Gargfinanceblog

Last week, one of my e-Commerce Clients in the B2C segment asked me this question: “Where can I register my company, other than in India? Is Singapore a good option?”

This is a common question every Indian startup Entrepreneur explores, keeping in the mind the FDI and taxation policies that Indian government has. So, let’s take a close look at why you should consider Singapore as your destination while exploring foreign company registration

FDI Policy

The Government of India recently introduced Foreign Direct Investment (FDI) policy did not permit FDI in the multi-branded retail (B2C segment). As such, foreign venture capitalists have restrictions while funding an Indian online retail operation.

Take the example of Flipkart, India’s largest e-commerce private company. When the Indian Government turned down the proposal for allowing FDI in the retail sector, investors of Flipkart were left with 2 options: (i) sell the company at the best price or (ii) sell the risky part of the business (logistics and delivery) and move the profitable part to a country with more relaxed regulations. It’s very obvious for the Bansals (Sachin Bansal and Binny Bansal, the Co-founders of Flipkart) to agree to the second option; they registered their company in Singapore. Flipkart’s investors now can infuse the capital in the parent company, and can direct the funds to its India arm

Singapore has based its economic development on a proactive strategy to attract FDI using its trade openness. Since 2003, Singapore has been ranked first by the World Bank Group for ease of doing business – favorable lending to foreign investors, a simple regulatory system, tax incentives, a high-quality industrial real estate park, political stability and the absence of corruption make Singapore an attractive destination for investment.

According to the UNCTAD 2015 World Investment Report, Singapore is the 5th largest recipient of FDI in the world and the 3rd largest among the East and Southeast Asian countries. In 2014, FDI flows into Singapore increased by 27% from 2013, reaching US$ 81 billion.

Lower tax rates

• A company registered in Singapore do not pay tax for the first 3 years after the registration, for the first SG$ 100,000 of profit. Beyond this limit, effective corporate tax for Singapore Private Limited Companies is calculated according to the following slabs:
  • For profits between SG$ 100,000 and SG$ 300,000: tax @ 8.5%
  • For profits SG$ 300,000 and above: tax @ 17%.Compare this with India’s 34%!
• There are no capital gains taxes in Singapore. India charges 15%!
• For income that has been taxed at the corporate level, dividends can be distributed to its shareholders tax-free in Singapore. But, India charges tax on dividends paid at 16.995%!
• In an effort make the economy more competitive, the Singapore Government has adopted Goods and Services Tax (GST). Singapore maintains one of the world’s lowest GST rates (currently 7%), ranking below the global average VAT/GST rate of 16.4%, and the Asia-Pacific average of 10.5%.
• Personal income tax has a tier system that starts from 0% and goes up to 20% for income above SG$ 320,000.

Singapore enjoys the extensive network of double tax agreements (DTA) with more than 70 countries across the globe. The key merits of DTA are (i) no double taxation (ii) lower withholding taxes, and (iii) preferential tax regime. This DTA network along with the absence of capital gains and dividends tax makes Singapore a very attractive jurisdiction for business investments through a Singapore incorporated holding company.

Customs duty

Singapore, being a transit and trade hub, has limited import duty on only a few items like petroleum products, tobacco etc, and no export duty. This offers a lot to companies that trade with foreign vendors. This is one of the reasons why Flipkart chose Singapore as their destination – Flipkart has foreign vendors for electronics and fashion apparels.

Other things to consider

Strategic location with superb connectivity

Singapore is situated at the heart of Southeast Asia, making it possible for a business to access a market of 2.8 billion people within a few hours of flight. For an Indian Entrepreneur, Delhi – Singapore flight takes about 5.5 hours. Singapore also boasts of its state-of-the-art telecommunications infrastructure; it’s the only Asian country to secure a rank in the top 10 economics among 142 countries worldwide.

Ease of doing business

One can incorporate his/her company in Singapore in 1 – 2 days; minimum authorized capital stock is S$ 1 (one Singapore dollar!); shareholders can own 100% of all shares, and residential status is irrelevant (you do not have to be a resident of Singapore). You also get access to a larger investment environment

In addition to this, flexible immigration policies, availability of talent pool, high quality of life, efficient legal system and Intellectual Property protection regime gives Singapore an edge over its neighbors.

Other locations an Entrepreneur can consider are Hong Kong (HK) and the USA. HK is similar to Singapore in almost all aspects, but with still lower tax rate (currently at 16.5%)

USA is another place for those who are considering foreign company registration, but it’s an expensive state with fairly high tax rates, besides other restrictions. The US enjoys third highest corporate tax slab in the world at 40%.

For a comprehensive list of tax rates across the globe, click here