Market Entry Advisors – Singapore

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Singapore

Singapore ranks among the best countries in the world to do business, thanks to a highly efficient and transparent regulatory regime.

For Canadian exporters, this small but dynamic economy offers plenty of opportunities, not only within Singapore, but also throughout the rest of Asia.

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Singapore is Southeast Asia’s second-largest foreign direct investment destination for Canadian companies.

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This small country, which has an annual GDP of $307.87 billion US, imports more than $1.3 billion in Canadian merchandise annually.

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Singapore has the second-busiest port in the world, thanks to its strategic position as the gateway to Asia.

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Overview

Klaus Houben

Chief Representative SEA (Southeast Asia),
Export Development

“Singapore really is a great place for business. If you want to live the expat life with all the conveniences of a modern country, then you want to be in Singapore.”

How would you describe Singapore’s business environment?

Singapore really is a great place for business. If you want to live the expat life with all the conveniences of a modern country, then you want to be in Singapore. If you want to set up a business here, you’ll like the fact that everything is transparent; if you follow procedures closely it is very easy to set up a business. You don’t have to deal with the grey side of kickbacks and such things.

Any drawbacks?

The cost of doing business can get in the way. This can sometimes be a shock for foreign companies, when they find out that Singapore is a very expensive place to do business. Singapore is not for everybody. If you need to access a huge amount of real estate space, this is not the place to house your operations. If you’re looking for low-cost labour or need easy access to raw materials to support upstream or midstream processing, this is not for you.

So what type of business operation would thrive here?

It really depends on the sector you’re in. A high-tech, capital-sensitive business that needs access to the finance market will want to be in Singapore, which is a hub for financial services, venture capitalists and private equity players. If you’re in the business of security – cyber security, physical security, surveillance – then you’ll likely thrive in Singapore. Security is a fairly recent growth area. We’re seeing Singapore attracting very high-calibre security companies that offer cutting-edge technology.

Market Entry

Wayne Farmer

President,
Canada-ASEAN Business Council

“…most firms don’t enter Singapore to sell just to this market; they use Singapore as an entryway to Southeast Asia, if not Pan-Asia.”

Although it’s a wealthy country, Singapore has just 5.5 million residents. What makes Singapore an attractive export destination?

Singapore is a fairly well-developed market, and there are opportunities for all kinds of products and services. But most people don’t enter Singapore to sell just to this market; they use Singapore as an entryway to Southeast Asia, if not Pan-Asia. It’s very easy to set up a company here and it’s very efficient in terms of logistics. Particularly for firms with higher value-added requirements, Singapore offers strong local talent, good infrastructure and a high level of government support.

Any examples of how companies use Singapore as a portal to the rest of the region?

Australian and Southeast Asian companies tend to set up in Singapore first and then set up satellite offices in Indonesia, Thailand and Myanmar. A lot of transactions in terms of banking and investments are often executed in Singapore. Also, legal transactions and arbitrations often use Singapore as part of the resolution mechanism. A lot of court processes in the region are very onerous and very slow; a quicker way to conclude arbitration is in a neutral place like Singapore. Further, companies can leverage Singapore’s myriad of free trade agreements with its neighbors, notably the ASEAN Free Trade Area.

What resources are available to Canadian companies that want to set up operations in Singapore?

There are several government organizations that can help. The Monetary Authority of Singapore has a business development or business promotion wing that’s happy to work with financial firms looking to locate or grow in this market. The Singapore Economic Development Board is another stop; they have a host of programs related to employment, investment and other issues related to setting up shop here. The chambers of commerce can be helpful, and of course the Trade Commissioner Service has representatives that have specific expertise in certain industries.

Compliance

Maureen Low

Director,
Corporate Services,
FMG Corporate Services Pte. Ltd

“If you’re submitting a tender for government projects, they’ll usually want to see the track record of the bidder. … by forming a branch office, the Canadian company can use its track record to show that it can be relied upon to do the work specified in the tender.”

What key issues impact foreign companies exporting to Singapore?

Importation of goods is a key compliance issue. Generally all goods are subjected to goods and services tax, and must go through customs clearance. For a company to clear customs, they have to use a Singapore company, which must apply to Singapore Customs to activate a pass code. Another way to get goods through customs is to appoint or engage a freight forwarder based in Singapore, which will take care of the documentation. But there still needs to be a Singapore company to activate the account.

What business structures are the most advantageous for foreign companies setting up in Singapore?

If a Canadian company wants to set up a subsidiary company in Singapore, they will have to so do by way of a private company limited by shares. Canadian companies also have the option of registering a branch in Singapore. But if a Canadian company wants to invite investors at the Singapore level, then a branch is not the way to go because it cannot have shares. Also, in Singapore, branch offices are required to have their accounts audited each year and its head office accounts must be filed with the Singapore authorities. Once this is done, the account is in the public domain. So the head office in Canada is subjecting their documents to the public domain in Singapore, which is another drawback.

Any advantages to setting up a branch office?

If you’re submitting a tender for government projects, they’ll usually want to see the track record of the bidder. If you’re a newly incorporated Singapore company, you won’t have a track record. But by forming a branch office, the Canadian company can use its track record to show that it can be relied upon to do the work specified in the tender.

Taxation

Caroline Bérubé

Managing Partner,
HJM Asia Law & Co LLC

“Singapore tax laws apply equally to resident companies, non-resident companies and branches of foreign companies when regarding the method of taxation or the rate at which tax is charged.”

Double taxation can be concern for exporters. How does Singapore address this issue?

Tax treaties entered into by Singapore are based on the Organisation for Economic Co-operation and Development (OECD) model. The tax relief pattern is a combination of territorial taxation and exemption of foreign income, unless received in Singapore. Presently, comprehensive double taxation agreements for the avoidance of double taxation have been concluded with several countries, including Canada.

What types of corporate entities are covered by this tax treaty?

Singapore tax laws apply equally to resident companies, non-resident companies and branches of foreign companies when regarding the method of taxation or the rate at which tax is charged. Non-resident companies have the same obligations and rights under the Act, are entitled to claim all of the deductions provided in the Act and generally enjoy the same privileges as resident companies. To attach liability to a non-resident company in Singapore, it is necessary to establish that it is carrying on a trade or business within Singapore.

Can you expand on that last point?

A trade carried on with Singapore will not expose the non-resident to tax here. All of the relevant facts have to be reviewed to decide the question whether a person is carrying on a trade within Singapore or with Singapore.

Anti-Corruption

Gwenann Manseau

Legal Research Associate,
TRACE International

“The comparatively low level of corruption is widely attributed to very tough laws against bribery and fraud, very strict enforcement and relatively high salaries for government officials to incentivize good behavior.”

How would you characterize the corruption environment in Singapore?

Singapore ranks 12th out 200 countries on the TRACE Bribery Risk Matrix, with an overall risk score of 15. This indicates a low business bribery risk level due to a very low risk of intensive interaction with government, a low regulatory burden and a low expectation of bribes. Singapore offers a relatively high quality of administration and governmental transparency, and a robust civil society. A 2016 survey by Singapore’s Corrupt Practices Investigation Bureau (CPIB) showed 24 percent of the public believed corruption is common in Singapore.

Companies continue to choose Singapore as an investment hub in Southeast Asia because of its comprehensive and effective legal system. The comparatively low level of corruption is widely attributed to very tough laws against bribery and fraud, very strict enforcement and relatively high salaries for government officials to incentivize good behavior. Notably, CPIB, the government agency responsible for investigating and prosecuting corruption offences, is an agency of the Prime Minister’s Office acting independently of the Singapore Police force and other government agencies, to prevent undue interference. Private sector cases make up the majority of corruption cases investigated by the CPIB, occurring in two main areas: maintenance work and wholesale and retail businesses. In 2016, four public employees were prosecuted in Court for corruption offenses.

Despite Singapore’s low corruption-risk rating, foreign companies operating in this country should take care not to be lax with respect to compliance issues. Surprisingly, many companies operating in Singapore have no written anti-bribery and corruption policy or have yet to implement risk-based and ongoing due diligence on third parties.

What corruption risks do foreign businesses face?

Recent corruption cases reveal situations where foreign companies funnel bribes to foreign officials through Singaporean subsidiaries or consultants. For instance, companies have been known to use intermediaries operating in Singapore as a conduit for illicit payments heading to Malaysia, Vietnam and Indonesia. This trend and Singapore’s role as a leading international financial center have led the government to crack down on money laundering and to impose stringent Know Your Customer (KYC) rules. In turn, these measures have resulted in long delays in opening bank accounts, as well as an acute shortage of qualified local compliance officers.

Further, a recent U.S. investigation into Goldman Sachs concerning compliance with the U.S. Foreign Corrupt Practices Act of hiring practices in Singapore demonstrates the potential risk of using offers of employment as a means to obtain business from politically-connected individuals.

Are certain foreign business sectors more vulnerable to corruption than others?

Defense contracting remains particularly sensitive, due to the U.S. federal criminal investigation of bribery and conspiracy in the case of Leonard Glenn Francis, the owner and CEO of Glenn Defense Marine Asia (GDMA), a multi-national defense contracting firm headquartered in Singapore. Francis is charged with bribery of U.S. Navy officials, who are alleged to have worked with Francis and other foreign-defense-contractor personnel to help them cover up GDMA’s overcharging practices with respect to providing protection to U.S. Navy forces deployed in the Western Pacific.

Other recent investigations and enforcement actions relating to bribes paid in Singapore or by Singaporean companies have centered on the life sciences, financial services, airline, shipping, petroleum and defense industries.

What steps can foreign companies take to avoid violating Singapore’s corruption rules?

Companies should establish a strong, effective compliance program to address the risks of bribery including through subsidiaries and third parties. Regulators will consider myriad factors to determine whether a company has established effective compliance procedures. These include: management commitment; a clearly articulated policy against corruption; a code of conduct overseen by a senior company official; risk assessment; and due diligence.

It is particularly important for companies operating in Singapore to make sure their compliance program is not just strong on paper, but also works in practice. Companies need to periodically test and review their compliance program, conduct ongoing training of employees and intermediaries, and/or set up systems of confidential reporting and investigating throughout the organization. Further, companies must ensure that they conduct ongoing monitoring of intermediaries.

Canadian companies may also benefit from reviewing the CPIB’s publication “PACT: A Practical Anti-Corruption Guide for Businesses in Singapore,” which provides resources to help domestic business owners prevent corruption in their companies.

What anti-bribery compliance support is available in Singapore?

A variety of information is provided by the Corrupt Practices Investigation Bureau (CPIB), including material on local and international legislation, case studies and training clips. The CPIB also offers “prevention talks” to private-sector organizations, particularly those companies that deal with public safety and security.

Multinational corporations may also work with TRACE Certified companies, which have completed a rigorous due diligence process based on international standards, including training and continuous daily monitoring of international sanctions and enforcement lists.

Companies may also refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.

Export Development Canada does not endorse or favour any organizations listed above and is not responsible for the actions of those parties.

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Market Entry Advisors – Singapore was last modified: February 12th, 2018 by Export Development Canada.
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