Why Indian Businesses View Singapore as a Preferred Investment Base in Asia
India Singapore trade ties received a boost when the two countries signed their bilateral Comprehensive Economic Cooperation Agreement (CECA) in 2005. Over the years, the bilateral trade relationship has steadily grown and complimented by commercial and business partnerships through multiple treaties and agreements.
This is reflected in data from the financial year (FY) 2020-21 when Singapore stood out as India’s top investor, accounting for a 29 percent share in the total incoming FDI received by India. Singapore is also India’s largest Asian trading partner, with its exports valued at approximately US$9 billion in FY20.
Traditionally an information technology (IT) and telecom hub, Singapore has also developed into a base for Indian companies and start-ups. Singapore hosts headquarters and corporate offices of over 8,000 Indian companies, including Tata Communications, TCS, Quest Global etc.
Indian businesses have also identified Singapore as their gateway to emerging Asia-Pacific markets, given its location.
What makes Singapore a top hub for Indian investors?
Indian companies form the single largest foreign business community in Singapore due to the country’s enabling investment environment, advanced infrastructural set-up, and location in Southeast Asia, which serves as a launchpad to access markets in Philippines, Malaysia, Indonesia etc.
Relatively integrated markets, greater ease of doing business, and the supply deficit for information technology expertise versus high-tech opportunities present in the region are some of the factors that add to Singapore’s appeal among Indian investors.
The outward Indian FDI to Singapore stood at US$62.9 billion (till August 2018), making Singapore one of the top destinations for Indian investments. Major sectors inviting Indian investments were IT, real estate, manufacturing, construction, renewable energy, and pharmaceuticals. In March 2021, the Singapore Indian Chamber of Commerce and Industry (SICCI) and IIT-Kanpur’s Start-Up Incubation and Innovation Centre (SIIC) collaborated to set up a launchpad for tech-based start-ups.
Key factors that make Singapore a preferred base are as follows:
- Ease of starting and doing business: According to the World Bank’s Ease of Doing Business report, with benchmark year as 2019, Singapore ranked second among the most business friendly destinations in the world. In approximately two-three days, domestic or foreign entrepreneurs can successfully start a business.
- Gateway to the ASEAN region: Southeast Asian region’s investment ecosystem is propelled by a combined GDP of US$2.7 trillion, as well as a 650 million strong population, with the younger generation driving consumption growth. According to a report titled “e-Conomy SEA 2020” by Bain & Company, the Southeast Asian region is entering a new phase of growth, and by 2024, the region can expect an addition of at least 10 new unicorn companies.
- Extensive agreements and treaties: Key agreements between India and Singapore include the Comprehensive Economic Cooperation Agreement (2005) and its second review (2018), Double Taxation Avoidance Agreement (DTAA) (1994; protocols signed in 2011), Bilateral Air Services Agreement (1968; revised in 2013), Defence Cooperation Agreement (2003; Enhanced Agreement signed in 2015), MOU on Foreign Office Consultations (1994), Mutual Legal Assistance Treaty (2005), Mutual Recognition Agreement on Nursing (2018), as well as cooperation in fintech (2018).
The India-Singapore DTAA ensures the avoidance of double taxes, lowers withholding taxes, and offers access to a preferential tax regime, all of which play an important role in reducing the tax burden for a Singapore-holding company structure. The India-Singapore DTAA states that dividend income is taxed in the recipient’s state of residence according to following rates:
- 10 percent if the recipient company holds a minimum of 25 percent of the shares of the company paying dividend.
- 15 percent in all other cases.
Singapore also has an extensive double tax treaty network with most countries worldwide, which combined with coupled with the absence of capital gains and dividends tax, makes it a very attractive jurisdiction for business investments through a Singapore-incorporated holding company.
- Conducive tax regime: Viewed as simple and investor friendly, Singapore’s tax system holds the most appeal for Indian businesses. There is no imposition of tax on dividends or on capital gains. Also, Singapore follows a tiered approach in imposing both corporate and personal taxes. For the first three years, newly incorporated businesses receive considerable tax benefits. They enjoy full tax exemption on their first US$74,570 of chargeable income. Moreover, corporate taxes are capped at a rate of 17 percent. A uniform GST of seven percent is levied across the country.
- Robust infrastructure and efficient bureaucracy: Traditionally an IT and electronics hub, Singapore boasts of data centers as well as other state-of-the-art infrastructural facilities, which makes it a top investment destination.
- Financial hub: Singapore has grown its network of venture funding communities to become Asia’s top hub for start-up funding. This is primarily the reason why many Indian start-ups like Mobikon have chosen Singapore as their operational headquarter. Several schemes like the business angel scheme, spring start-up enterprise development scheme, technology enterprise commercialization scheme, and sector specific accelerator programs, are offered in Singapore. The following avenues can also be looked at, while considering funding options in Singapore – ace.org.sg; www.bansea.org; www.investmentnetwork.sg.
- Immigration requirements: In Singapore, an employment pass can be issued to foreign professionals, managers, and executives who get a minimum monthly salary of US$2,684.52. In addition, foreign entrepreneurs intending to start and operate a new business in Singapore can apply for the EntrePass.
- Intellectual property (IP) protection regime: The IP policy of the Singaporean government is aimed at encouraging innovation and growth of commerce and industry in Singapore.
- Efficient dispute resolution mechanism: The Singapore International Arbitration Centre (SIAC) has provided a seamless experience for Indian disputed parties, who have been able to find a quick resolution to their disputes with minimized time and associated costs.
- Limited export import (EXIM) duties: There is no export duty in Singapore, and customs duty on imports is limited to four categories of dutiable goods – intoxicating liquors, tobacco products, motor vehicles, and petroleum products and biodiesel blends.
Entry options for foreign companies
India businesses looking to establish their presence in Singapore can consider the following options:
- Private companies limited by shares: A private company limited by shares, also known as a private limited company, is by far the most preferred structure among small and medium-sized (SME) foreign companies for setting up a local business presence in Singapore. It can benefit from tax incentives available to local companies. It is also a separate legal entity from its directors, shareholders, and officers of the company; this means that the foreign holding company cannot be held for the liabilities of its subsidiary. In addition, the holding company’s liability is limited to the share capital subscribed in its subsidiary. Key requirements for setting up a private company limited by shares are:
- Reservation of company name
- Appointment of company officers
- Registered address
- Branch office: It is an option for foreign entities that plan to legally commence their operation in Singapore. It is not eligible for exemption from taxes and other liabilities since it is considered a legal extension of the parent company. The name of the branch office must be the same as the parent company and as a legal extension of the parent company. The parent company must hold the ultimate legal responsibility for all liabilities. It must also be registered with Accounting and Corporate Regulatory Authority (ACRA), which is responsible for the monitoring of new companies in Singapore. Key requirements for setting up a branch office are:
- Reservation of name of branch office
- Appointment of company officers
- Registered address
- Representative office (RO): It is an ideal option for companies that wish to explore business opportunities in Singapore. It is a temporary setup with no legal persona, and therefore it cannot engage in any trading or business activities. It is only permitted to conduct market research and feasibility studies. Key requirements for setting up a representative office are:
- The parent company must have been established for more than three years.
- The parent company has incurred an annual sales turnover of more than US$250,000.
- The foreign chief representative is from its headquarters; alternatively, the RO may appoint a Singapore citizen to fulfil the role of the chief representative.
- The RO does not hire more than five local employees as support staff.
- Variable Capital Companies (VCC): It is a new corporate structure for all types of collective investment schemes (investment funds) in Singapore. It was launched in January 2020 by the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA). The VCC is regulated under its own legal framework through the Variable Capital Companies Act and offers more operational flexibility compared to investment fund structures currently available in Singapore through trusts, limited partnerships, or private limited companies.
- The VCC must have at least three directors who are Singaporean residents. At least one director must be a representative of the fund manager.
- The VCC will require a Singapore regulated and licensed fund manager or it can employ the services of a Singapore licensed bank to be the fund manager. The entity cannot be self-managed.
- The VCC can have a single shareholder or hold a single asset.
- The requirements for investment funds listed under the Existing Securities and Futures Act (SFA) will apply to VCC’s.
- The VCC must have a registered office in Singapore and appoint a Singapore-based secretary.
- It must be audited by a Singapore-based auditor and present its financial statements as per the International Financial Reporting Standards (IFRS) or US GAAP.
Entrepôt activities, where goods are transhipped and sometimes processed or manufactured in the immediate area, account for about one-third of Singapore’s export trade. Singapore facilitates Indian re-exports, has signed several free trade agreements and has a wide DTAA network, provides viable funding options for Indian firms and start-ups incorporated in the country, excellent infrastructural and logistics support, as well as an easy and stable business environment. Its recognition as a global financial hub makes it the primary choice among Indian businesses who aim to internationalize.
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