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Should Companies Move Their Headquarters to Singapore?

Shona

Singapore has always been an attractive location for multinational companies to set up their regional headquarters. In recent years, a vibrant startup ecosystem is also growing in Singapore, placing it to be among the top tech startup hubs in the world. But what are the factors that have contributed into making Singapore to be an attractive location for businesses to establish their headquarters?

Here are some contributing factors that could entice businesses to establish or relocate their headquarters to Singapore.

Strategic Location

Singapore is geographically located at the heart of Southeast Asia and is at the crossroads of major aviation, trade and shipping routes connecting the East and the West. This places Singapore as the gateway for businesses to access the Asia Pacific region, including high growth markets such as China and India.

One of the largest and most efficient aviation hubs in Asia, Singapore’s Changi Airport provides extensive air connectivity for businesses to access major cities in Asia. Southeast Asian cities are easily accessible within 3 to 4 hours of flight time while most Asian cities, including China and India, can be reached within 5 to 6 hours of flight time.

An Effective Government

1) Political Stability

In terms of political stability, the political system that runs Singapore may be regarded to be one of the most stable and efficient in the world. In 2015, it was ranked as the least corrupt country in Asia and the 6th least corrupt nation in the world (IMD World Competitiveness Report). This may be attributed to the stringent and transparent implementation of laws and legislation by the government, providing a sense of security for investors and businesses, and allowing business transactions to occur smoothly and effectively.

The government’s pro-business approach has also placed Singapore to be the world’s 4th most competitive economy in 2016. Its pro-business policies, world-class infrastructure and transportation facilities, and its focus on developing a skilled workforce, further reinforces Singapore’s position as an attractive location for companies to establish their headquarters here.

2) Pro-business Policies

While it may take weeks or even months in other countries, incorporating a company in Singapore just takes about 1 to 2 days and this can be done via an online form. The cost of incorporation is also kept low. Most day-to-day transactions with the government can be done online and completed within a few hours. By simplifying the administrative process of doing business and setting up a company, Singapore has been ranked as the easiest place to do business in the world (World Bank Dong Business Report 2015).

What makes Singapore an attractive location for businesses is its business-friendly tax system. Corporate tax is charged at a flat rate of 17%, making it one of the lowest corporate tax rates in the world. Additional rebates and incentives are also provided by the government to help companies deal with rising business costs.

Startups can also benefit from the tax exemptions provided to newly incorporated companies. In the first 3 years since incorporation, a startup that meets the qualifying conditions is able to enjoy a full tax exemption on the first $100,000 of taxable income and an 8.5 percent tax rate for the next $200,000 of taxable income.

Companies intending to set up their headquarters in Singapore can also leverage on the country’s existing double tax agreements (DTAs) with more than 70 countries worldwide and its extensive network of free trade agreements (FTAs) with 21 major countries across the globe.

Taxes are not imposed on capital gains, dividends, estates and inheritance. There are also no foreign ownership restrictions and foreign exchange controls in Singapore, providing a level-playing field for both local and foreign investors.

The Economic and Development Board (EDB) provides concessionary tax rates of between 0 and 15 percent for companies that intend to set up their regional or international headquarters in Singapore. Regional headquarters may also claim a writing-down allowance for the cost of acquiring an intellectual property (IP) if Singapore is used as an international holding location for the IP.

3) Intellectual Property (IP) Protection

Singapore has a robust IP protection framework and is a signatory to major IP conventions and treaties such as the Patent Cooperation Treaty and World Intellectual Property Organisation. This has made Singapore to be the top IP destination in Asia for businesses to manage their IP assets. It also makes Singapore an attractive destination for companies to set up their research and development (R&D) divisions.

A Skilled Workforce

The local workforce is highly-qualified, productive and educated. Singapore’s workforce has been consistently ranked as among the top 10 countries with the most motivated and best-skilled workforce in Asia. Singapore also attracts highly-skilled professionals from all over the world due to its friendly immigration policies and high quality of life. Businesses can thus tap on the skilled, cosmopolitan and international labour force mix to meet their business needs.

World-class Infrastructure

The world-class infrastructure and facilities that can be found in Singapore today is the result of the government’s farsighted approach in ensuring that Singapore has a competitive edge in the world’s economy.

Its well-developed air, land and sea transportation network allows for the seamless delivery of people, goods and services. The robust communication infrastructure ensures that Singapore has the fastest average peak Internet connection in the world (Akamai Technologies Report 2015) with a mobile penetration rate of 148.8 percent.

Singapore’s well-developed industrial, transportation and communication infrastructure makes it a favorable destination for businesses to establish or relocate their headquarters into the country.

A Vibrant Startup Community

The government’s push towards an innovation-centric economy since the mid-2000s has effectively created a vibrant startup ecosystem in recent years. In 2015, the Global Startup Ecosystem Ranking placed Singapore as among the top ten tech startup hubs in the world.

The thriving startup ecosystem in Singapore can be attributed to strong government support, a healthy access to local and international venture capital firms, and an eclectic mix of startup accelerators and incubators to support the development of startups in Singapore.

A distinctive icon of Singapore’s pursuit as an entrepreneurial hub is the formation of JTC LaunchPad@one-north (fondly known as Block 71 locally) in 2011. Touted as the “world’s most tightly-packed entrepreneurial ecosystem”, Block 71 currently houses more than 250 startups and 30 incubators and accelerators under its roof, allowing for a thriving and well-supported startup community to burgeon.

Investments and Capital Access

The favorable economic and political conditions in Singapore has also attracted a wave of local and international venture capital (VC) firms to set foot in Singapore over the last few years. This is encouraging for local startups as they can now look forward to a wider selection of funding options. Total VC investments exceeded US$1 billion in 2014. (List of notable venture capital firms that have a presence in Singapore can be found below articles.)

The government is also fully supportive of entrepreneurship development in Singapore. This can be seen in the number of government-led initiatives to provide startups with access to support and funding. These initiatives include:

Government-aided Equity Financing Schemes

– Business Angels Scheme (BAS)

– Early-Stage Venture Funding Scheme (EVFS)

– SPRING Startup Enterprise Development Scheme (SPRING SEEDS)

Cash Grants

– ACE Start-ups Scheme

– ComCare Enterprise Fund (CEF)

– iSTART:ACE Scheme

– iSPRINT

– Technology Enterprise Commercialization Scheme (TECS)

Debt Financing Schemes

– Local Enterprise Finance Scheme (LEFS)

– Loan Insurance Scheme (LIS)

– Micro-Loan Program

 

An Eclectic Mix of Startup Incubators

There is a good mix of well-established startup incubators in Singapore as a result of the thriving startup scene in the country over the last few years. Incubators are a valuable resource for startups as it provides a platform for mentorship, cost-effective shared services, and networking opportunities – components that are essential in the early-stage startup development. Below is a list of notable startup incubators that can be found in Singapore.

In addition, the government has also introduced business incubation schemes to provide additional support for incubators and startups in Singapore. These schemes include:

But…

Despite the favorable conditions in Singapore for businesses to establish or relocate their headquarters, the country is increasingly becoming an expensive location, particularly for businesses involved in manufacturing operations.

Since 2010, the government has been implementing measures to moderate the influx of foreign workers into Singapore. This results in higher labour costs as the local labour market becomes increasingly tight. The cost of living in Singapore is also high with Singapore being ranked as the world’s most expensive city to live in for three consecutive years since 2014.

The small local market may also deter businesses from establishing or relocating their headquarters into Singapore. For businesses whose growth markets are mainly located in North Asia, the 5 to 6-hour flight from Singapore may be far from being ideal.

Final Thoughts

In a study by Towers Watson Asia, it was found that among 319 global Fortune 500 companies, 41 percent chose Singapore to be their Asia Pacific headquarters. This favorable outlook may be attributed to Singapore’s strategic location, its economic and political stability, pro-business stance, a skilled workforce and world-class infrastructure. Startups intending to establish or relocate their businesses to Singapore may take advantage of the government-led incentives and grants, its access to venture capital investments, and its robust and vibrant startup ecosystem.

However, Singapore will continue to face stiff competition from countries such as Hong Kong and China, in attracting businesses to establish their regional headquarters. The rising cost of labour and doing business in the country are some of the challenges that Singapore has to mitigate in order to maintain its competitiveness in the world’s market.

Singapore Venture Firms:

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