Factors Contributing to Singapore’s Attractiveness

Singapore is an attractive location for doing business for the following reasons:

a) Tax Considerations

  • A territorial system of income taxation with a low rate of corporate income tax;
  • Availability of many types of tax incentives which offer reduction of the corporate income tax rate;
  • Non taxation on capital gains;Liberal rules for capital allowance/loss/donation set-offs, and for group relief;
  • Availability of foreign tax credit/tax exemption for foreign-sourced income received in Singapore; and
  • Reduced withholding tax rates under Singapore’s 56 tax treaties.

b) Other Considerations

  • Political stability;
  • Pro-business and highly efficient Government;
  • Transparency in law;
  • Highly educated and motivated workforce;
  • Ease of setting up companies (which usually takes only about 3 days);
  • Low statutory compliance costs (with the Government increasingly relaxing more regulatory requirements and using more electronic initiatives for statutory compliance);
  • No exchange control except for certain measures put in place to check money laundering activities; and
  • Existence of 13 Free Trade Agreements¹ (FTAs), namely:
    • FTAs with the United States of America, Australia, New Zealand, Japan, Korea, Jordan and Panama;
    • FTA with South East Asian Nations (ASEAN) countries;
    • European Free Trade Association (i.e. EFTA – the FTA of Singapore, with Iceland, Liechtenstein, Norway and Switzerland);
    • Trans-Pacific SEP (FTA entered into amongst Singapore, New Zealand, Brunei and Chile); and
    • FTAs between ASEAN (which Singapore is a member nation) with China and Korea.

Existence of 35 investment guarantee agreements, under which Singapore companies and nationals are protected against non-commercial risks, e.g. expropriation and civil strife, when investing in the relevant countries.

Setting up holding companies in Singapore is even more attractive because of the following additional tax benefits:

  1. Availability of tax incentives under the Singapore Headquarters Programme. Under this programme, holding companies in Singapore that offer corporate support and headquarter-related services to their regional companies can enjoy reduction in the corporate tax rate for specified income, if they meet the qualifying conditions²;
  2. Approved holding companies in Singapore enjoy certainty for a period of 5 years from the date of approval, that their gains derived from the sale of shares in approved subsidiary companies will be treated as capital gains and not subject to tax, so long as qualifying conditions are met;
  3. In addition to enjoying reduced withholding tax when holding companies receive dividend from the treaty countries, holding companies usually need not pay further tax in Singapore on their foreign-sourced dividend as they could enjoy automatic tax exemption in Singapore on their direct remittance of dividend to Singapore from most foreign countries. Where the automatic tax exemption is not applicable, Singapore holding companies can claim foreign tax credit in respect of the foreign tax paid in the foreign countries, which often exceeds the Singapore tax payable on the dividend, resulting in no tax payable in Singapore on the dividend in most instances. Alternatively, Singapore holding companies can apply for a case-by-case tax exemption from the Minister of Finance.
  4. Dividend payable by holding companies to their shareholders is not subject to any dividend withholding tax in Singapore. There is no Singapore income tax impact for shareholders in situations where the holding companies pay exempt (one-tier) dividend out of capital gains derived from Singapore since capital gains are not subject to tax in Singapore.

You may contact our team of accounting experts at AccountServe for more information on using Singapore as a base for investing in other countries.

¹List of Free Trade Agreements (“FTAs”) as at end September 2007. As at the said date, Singapore also has another 10 other FTAs under negotiation.

² Qualifying conditions include:
- The group to which the holding company belongs must be well-established in its respective business sector or industry and has attained a critical size in terms of equity, assets, employees and business share.

- The holding company should be the nerve centre in terms of organisation reporting structure at senior management levels for its principal activities, with clear-cut management and control for the activities.

- The holding company should have a substantial level of headquarters activities in Singapore that may include: Strategic business planning and development; General management and administration; Marketing control, planning and brand management; Intellectual property management; Corporate training and personnel management; Research, development and test-bedding of new concepts; Shared services; Economic or investment research and analysis; Technical support services; Sourcing, procurement and distribution; and Corporate finance advisory services.

- The personnel employed by the applicant for its headquarters operations should be based in Singapore. This includes management, professionals, technical personnel and other supporting staff.