthermore, Singapore’s tax system includes provision for exempting foreign-sourced income from tax, subject to meeting the following requirements:
- Subject to Tax Condition: The foreign income has been subject to tax in the foreign jurisdiction from which it is received, also known as the 'subject to tax' condition.
- Minimum Tax Rate Requirement: The highest corporate income tax rate of the foreign jurisdiction is at least 15% at the time when the foreign income is received in Singapore.
- Approval by the Comptroller of Income Tax: The Comptroller of Income Tax must be satisfied that the exemption of tax on the foreign income will benefit the Singapore tax resident company.
4. Strategically located
Singapore is strategically located close to major trading hubs and shipping routes of the world. Positioned at the crossroads of key trading routes, it has unparalleled access to some of the world’s most vital sea lanes. Its proximity to major maritime routes connecting India and China makes it a prime attraction for companies looking to reach these target markets. The ease of access to these bustling economic regions enhances Singapore’s appeal as a logistics and distribution center, facilitating efficient trade and investment flows.
Additionally, Singapore’s advantageous location extends to its accessibility to other neighbouring Asian countries. This connectivity supports businesses in managing operations, coordinating supply chains, and expanding their reach throughout the diverse and rapidly growing Asian markets.
Since the signing of the ASEAN Free Trade Area (AFTA) Agreement in 1993, Singapore has had an official network of 21 bilateral and regional Free Trade Agreements (FTAs) as well as 41 investment guarantee agreements. This has lowered the cost of business expansions and trade across international borders.
5. Multilingual talent pool
According to IMD World Competitiveness Yearbook (WCY) rankings, Singapore is widely recognised for its multi-racial and multi-ethnic society, which is a significant asset for business operating in the region. The diverse background is not only a reflection of Singapore’s inclusive societal values but also an invaluable resource for companies seeking to enhance their workforce with multilingual and multicultural competencies.
In additional to its rich cultural diversity, Singapore is known for its fast-paced and innovative working environment. The country has established itself as a leading hub for technological advancement and business innovation, supported by a robust infrastructure, a highly educated workforce, and a dynamic entrepreneurial ecosystem. This combination of a diverse talent pool and a cutting-edge work culture makes Singapore an attractive destination for companies looking to harness creativity and drive growth.
6. Incentives for setting up headquarters in Singapore
To encourage multinational corporations to relocate their headquarters to Singapore, the Economic Development Board (EDB) provides a range of tax incentives designed to make the city-state an appealing destination for regional headquarter (RHQ) and international headquarter (IHQ) offices. These incentives are part of Singapore’s broader strategy to enhance its status as a global business hub and to stimulate economic growth by drawing significant corporate investments. Companies awarded the RHQ incentive can enjoy a concessionary tax rate of 15% on the qualifying income derived from operations in Singapore. This favourable tax rate is significantly lower than the standard corporate tax rate of 17%, making it an attractive proposition for companies looking to manage their regional operations efficiently. For companies with a more global focus, the IHQ incentive offers even more attractive tax benefits. Companies awarded the IHQ incentive can enjoy concessionary tax rates ranging from 0% to 10% on their qualifying income. This tiered tax rate structure provides significant flexibility and substantial tax relief, depending on the company’s scale and scope of operations.
In conclusion, Singapore stands out as a premier business centre in the modern global economy. The country’s economic and political stability, coupled with its extensive double tax treaties, exceptional connectivity and talented resources create a favourable environment for innovative businesses to thrive in. These advantages foster a fertile ground for growth and development, making Singapore a compelling choice for foreign corporations considering starting a company in Singapore or relocating to this strategically advantageous location.
The incentives and benefits mentioned in this article are subject to application submissions and approval by the Inland Revenue Authority of Singapore (IRAS).
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