Dubbed the ‘little red dot’ by then Indonesian President Bacharuddin Jusuf Habibie in 1998, a small island state of five million residents that spans 50 kilometres from east to west, Singapore’s reputation as a financial hub has come a long way to rival that of Hong Kong.
What makes Singapore a competitive and attractive location for offshore companies? Through meticulous urban planning and economic development, Singapore’s leaders brought Singapore from third world to first within a few decades. Singapore’s progress is exceptional and it is a testament to the capability of Singaporean leaders.
In recent years, Singapore was featured most prominently in popular culture in the Golden Globe-nominated film, Crazy Rich Asians. While not wholly representative of the nation-state, Crazy Rich Asians gave the world a glimpse into the glamorous lives of the super-rich in Singapore.
This article will walk you through the process and considerations for setting up an offshore company in Singapore:
- Why should I set up an offshore company in Singapore instead of Hong Kong?
- What are some MNCs in Singapore?
- What are the benefits of setting up an offshore company in Singapore?
- Are there any drawbacks to setting up an offshore company in Singapore?
- How do you set up an offshore company in Singapore? Are there any requirements?
Singapore vs Hong Kong – Setting up an offshore company
Singapore is located in Southeast Asia whereas Hong Kong is located just off the coast of China. Given Hong Kong’s geographical proximity to China, many analysts regard Hong Kong as the gateway to China. With the Chinese market’s rising dominance, Hong Kong attracts firms from all over the world to set up offshore companies and to do business with China.
However, the situation is changing after a year of protests and the passing of the National Security Law in Hong Kong. In 2020, Singapore ranked a spot above Hong Kong as the world’s fifth-largest financial centre according to the Financial Centres Index. The gap may widen as Singapore pulls ahead in its fintech development.
Overall, recent events suggest that Singapore’s trajectory as a financial hub is only going to move upwards vis-a-vis Hong Kong.
MNCs in Singapore
There are about 37,400 international companies that base their operations out of Singapore and this includes over 7,000 multinational corporations MNCs. More than half of those running their Asia-Pacific headquarters from Singapore. The following are a few examples:
1. Dyson
In November 2019, Dyson announced its decision to shift its global headquarters from the United Kingdom to Singapore. Dyson is best known for its innovative technology and products such as their hairdryers and vacuum cleaners. Dyson’s founder, James Dyson, reaffirms Singapore as a safe and secure destination for investors by purchasing a US$54 million super penthouse in the Wallich Residence, Singapore.
2. Google
Google established its offshore presence in Singapore in 2007 when it only had twenty-four employees. In 2016, Google settled into its new Asia Pacific headquarters in Singapore with over a thousand employees.
3. Apple
In 2017, Apple opened its first flagship store along Orchard Road, Singapore’s hottest shopping stretch. When Apple CEO Tim Cook visited Singapore in 2019, he commented that Singapore “could use a third [Apple] store,” a nod to Apple’s popularity in the country. Singapore’s leaders are also keen on attracting foreign investments as observed from Singaporean Prime Minister Lee Hsien Loong’s meeting with Cook.
4. LucasFilm
LucasFilm, the subsidiary of Disney that produced Star Wars, has its regional headquarters in Singapore. LucasFilm Singapore is housed in a building that resembles the Sandcrawler and features office space, retail outlets, and a theatre.
Benefits of setting up an offshore company in Singapore
1. Low corporate taxes
Business executives all have one aim – to maximise profits by lowering costs. The corporate tax rate in Singapore is at a flat rate of 17% for all local and foreign companies, a relatively low corporate tax rate compared to most developed countries.
Besides low corporate tax rates, Singapore also has zero levies on capital gain, and no inheritance taxes. Singapore’s Economic Development Board also offers new companies tax exemptions for the first five years to protect them as they adjust and settle down in Singapore.
Singapore’s business-friendly single-tier tax system makes the island state an attractive option for offshore companies.
2. Politically and Economically Stable
From Singapore’s early days, the government acknowledged that Singapore’s foreign policy must be intertwined with economic policy. Therefore, Singapore’s economic growth has mainly resulted from significant foreign direct investment and export revenue.
In 2019, Singapore ranked fourth in the Corruption Perceptions Index by transparency.org, a culmination of the world’s confidence in Singapore’s leaders.
Singapore’s economy and political landscape are stable and thus reassure foreign companies and individuals that are considering setting up offshore companies in Singapore.
3. Free capital flows
Singapore ranked first in Heritage.org’s 2020 Index of Economic Freedom. This index recognises Singapore as a champion of free-market ideals and its commitment to free capital flows.
Singapore has free capital flows and it does not control its interest rates. Interest rates in Singapore tend to follow the trend set by the US Federal Reserve.
MAS’s 2015 Asset Management Survey suggests that Singapore is a regional hub and a gateway for investors who seek to enter the Asian market.
4. Currency is managed and thus stable
The official currency is the SGD and it is pegged to an undisclosed basket of weighted foreign currencies. The Monetary Authority of Singapore (MAS) adopts a managed float approach towards currency, allowing the SGD to fluctuate within a band and intervening only when the lines are crossed.
With over US$300 million in foreign reserves, Singapore’s currency is more stable and predictable for investors. Therefore, there is less uncertainty in the value of foreign-owned property in Singapore, and investors are encouraged to set up and deposit their liquid assets in Singaporean offshore bank accounts or offshore companies.
5. Welcomes foreign companies
Offshore companies in Singapore can be 100% foreign-owned without any Singaporean shareholders. Without requiring locals to be part of the ownership of offshore companies, Singapore sets the barriers to entry low for firms to conduct offshore businesses in Singapore.
Are there any drawbacks to setting up an offshore company in Singapore?
1. High cost of living
In 2018, Singapore was ranked as the most expensive city in the world for expatriates by the Economist Intelligence Unit’s Worldwide Cost of Living survey. For cash-strapped small firms, business executives may find Singapore’s high cost of living untenable in the long run.
2. Incomes remitted to Singapore are subject to taxes
Unlike Hong Kong, Singapore regards income remitted to Singapore as local income and thus taxable.
For a breakdown of the advantages and disadvantages of setting up an offshore company in Singapore, please watch the video below:
How do you set up an offshore company in Singapore? Are there any requirements?
The following are the documents required to set up an offshore company in Singapore:
- Proposed name of the company
- Information about secretaries, shareholders, and directors
- Company’s registered address in Singapore
- Company constitution
While other offshore jurisdictions may not impose restrictions on directors and shareholders in foreign companies, Singapore requires at least one of the company’s directors to reside in Singapore.
It only takes approximately three working days to register an offshore company in Singapore. The process is streamlined to just submission of relevant documents and seeking approval for the company’s name.
Summary
With low corporate tax rates, free capital flows, and a strong and stable government, Singapore is a logical choice for firms to set up offshore companies. However, given the high costs of living and taxes on income remitted into Singapore, Singapore may not always be the most appropriate choice.
Therefore, businesses should engage expert consultants such as our team of experienced professionals at Desfran. Led by one of the world’s leading management teams, our experts can offer comprehensive management advice to elevate your company to the next stage. We are aware of the latest developments and trends in the financial markets and are equipped to guide you to expand your business.
Request for a consultation with Desfran today.
