The trade conflict between the United States (US) and China caused headwinds in the global market. Companies have been shifting production from China to Southeast Asia to avoid high tariffs. Import duties on products can even go up to 42.6% [BBC]. Despite the fluctuations in the global economy, Singapore remains resilient from the adverse effects of this challenge and clinches its spot as a major export hub in Asia.
Singapore relies on exports to drive economic growth. As such, there was a widespread concern when China’s economic slowdown by the trade war plunged Singapore’ exports to a six-year low in June. In fact, a 3.4-percent collapse in GDP growth was reported for the second quarter of 2019 [South China Morning Post]. As a transhipment hub, Singapore’s economic slowdown has affected the Asia-Pacific region since this reflects a weaker demand in other economies.
However, significant foreign direct investments (FDI) continue to keep the Singapore economy afloat. In 2018, the country’s recorded inflows stood at USD77.6 billion and in March 2019 alone, the country received USD24.4 billion in FDI. These strong FDI inflows allow Singapore to launch various research and development projects that increase the competitiveness of its economy, especially the digital and fintech sectors.
According to the IMD World Competitiveness Ranking 2019, Singapore is ranked as the world’s most competitive economy. The country’s drive for innovation and technological adaptation made it the forefront of the Asia-Pacific region. With a strong fiscal position and good economic restructuring, Singapore will definitely withstand the global headwinds brought upon by the US-China conflict.
At a Glance: Booming Tech Industry in Singapore
Singapore is not expecting a full-year recession. As Deputy Prime Minister Heng Swee Keat said, there are still several economic strengths that can be developed, such as the information and communications sector, construction industry, and digital industry. That is why the government is focused on attracting high-quality investments through pro-business policies. Along with this, the Economic Development Board (EDB) Enterprise Singapore, and Infocomm Media Development Authority (IMDA) established the Digital Industry Singapore (DISG) office to transform how the Singaporean government will engage with the technology sector [Gov.sg].
Since Singapore is the home to 80 out of the world’s top 100 tech companies, 4,000 local and international start-ups, the establishment of the DISG will further strengthen the country’s tech industry. This new office aims to create future-ready policies and allocate investments in different areas of the tech industry. This will enhance the country’s competitiveness and make it a more popular tech company destination.
Prior to that, favourable business policies, highly-skilled talent, world-class infrastructure, and strategic location are the key factors why many tech firms from all over the world venture into Singapore. Moreover, the free trade agreements (FTA) and tax incentives make the country an excellent destination for offshore company formation. Here are some of the tax incentives in Singapore:
Tax Exemption Scheme for New Start-Up Companies
To nurture start-up businesses and encourage entrepreneurship, Singapore developed the following tax exemption schemes to substantially reduce tax rates for new start-up companies in their first three years of operation:
Tax exemption scheme where any of the first three (3) Year of Assessment (YA) falls in or after YA 2020
Tax exemption scheme where any of the first three (3) YA falls in or before YA 2019
Partial Tax Exemption for Companies (PTE)
Qualified companies can enjoy these tax exemptions:
YA 2020 onwards
YA 2019 and before
Deduction of Expenses Incurred Before Commencement of Business
According to the Inland Revenue Authority of Singapore (IRAS), revenue expenses incurred after a business commences are deductible for tax purposes. They also added that as a concession, revenue expenses incurred one year before the first day of the financial year in which the first dollar was earned will be tax-deductible.
Establish a Start-Up Company in Singapore
Given the Singaporean government’s focus on the digital sector and its competitive tax incentives offered to foreign businesses, Singapore continues to witness strong inflows of FDI in the tech industry. Amid intensifying geopolitical and trade tensions, Singapore serves as an ideal destination for foreign tech firms looking to avoid trade war fallouts and benefit from favourable rules and regulations.
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Why Singapore’s trade war-induced tumble looks more like a blip than a long-term trend, Scmp.com
Singapore well-placed to weather uncertainties but Government ready to step up support: Chan Chun Sing, Channelnewsasia.com
New Office Set Up to Grow Technology Sector in Singapore, IMDA.gov.sg
Common Tax Reliefs That Help Reduce the Tax Bills, IRAS.gov.sg