Singapore - Another Hong Kong?

by the Investors Offshore Editorial Team, June 2011, 29 June, 2011

Located in South East Asia, Singapore is a highly developed and successful free market economy which enjoys an open and corruption-free environment, stable prices, a low tax regime and a per capita GDP equal to that of most parts of Western Europe.

Historical and Economic Overview

Although most probably think of Singapore the city, the Republic of Singapore is actually a 700 square kilometre island sandwiched between Indonesia and the tip of the Malay peninsula. The city was founded as a British trading colony in 1819 and formed an important strategic trading and naval post within the British Empire in the 19th and early 20th centuries.

After the Second World War, decolonisation meant that Singapore gravitated towards the Malaysian Federation, which it joined in 1963. However, this was a short-lived phase of the country’s history, and, two years later, Singapore become an independent republic. Subsequently, it has become one of the world's most prosperous countries with strong international trading links and one of the busiest international ports.

Since independence, Singapore has been a parliamentary republic with a directly elected unicameral parliament. As a legacy of its association with the former British Empire, Singapore’s legal system is based on English common law. Also, English is one of the four official languages spoken on the island, alongside Chinese, Malay and Tamil.

Approximately three-quarters of Singapore’s population of 4.7m (2011) are of Chinese origin but there are significant minorities of Malaysians and Indians, while the presence of the major global multinationals in the city also ensures a sizeable army of expats from Europe, North America and elsewhere around the globe. Singapore’s currency is the Singapore dollar, which has been appreciating against the US dollar. In June 2011, USD1 was worth SGD1.23.

Singapore’s economy has been heavily dependent on exports, particularly in electronics and manufacturing and it was hard hit by the slump in the technology sector at the turn of the century. An outbreak of Severe Acute Respiratory Syndrome in 2003 hampered its recovery by curbing tourism and consumer spending. However, fiscal stimulus, combined with low interest rates, a surge in exports, and internal flexibility led to vigorous recovery in 2004, with real GDP rising by 8%, the economy's best performance since 2000. Real GDP growth averaged 7% between 2004 and 2007, but fell to 1.2% in 2008. The 2.1% contraction in GDP in 2009 was less than had been expected, and there was a strong rebound in 2010, when the economy grew at 14.5%, according to the Monetary Authority of Singapore (MAS). More muted growth of 6% is expected by the MAS in 2011 due partly to the spike in oil prices and the after effects of the natural disasters in Japan.

The government, led by Prime Minister Lee Hsien Loong has been actively putting in place investor-friendly reforms in order to diversify the economy and better insulate it against future troughs. It is the government’s ambition to elevate Singapore to the position of South East Asia’s main financial services and investment hub, a position currently occupied by Hong Kong.

Singapore’s 2010 budget, presented in February by the Finance Minister, Tharman Shanmugaratnam, looked to increase productivity in the economy by tax incentives to both companies and individuals, while providing additional protection for lower and middle income groups.

Firstly, he pointed to the action taken by the government which had successfully reduced the effect on Singapore of the global recession – including the Jobs Credit; tax reductions to help companies with their cash flow and encourage them to begin investing for recovery; and significant direct assistance helped Singaporean households to see through the crisis.

Shanmugaratnam emphasized that the 2010 budget would focus on building up the capabilities for economic growth based on productivity growth of 2%-3% per year over the next decade, raising skills rather than relying on an ever-expanding use of manpower and other resources.

To that end, he said that the government will give significant tax benefits to businesses that invest in skills and innovation, thereby lowering their effective tax rates. The government is committing SGD1.1bn a year over the next five years in the form of tax benefits, grants and training subsidies to support this combined, national effort to raise productivity.

To complement investments in productivity, he continued, the supply of foreign workers (that are almost a third of the workforce) must also be managed. “The best way to do this is through the price mechanism, that is, by raising foreign worker levies rather than through imposing numerical limits,” he said. “We will phase in higher levies gradually over the next 3 years, so that companies know well in advance what will happen and have time to adjust.”

The changes started with a modest increase in levies in 2010, and will involve further increases over the following two years. As a first step, levy rates were raised by between SGD10 and SGD30 for most work permit holders on July 1, 2010. There will be further adjustments in levy rates and tiers in 2011 and 2012. Taking the three years together, there will be a total increase of about SGD100 in average levies per worker in manufacturing and services.

In addition a Productivity and Innovation Credit (PIC) was introduced. The PIC provides significant tax deductions for investments in a broad range of innovative activities. It would cover spending on, such as, research & development; the registration and/or acquisition of intellectual property, including patents, trademarks, and designs; design activities; automation through technology or software; and the training of employees. The PIC was further enhanced by the 2011 Budget.

All businesses are eligible for the PIC, based on the amount they invest in any of the activities covered by it. They are able to deduct 400% (up from a maximum of 150% previously) of their expenditures on each of these activities from their taxable income. The enhanced tax deductions are capped at SGD400,000 (up from SGD300,000 previously) of expenditures for each activity, so as to focus the benefits on small to medium-sized enterprises. Businesses will be allowed to combine that annual expenditure cap for 2013 to 2015 into a new ceiling of SGD1.2m over the three years. There will also be an enhanced cash conversion option where taxpayers can opt to receive, in lieu of tax deduction benefits, a cash payout of 30% of the first SGD100,000 of qualifying expenditure (a maximum of SGD30,000). This is aimed at helping businesses that are starting off with low taxable income, but want to grow by investing in technology or upgrading their operations.

Corporate restructuring was promoted further in the 2011 budget through measures encouraging mergers and acquisitions (M&A). For five years, a one-off tax allowance scheme was introduced to help defray a portion of acquisition costs. The allowance is equal to 5% of the value of the acquisition, and is capped SGD5m in a single year. Stamp duty was also waived on the transfer of unlisted shares for such deals. This applies to such deals worth up to SGD100m in any year.

The government continued to update Singapore’s tax incentives for the financial services sector to encourage institutions to build up high value activities and expand their professional teams in Singapore, and announced a tax incentive for shipbroking and maritime financing activities. Furthermore, the scope of GST zero-rating for the marine industry was extended. The maintenance, repair and overhaul business is also a growing opportunity for Singapore, and the government renewed the investment allowance scheme which grants an additional 50% allowance for aircraft rotables for another five years.

Finally, changes are being made to individual income tax reliefs, particularly to benefit middle-income groups, and especially families providing support for their elderly and their handicapped members. Taking all the measures together, the government aimed to spend SGD1.4bn last year in direct transfers for households. While most Singaporeans received some benefits, more went to those with lower and middle incomes.

Thanks to record economic growth last year, Shanmugaratnam was able to build on the measures introduced by the 2010 Budget and announced further tax benefits for households and business in the 2011 Budget. These included:

Trading Agreements

As a member of the Association of Southeast Asian Nations (ASEAN), Singapore will benefit from participation in the world’s largest free trade area, with China committed to reducing tariffs on certain goods traded with the 10-nation group, which includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand and Vietnam. Japan and South Korea will also participate in this tariff-cutting process.

The deal will trigger cutbacks in tariffs over a five year period, commencing an enduring process of economic integration in the region. Considerable progress has already been made towards the establishment of the ASEAN Economic Community (AEC). From January 1, 2010, Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand can import and export almost all goods across their borders free of tariffs.

For these countries, the so-called ASEAN-6, almost 7,900 additional product lines have been reduced to zero tariffs, bringing the product lines traded under the common effective preferential tariffs for the ASEAN Free Trade Area (CEPT-AFTA) to over 99% of the total. The commitment under the CEPT-AFTA was for tariffs to be reduced to zero by 2010 for ASEAN-6, and by 2015 for the remaining four countries, namely Cambodia, Laos, Myanmar and Vietnam. Furthermore, Singapore can be expected to benefit from an FTA with China, which was signed in October, 2008.

The first round of negotiations for a Free Trade Agreement (FTA) between Singapore and Costa Rica took place in April, 2009, focused on drawing up a package of measures to liberalize trade in goods and services, as well as looking at ways to simplify customs procedures and promoting reciprocal investment.

Bilateral trade between Singapore and South Korea almost doubled in 2008 to reach USD25bn (GBP18bn) after a Korea-Singapore Free Trade Agreement (KSFTA) came into effect in 2006. It has also been revealed that Korea's investments in Singapore have increased by over USD800m (GBP570m) in the three years since the FTA's introduction.

Singapore is also close to sealing a free trade deal with the European Union, with both sides expecting that negotiations will be concluded by the end of 2011. According to the EU's chief negotiator, Rupert Schlegelmilch, this FTA would cancel “several hundred millions of dollars” in annual EU tariffs currently paid by Singapore’s businesses. In mid-2011, the two sides were discussing technical issues within the rules of origin and the trade and services liberalization sections of the agreement, but Schlegelmilch said at the time that the talks were “very advanced” on all topics.

Singapore was also one of the original signatories of the Trans-Pacific Partnership (TPP) agreement along with New Zealand, Chile and Brunei in July 2005. The TPP now includes the United States, Australia, Peru, Vietnam and Malaysia and these nations are aiming to conclude a high-standard regional trade agreement focusing on Pacific economies.

Singapore also commenced negotiations towards FTAs with Colombia and Taiwan in the first half of 2011.


For resident individuals, Singapore’s tax regime is fairly benign. Capital gains taxes are only levied in very limited circumstances, there are no gift taxes and estate duty was abolished in 2008. Personal income tax rates in Singapore are also relatively light: resident individuals are taxed at progressive rates up to 20% (reduced from 22% in 2006) on income accruing in or derived from Singapore.

From January 1st 2004, foreign income received or deemed received by a resident individual in Singapore was no longer subject to Singapore income tax, except if received through a partnership in Singapore.

A non-resident employee present in Singapore for more than 60 days but less than 183 days in a calendar year faces a 15% tax on gross employment income, or is taxed as a resident on that employment income, whichever is higher. For non-resident individuals withholding taxes are levied on Singapore-source income at varying rates; foreign-source income is untaxed whether remitted or not.

Non-resident individuals employed in Singapore for 60 days or less are exempt from tax on employment income. Other income derived in Singapore by non-residents is taxed at the corporate tax rate, with the exception of interest income derived from approved financial institutions in Singapore, which is tax-exempt.

Corporate tax stands at 17% in 2011. There are also concessionary rates of income tax for life insurance companies, approved offshore insurance companies, financial sector companies, Approved Operational Headquarters, Approved Finance and Treasury Centres, and Approved Global Trading Companies. Approved marine hull and liability insurers, offshore captive insurance companies, and specialized insurance risk firms enjoy exemption from income tax.

Tax incentive schemes are numerous and are available for International Shipping Enterprises, Approved Venture Companies, research and development projects, Pioneer Industries, Pioneer Service Companies, Approved Shipping and Logistics Enterprises, Overseas Enterprises and Export Services Companies.

A recently-introduced tax incentive aims to promote environmentally-friendly shipping. Announced by Raymond Lim, Minister for Transport and Second Minister for Foreign Affairs, at the Singapore International Maritime Awards 2011 on April 12, the Green Ship Programme will provide incentives to ship owners who adopt energy efficient ship designs that reduce fuel consumption and carbon dioxide emissions. Singapore-flagged ships which go beyond the requirements of the International Maritime Organization's Energy Efficiency Design Index will enjoy a 50% reduction of Initial Registration Fees (IRF) and a 20% rebate on Annual Tonnage Tax (ATT) payable.

Another recently-launched tax incentive scheme is the Angel Investors Tax Deduction (AITD) scheme. Launched in June 2010 by SPRING, a Singaporean development agency for growing innovative companies and fostering small and medium sized enterprises in the country, this scheme aims to stimulate business angel investments into Singapore-based start-ups, and to encourage more angel investors to add value to these start-ups.

During his keynote address to Singapore’s Fourth Start-up Enterprise Conference in July, 2010, the Permanent Secretary for Finance, Peter Ong, illustrated how the competitive tax regime in Singapore encourages the growth of new start-up companies.

Under the scheme, an approved angel investor who commits a minimum of SGD100,000 (USD71,500) of equity investment in a qualifying start-up within a given year will enjoy a tax deduction, at the end of a two-year holding period, based on 50% of his investment costs, subject to a cap of SGD500,000 of investment in each year of assessment.

For angel investors to qualify for the tax incentive, the individual must make the investment as an individual. Investment made via corporations, trusts, institutionalized funds and other investment vehicles are not eligible.

The investor must also demonstrate an ability to nurture investee companies by possessing at least one of the following criteria: at least three years of experience in early-stage investments; at least five years of entrepreneurial track record; or at least eight years of corporate senior management experience. Suitable investors have been able to apply for eligibility under the AITD since July 1, 2010.

For an investee company to qualify for the tax incentive, it must, on the date of first investment, be a private limited company incorporated in Singapore for no more than three years and whose shares are not listed on any stock exchange in Singapore; and have at least 50% of its total issued share capital beneficially held by no more than 20 individual shareholders. The approved investor is required to take up a board seat/advisory role for the entire holding period of the investment (minimum 2 years).

The approved investor must commit at least SGD100,000 within 12 months from date of becoming an approved investor, into an eligible investee company. The cash investments may be made in newly-issued shares for raising fresh capital; in newly-issued preference shares, where there would be no fixed or guaranteed dividend payment on the preference shares for the two-year holding period; and in newly-issued convertible loans, where there would be no interest payment or right of redemption on loans for the two-year holding period.

The approved investor should possess no more than 50% shares of any investee company within the two-year holding period. This also takes into account the potential shareholding should a convertible loan be converted into shareholding.

The AITD scheme will be effective for qualifying investments made from March 1, 2010 to March 31, 2015

Singapore currently has comprehensive tax treaties with 66 countries. Notable among these are treaties with Australia, Belgium, Canada, China, France, Germany (awaiting ratification as of May 2005), India, Italy, Japan, the Russian Federation, South Africa and the United Kingdom. Limited treaties have also been signed with Bahrain, Chile, Hong Kong, Oman, Saudi Arabia, the United Arab Emirates and the United States.

Agreements in place between Singapore and Chile, Hong Kong, Oman, Saudi Arabia and the US cover only international air-transport or shipping operations. Treaties with Slovak Republic, Oman, and Libya are in progress.

Singapore is well advanced with e-filing for tax returns: The Inland Revenue Authority of Singapore has disclosed that more than 870,000 taxpayers e-filed their tax returns by the due date of April 18, 2011, setting a new e-filing rate high of 96%. This represents an increase of 2% from last year’s 94% e-filing rate. However, including the 38,000 taxpayers who filed paper returns, the overall filing rate this year is 88%, about the same as last year.

Investment Sectors:


Singapore is emerging as a genuine player in the real estate finance market that is developing across the Asia-Pacific region. In 2005, a report by Standard & Poor's Ratings Services noted that Singapore, with over US$1 billion in capital raised since 2002, was increasingly being seen as a key player in the region’s REIT and securitised real estate market arena.

Real estate investment trusts (REITs) are in the main publicly traded companies that own and, in most cases, actively manage income-generating commercial real estate. Generally speaking, the majority of a firm's income is passed onto investors without taxation at the corporate level. In Singapore, REIT dividends are tax-free provided more than 90% of the firm's income is distributed to investors. Most of the city's many listed REITS have chosen to do this.

According to S&P, the marriage of tax benefits with factors such as a highly-skilled and educated workforce, clear legal system and ’AAA’ rating has made Singapore the preferred location to list shares for many regional real estate owners.

Keen to encourage foreign interest in the domestic REIT scene, in his 2005 budget speech Prime Minister Lee announced that foreign non-individual investors would be encouraged to invest in the Singapore property market with a cut in the withholding tax on REIT distributions to 10% from 20%, for a period of five years. Additionally, to attract more REIT listings, the government wants to waive stamp duty on the instruments of transfer of Singapore properties into REITs to be listed, or already listed on the Singapore Exchange, for a five-year period. The sector was looking decidedly wobbly in 2009, however, with Moody's putting it on negative watch.

The property market in Singapore began to show signs of overheating in 2009: in September the Ministry of National Development said that demand in the internal property market had rebounded very strongly since early 2009, and that the current low interest rate environment had drawn more buyers into the property market, reducing the cost of property financing and encouraging a steady rise in the volume of bank lending for housing loans. The Ministry said it would reinstate the system of confirmed and reserve lists of official land sales to ensure a steadier supply of private housing and outlawing interest-only or reduced repayment loans, and would rescind a number of assistance measures which had been announced in the 2009 Budget earlier in the year.

Amidst fears that the property market could be overheating, Singapore’s government announced immediate measures in 2010 aimed at maintaining price stability, while also saying that it will continue to monitor the situation closely and will introduce additional measures if required later.

With effect from August 30, the Ministry of Finance increased the holding period for the imposition of seller’s stamp duty (SSD) from one year to three years.

The government originally imposed an SSD for sellers buying residential properties on or after February 20, 2010 and selling them within a year of purchase. However, for residential properties bought on or after August 30, 2010, properties sold within three years of purchase became liable for SSD.

Specifically, the SSD levied on a residential property was revised so that, if it is sold within the first year of purchase, the full SSD rate - 1% for the first SGD180,000 (USD132,500) of the consideration, 2% for the next SGD180,000, and 3% for the balance - was imposed.

Property sold within the second year of purchase became liable for two-thirds of the full SSD rate; and property sold within the third year of purchase, became liable for one third of the full SSD rate.

In addition, for property buyers with one or more outstanding housing loans at the time of a new housing purchase, the minimum cash payment was increased from 5% to 10% of the valuation limit, and the loan-to-value (LTV) limit was decreased, for housing loans granted by financial institutions to these buyers from 80% to 70%.

While these measures are said to have, to some extent, moderated Singapore’s property market, sentiment remains buoyant and the government subsequently announced further changes aimed at maintaining a stable and sustainable property market.

The government's objective is to ensure a property market where prices move in line with economic fundamentals. However, it is feared that continued low interest rates plus excessive liquidity in the financial system, both in Singapore and globally, could cause prices to rise beyond sustainable levels based on economic fundamentals.

Moreover, when interest rates eventually rise, it could strain purchasers who have overextended themselves financially, and therefore, the government has decided to introduce additional targeted measures to cool the property market and encourage greater financial prudence among property purchasers.

The holding period for the imposition of seller’s stamp duty (SSD) has therefore been increased from three years to four years; and the SSD rates have been raised sharply to 16%, 12%, 8% and 4% of the sales consideration for residential properties which are bought on or after January 14, 2011, and are sold in the first, second, third and fourth year of purchase, respectively. The impact of the SSD is especially significant as it is payable regardless of whether the property is eventually sold at a gain or loss.

In addition, the Loan-To-Value (LTV) limit has been lowered to 50% on housing loans for property purchasers who are not individuals (including corporations, trusts and collective investment schemes, amongst others); and from 70% to 60% on housing loans for property purchasers who are individuals with one or more outstanding housing loans at the time of the new housing purchase.

The measures took effect on January 14, 2011.


Regulatory changes made by the Singapore authorities have lured many international fund managers to relocate their operations to the city. New Star International Investment Products, which expanded its operations from Hong Kong to Singapore in 2005, is an example of the calibre of fund firms being attracted to the city. Singapore‘s regulatory changes have meant that international fund managers are no longer required to maintain a physical presence in the territory, and are permitted to make their funds available via private banks.

Singapore is emerging as one of the most popular Asian locations amongst hedge fund managers for fund start ups. The city state’s hedge fund industry is the second largest in Asia. Growth in the sector has been promoted through tax breaks and incentives offered to foreign companies setting up business there, as well as light or, in some cases, no regulation – particularly for hedge funds with 30 or fewer professional investors that qualify under MAS guidelines. Those regulations that are in place for such hedge funds relate to money-laundering and local rules relating to securities and futures trading, which require hedge funds to be sure of their clients’ financial awareness.

Singapore seems to be rapidly ascending the hedge fund ladder due in large part to the relatively uncomplicated registration process, an issue identified by hedge fund managers as crucial when deciding where to set up. While fund registration in Singapore may take around two weeks, in Hong Kong it can take several months. As a result, Singapore has managed to attract interest from some major American funds including the likes of Tudor, Everest and Moon Capital.

Also, under changes designed to help foster growth in the financial services sector, Prime Minister Lee announced in February 2005 that start-up fund managers would be given a 12-month grace period to meet the requirement that 80% of share capital must come from foreign investors to qualify for a 10% tax rate on fee income, which also helped to win over the global hedge fund community.

In May, 2010, the Monetary Authority of Singapore (MAS) proposed a number of enhancements to the regulatory regime for financial intermediaries conducting fund management activities, as well as the exemption regime for financial intermediaries engaged in leveraged foreign exchange trading. Fund management companies (FMCs) whose activities are limited in scale and impact may continue to operate under a notification regime. Such ‘notified FMCs’ will be those with assets under management of not more than SGD250m (USD182m), and who serve not more than 30 qualified investors, of which not more than 15 are funds.

FMCs who serve retail investors and/or manage or advise on a larger portfolio of assets will have to be licensed. Licensed FMCs who manage retail unit trust funds and collective investment schemes will come under this category. The MAS also intends to require all FMCs to meet business conduct as well as capital requirements.

Currently, all holders of a fund management licence are required to appoint at least two directors with experience in the financial services industry. MAS intends to maintain these requirements and apply them to all FMCs. MAS also expects that the chief executive officer (CEO), directors and representatives of all FMCs should meet MAS’s fit and proper requirements, as is the current requirement for all financial institutions in Singapore.

In addition, to ensure that FMCs have the relevant expertise and experience to carry on business in fund management, MAS proposes that all FMCs will be required to, at all times, employ at least two full-time individuals who both have at least five years of relevant experience and reside in Singapore. One of these individuals must be appointed as the CEO and executive director of the FMC.

Under the proposed business conduct requirements, FMCs will need to maintain customers' assets with independent custodians, ensuring segregation of duties between the functions of fund management and fund administration. FMCs will also need to have compliance arrangements which are commensurate with the size and scale of the FMCs' business.

A report published by PwC in September 2010 concluded that, by 2040, Singapore is expected to have overtaken Hong Kong as the prime asset management location in Asia.

PwC expects “to see a general shift of the world’s largest clusters from developed to emerging and developing nations as the centre of global economic gravity continues to shift towards these countries.”

It believes that “the large increase in the share of world gross domestic product represented by Asia over the next 30 years, helped by the expected rapid growth of economies such as China and India, should aid the development of dominant clusters in the region.” However, it adds that “the top locations within Asia of some of these clusters have not yet come to light.”

It forecasts that “the existing large clusters in New York, London and Boston will be joined by Singapore, which may become the leading cluster in the Asian region. Tighter regulation and higher taxes are currently working against clusters in the United States and Europe but the key factor will be the increase in public and private capital available in Asia – which will fuel growth in asset management in the region.”

In its analysis, it expects the existing asset management clusters of Hong Kong and Singapore to both grow rapidly. It says that “both locations offer less burdensome tax regimes than their western counterparts and have ‘well-regulated but moderate’ regulatory structures.”

However, in its view, “there can only be one dominant regional centre in Asia. This is because of the enormous benefits accruing from knowledge spillovers and labour force specialisation in this industry. At present, we see the competition to be the regional asset management centre between Hong Kong and Singapore.”

“In the first half of 2010,” it says, “Hong Kong out-performed Singapore in attracting start up asset management funds with 65% of Asian fund launches during the period occurring in Hong Kong. However, with the Singaporean government actively promoting the city as a global centre for asset management and with a higher existing value of assets under management, Singapore is well-placed to compete with Hong Kong going forward.”

It concludes that “while Hong Kong’s proximity to China allows it access to the growing Chinese market, it will also be competing with other financial centres within China, such as Beijing, for a majority share of the Chinese asset management market. As a more independent cluster in close proximity to Indonesia, Malaysia and Thailand, we expect Singapore to attract the internationally footloose capital and become the second largest global asset management cluster by 2025.”

Therefore, by 2040, “the three largest clusters by value of assets under management are projected to be New York, Singapore and London. Despite growth in Asian markets, New York is projected to retain its position as the dominant asset management cluster.”

Securities Markets

In the first quarter of 2011, the Singapore Exchange (SGX) was the third largest capital raising centre in the world, raising a total of SGD7.5bn from 11 new listings including Hutchison Port Holdings. Up to this point in the year, Hutchison Port Holdings, which raised USD5.5bn, was the world’s largest IPO and South East Asia’s largest IPO to-date, reinforcing SGX’s global position in the maritime transportation sector and as a favourable environment for listing of business trusts. In addition, there were 79 new bond listings, including two RMB issues, raising a total of SGD31.1bn in this quarter.

The LME-SGX metal futures contracts in copper, zinc and aluminum were successfully launched in February 2011. The total volumes traded since its launch on 15 February were 54,744 contracts.

The clearing of OTC Financial Derivatives (Interest Rate Swaps) continued to gain traction with over USD36bn notional value cleared since the launch on 15 November 2010. As at 31 March, there were 11 members participating in this service.

In the three month period to the end of March 31, the daily average trading value of the SGX's exchange traded funds (ETFs) more than doubled to SGD40.3m compared to SGD14.5m a year earlier. In the same period, derivatives revenue was 21% higher at SGD38.8m; futures & options daily average volume rose 34% to an all time high of 315,650 contracts.

On May 31, 2011, the SGX announced an initiative to cut trading costs, a move it says will make the institution one of the most competitive exchanges in Asia.

The SGX will reduce the minimum bid size for securities as of July 4, and this is expected to lead to a tightening of bid-ask spreads by as much as 80%. This, the SGX says, will cut trading costs by an estimated SGD1.7bn (USD1.4bn), based on turnover figures for 2010.

“This initiative addresses our customers’ need for more cost-efficiency and trading opportunities," commented Chew Sutat, Head of Securities at SGX. "Tighter spreads will encourage investors to increase their participation in SGX, the best market for accessing fast-growing Asia. This will in turn enhance liquidity here in Singapore.”

The SGX has announced a number of other initiatives recently as it seeks to boost its attractiveness to international investors, including the addition of eight more American Depository Receipts (ADRs) to its GlobalQuote board. All the ADRs are fungible with those listed in the US and allow investors, for the first time, to manage their exposure to these companies round-the-clock. Five of these ADRs are of major Japanese companies including the world’s biggest automaker Toyota Motor Corporation. Two of the new ADRs are from major China companies which only have US listings. Their quotation on SGX will give investors their first-ever opportunity to manage exposures to these companies during the Asian time zone, when news flow relevant to the companies is likely to occur. The eighth ADR is from a major South Korean company, POSCO, one of the world’s largest steel makers.

“Our increasingly diverse ADR suite enables customers to manage risk and trade across several time-zones with ease and at competitive cost," said Sutat. "Recent market events underline the importance of this flexibility.”

By September 2011, the SGX will also become the world's first exchange to start the clearing of Asian Foreign Exchange Forwards, a move intended to enhance Singapore’s global standing as a market for trading of interest rate derivatives and foreign exchange. The clearing of Asian FX Forwards will include the non-deliverable currencies traded in the region, namely the Chinese Yuan (renminbi), Indonesian Rupiah, Indian Rupee, Korean Won, Malaysian Ringgit, Philippine Peso and Taiwanese Dollar.

The Singapore Mercantile Exchange (SMX) announced in late 2009 that it had received in-principle regulatory clearance from the Monetary Authority of Singapore (MAS) to operate the first Pan-Asian multi-product commodity derivatives exchange, following the extension and enhancement in 2009 of the tax incentives on commodity derivatives trading (CDT). The CDT incentive scheme, originally contained in the 2004 budget, was introduced to promote the establishment of a commodities derivatives market and, thereby, improve Singapore’s standing as an offshore financial center. The scheme was improved in 2009 by relaxing certain restrictions on CDT companies in exchange-traded commodity derivatives, and by extending the 5% concessionary corporate tax rate to December 31, 2013.

In its press release, SMX said that it is the first such commodity derivatives exchange to be based in the region, offering unrestricted cross-border trading to market participants using an electronic platform developed by Financial Technologies India Limited (Financial Technologies), its 100% shareholder that has invested SGD75m (USD54m) in the venture.

SMX offers a comprehensive platform for trading a diversified basket of commodities including futures and options contracts on precious metals, base metals, agriculture commodities, currencies and commodity indices.

Ang Swee Tian, Chairman of SMX, said: “This is a significant milestone for us, as we progress towards the launch of Asia’s first multi-product commodity exchange. I believe that we have in place all the elements for a thriving commodity exchange based in Singapore.”

It was emphasized that Singapore is already a major trading hub – the third largest oil trading center after New York and London, the top bunker port in the world, the fifth largest foreign exchange trading center and the eighth largest center for over-the-counter derivatives – but, with the new commodities derivatives exchange in Singapore, another significant link of its financial system would be in place.

Jignesh Shah, Vice Chairman of SMX, praised the incentives provided in Singapore and added: “It is the foresight and vision of the Singapore government which has enabled Singapore to be among the top three international financial centers in the world today. We are thankful to the MAS for giving SMX the opportunity to enhance the existing financial ecosystem of Singapore.”

The opening of SMX provides competition to the Singapore Exchange (SGX) which, alongside its other market sectors, quotes commodity products, including commodity futures.

The SMX went live for trading on August 31, 2010. The first phase of product launches included a Gold Futures Contract with physical delivery in high-security vaults in Singapore, West Texas Intermediate (WTI) Crude Oil, Brent-Euro Crude Oil and Euro-US Dollar Futures Contracts, amongst others.

Islamic Banking

Singapore is intent on becoming an Islamic banking hub, particularly in the area of wealth management. Although it faces some challenges, including the creation of a designated regulatory system, there are almost 270 million Muslims right on Singapore‘s doorstep in the Islamic states of Malaysia and Indonesia. The city has also attracted interest from Middle Eastern investors.

While Singapore has its work cut out catching up with more established Islamic banking centres such as Labuan and the United Arab Emirates, Prime Minister Lee made a start in the 2005 budget by announcing new rules abolishing double taxation for Shariah-compliant property transactions. The budget also granted Islamic bonds the same concessionary tax treatment as those given to conventional financing.

In early 2009, the Monetary Authority of Singapore (MAS) announced the completion of its sukuk (Islamic bond) issuance facility, which will provide Shariah-compliant regulatory assets.

Speaking at the signing ceremony held at Singapore’s monetary authority, Heng Swee Keat, Managing Director, MAS, said: “Today’s signing ceremony marks a further milestone in our developmental efforts. This sukuk is the Shariah-compliant equivalent of Singapore Government Securities (SGS), and is of the highest credit standing. The sukuk will be given equal regulatory treatment as SGS, such as qualifying as an asset in the computation of capital and liquidity requirements, and as eligible collateral for tapping MAS’s liquidity. MAS is committed to the facility, issuing to meet the needs of financial institutions that are carrying out or plan to carry out Shariah-compliant activities in Singapore, as this will strengthen their ability to meet their capital and liquidity requirements”.

V. Shankar, Group Management Committee member, Standard Chartered Bank, spoke about the unique structure of the programme at the signing ceremony. He said: “The size, maturity and pricing of each issuance will be determined in line with the investor requirements and the prevailing market conditions. Thus it will be a demand driven issuance to satisfy the needs of the investors."

Mr Shankar congratulated MAS for being the first central bank of a non-Muslim majority jurisdiction to come up with an ongoing local currency sukuk issuance programme. He added: "I hope this will become an important building block for the promotion of Islamic banking in Singapore."

Abdulla Hasan Saif, Chairman of Islamic Bank of Asia, said: "Not only will this initiative bolster Singapore’s efforts in becoming a leading Islamic financial centre, it may very well become a case study for other countries with similar financial sector requirements and aspirations. The Islamic Bank of Asia is looking forward to utilising the programme for regulatory requirements, to facilitate the development of a range of Sing-dollar, Shariah-compliant products that will cater to our customers' needs."

Abdulla Hasan Saif announced at the signing ceremony that IB Asia will be placing an order for the sukuk shortly, making Islamic Bank Asia the programme’s first investor.

The MAS also announced Singapore-based banks may enter into Murabaha interbank placements and offer Ijarah Wal Iqtina financing with immediate effect.

Ijarah Wal Iqtina financing is a kind of hire purchase agreement between the bank and the customer whereby the bank 'rents out' equipment or other assets to its client for a fixed lease period, after which ownership is trasnferred to the client.

These changes will enable Singapore's financial institutions offering Islamic finance a wider range of instruments in their management of liquidity and in their matching of assets and liabilities and have been made after detailed consultation with the industry.

In a statement MAS vowed to “continue to work closely with the industry to ensure that our regulatory and tax framework, and other necessary infrastructure and conditions are in place to foster good risk management and the further growth of Islamic finance in Singapore.”

Indeed, in his opening address to the Second World Islamic Banking Conference Asia Summit in June 2011, the Deputy Chairman of the MAS, and Minister for Trade and Industry, Lim Hng Kiang, said that Singapore’s Ministry of Finance would soon issue new income tax regulations for Islamic finance.

He pointed out that there is a fundamental need for further standardization and harmonization of both regulatory and Shariah standards across the Middle East and Asia. The greater use of standardized legal documentation would increase efficiency, certainty, transparency and liquidity, and would allow for easier cross-border offering of financial products that would reach a wider investor base and reduce transaction costs.

He also considered that there was a need to ensure that the legal and regulatory regimes remain robust in ensuring the soundness of Islamic markets and institutions, and yet conducive for Islamic finance to grow at a sustainable rate.

With regard to Singapore’s role in Islamic finance, the government has identified three areas where Singapore can offer its services as a financial centre to support the growth of Islamic finance - namely in wholesale banking services, asset management and capital markets.

He confirmed that the MAS has attempted to facilitate the development of Islamic finance in Singapore’s financial markets. Last year, he said, Singapore had been host to several sizeable cross-border transactions, including the world’s first Shariah-compliant data centre fund (Securus Data Property Fund) and the listing of the world’s largest Islamic real estate investment trust (Sabana Shariah-Compliant REIT) on the Singapore Exchange, as well as Khazanah Nasional’s landmark SGD1.5bn Sukuk deal.

However, he disclosed that “to provide greater tax clarity and certainty to the industry”, Singapore will provide additional clarification and detailed explanation of the income tax treatment of further defined Islamic financing arrangements, including financing through a partnership arrangement, project finance and the interbank placement of funds.

“This is in keeping,” he added, “with our long-standing principle that Shariah-compliant products should not be disadvantaged in terms of regulatory and tax treatment where the economic substance and risks are similar to conventional products. We hope that this will expedite the development of more such financial products in Singapore.”

Living in Singapore:


Under Singapore’s Global Investor Programme (GIP) foreign investors with substantial capital and good entrepreneurial track records may apply for permanent residence. Under this scheme, applicants must invest at least SGD2.5m in a new business or to expand an existing business operation, or invest at least SGD2.5m in a GIP-approved fund.

Foreigners who have substantial personal net wealth may also apply for permanent residence under the Financial Investor Scheme. Applicants for this scheme also have two options: transfer at least SGD10m in assets to Singapore to be managed by a financial institution there; or hold at least SGD8m in assets in Singapore and invest SGD2m in Singapore private housing properties.

Also, persons born in Singapore or who can show proof that they have or used to have rights of abode in Singapore may also apply for in-principle approval for permanent residence.

Social contributions to the CFP (Central Provident Fund) amount to 36% of gross salary (16% from the employer and 20% from the employee), but they are optional for non-permanent residents.

Lifestyle and Cost of Living

Singapore’s tropical climate ensures that temperatures are hot the year round. With two monsoon seasons from December to March and from June to September, the climate is also very humid and in the heat of the city those from chillier European or North American climes may find the atmosphere somewhat oppressive. Nevertheless, Singapore is a modern, cosmopolitan and vibrant city where various far eastern cultures mix harmoniously with western influences.

According to a survey conducted by Mercer in 2010 the cost of living in Singapore is not as prohibitive as one might expect, and the city was ranked the 11th most expensive place to live in the Asia-Pacific region, behind cities such as Hong Kong and Tokyo. This survey, which compared the cost of 200 items including housing, food, clothing and household goods, transport and entertainment.

Renting and Buying Property

Singapore’s limited land availability means that the real estate stock has to be carefully managed. Naturally this makes property quite expensive to both rent and buy.

The need for Singapore to manage land development means that foreigners face restrictions when buying certain types of property on the island, such as vacant land, ‘landed properties’ or bungalows, semi-detached and terrace houses. In these cases, foreign buyers need to apply for approval from the Singapore Land Authority for permission to buy.

Once a buyer has identified a property, they can pay 1% of the purchase price in exchange for the Option to Purchase. Option to Purchase is usually prepared by the seller's solicitor or property agent. The buyer then has 14 days to decide whether to proceed with the purchase. If the option is exercised, an additional 9% of the purchase price is passed to the seller's solicitor. Alternatively, buyers can bypass this procedure and ask their realtor to prepare the Offer to Purchase.

A seller’s stamp duty of 1% for the first SGD180,000 of the consideration, 2% for the next SGD180,000, and 3% for the balance on the conveyance, assignment or transfer of property was imposed on February 20, 2010 and disposed of within a year of acquisition. Properties acquired before February 20, 2010 will not be subject to SSD. However, the holding period for the imposition of seller’s stamp duty (SSD) has been increased from three years to four years; and the SSD rates have been raised sharply to 16%, 12%, 8% and 4% of the sales consideration for residential properties which are bought on or after January 14, 2011, and are sold in the first, second, third and fourth year of purchase, respectively.

In addition, the Loan-To-Value (LTV) limit has been lowered to 50% on housing loans for property purchasers who are not individuals (including corporations, trusts and collective investment schemes, amongst others); and from 70% to 60% on housing loans for property purchasers who are individuals with one or more outstanding housing loans at the time of the new housing purchase.

Bank accounts

To open an account in Singapore will require copies of one’s passport, an employer's letter, and a statement from a bank in the applicant’s home country. Most of the major banks in the world are represented in the city and there is an extensive network of automated teller machines (ATMs) as well as a cashless payment system called NETS. Most banks open from 9.30 am to 3 pm on weekdays and 9.30 am to 11.30 am on Saturdays.


So, in conclusion, Singapore maintains its reputation as a culturally diverse, democratic and business-friendly location which welcomes input from investors from around the globe. A rising star in the world of alternative investment, Singapore is quickly becoming the regional location of choice for new hedge fund start-ups, while Islamic banking and wealth management are also making their mark upon the city.



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