Singapore: Asia's Business Epicenter

Sponsored by Rikvin, 22 June, 2012

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 5.3m 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 2012, USD1 was worth SGD1.27.

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). Growth slowed to 5% in 2011 due partly to the spike in oil prices and the after effects of the natural disasters in Japan, and economic activity in Singapore is likely to remain restrained in 2012 due to external factors.

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. Therefore, there are a series of tax incentives in place targeting a wide range of industries and services, while other tax breaks are aimed specifically at helping small firms to grow.


Singapore’s proximity to regional markets and connectivity to global markets make it an ideal place for global enterprises to set up an Asian base. Within just 7 hours of flight time westwards, Singapore businesses have access to 1.2 billion consumers in India. 7 hours northwards would see Singapore businesses tap 1.3 billion consumers in China, and within that circumference, 593 million consumers in Southeast Asia. In total, Singapore has access to markets totalling 3.1 billion people in India, China and Southeast Asia. The collective GDP of these countries registered over US$10.6 trillion in 2010.


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 1, 2004, foreign income received or deemed received by a resident individual in Singapore is 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.

From 2010, corporate tax is 17%. 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.

In 2010, 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 things 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 and 2012 Budgets.

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 is also a cash conversion option where taxpayers can opt to receive, in lieu of tax deduction benefits, a cash payout of 60% (30% prior to 2012) of the first SGD100,000 of qualifying expenditure (a maximum of SGD60,000, up from SGD30,000 prior to 2012). 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 at 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. In the 2012 Budget, further support was given to SMEs contemplating business consolidation with the giving of a 200% tax allowance on the transaction costs incurred, such as legal and tax advisory fees, subject to an expenditure cap of SGD100,000.

The government has 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 in 2011 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.

The Green Ship Programme provides 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.

Under the scheme, an approved angel investor who commits a minimum of SGD100,000 of equity investment to 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 investment costs, subject to a cap of SGD250,000 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% of the 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 is effective for qualifying investments made from March 1, 2010 to March 31, 2015.

Singapore currently has comprehensive tax treaties with 69 countries. Notable among these are treaties with Australia, Belgium, Canada, China, France, Germany, 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 covering only international air-transport or shipping operations.

Singapore is well advanced with e-filing for tax returns; in fact, 925,000 taxpayers e-filed their tax returns by the April 18, 2012 tax filing deadline, a record high of 97%. To simplify the tax filing process, the Inland Revenue Authority of Singapore (IRAS) has also introduced various self-help initiatives over the years. One of the more popular self-help services this year was the “Filetax” SMS Mobile Service which allows a taxpayer to check if she is required to file this year, or whether IRAS has received her tax return.

Furthermore, in 2012, 1.2m taxpayers enjoyed a simplified filing experience as their employers were part of the Auto-Inclusion Scheme (AIS), which meant that these taxpayers already had their employment and income information pre-filled in their tax returns. From 2013, IRAS will extend the AIS to include employers with 15 or more employees. With this extension, the salary information of another 100,000 taxpayers will be directly transmitted to IRAS. These taxpayers will not need to submit their salary information when they file their returns next year.

Investment Sectors

In just over four decades, Singapore has established a thriving financial centre of international repute, serving not only its domestic economy, but also the wider Asia Pacific region and in some instances, the world. Singapore's financial centre offers a broad range of financial services including banking, insurance, investment banking and treasury services.

A key aspect of Singapore’s financial centre is its deep and liquid capital market. With one of the more well-established capital markets in Asia-Pacific, the Singapore Exchange (SGX) is the preferred listing location of close to 800 global companies. Today, Singapore has grown to be the largest Real Estate Investment Trust (REITs) market in Asia ex-Japan and also provides an extensive offering of investments in business trusts of shipping, aviation and infrastructure assets.

Singapore’s bond market has also grown significantly. With an extensive range of both Singapore government securities and foreign corporate bonds available, Singapore offers fixed income investors a wide range of investment opportunities.

As one of the top four most active foreign exchange trading centres in the world, Singapore is also the second largest over-the-counter derivatives trading centre in Asia, and a leading commodities derivatives trading hub.

With its key import and export links in Asia, and tax incentives for international and regional headquarters, Singapore is also an attractive jurisdiction in which to locate trade, marketing and distribution activities.

Furthermore, Singapore is an ideal place in which to locate an investment holding companies with its extensive network of double tax avoidance treaties that reduce the rate of withholding tax on dividends remitted by foreign subsidiaries to Singaporean investment holding companies.

Asset Management

Regulatory changes made by the Singapore authorities have lured many international fund managers to relocate their operations 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 now recognized as one of the premier asset management location in Asia. Total assets under management in Singapore amount to around SGD1.2 trillion. Singapore is also emerging as one of the most popular Asian locations amongst hedge fund managers for fund start ups, and 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 sophistication.

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.

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.

Under Singapore's Code on Collective Investment Schemes, which is part of the Securities and Futures Act 2001, hedge funds are classified as either domestic (onshore) funds or foreign (offshore) funds. Typically, onshore funds use a company, trust or limited partnership structure and they can be marketed to bother resident and foreign investors (although they are normally offered only to domestic investors). Offshore funds can be offered to domestic investors if certain special conditions are met.

Fund managers with fewer than 30 investors, which can include other hedge funds, and "accredited" investors (individuals with a net worth in excess of SGD2m and corporations net assets in excess of SGD10m) are not required to register with the Monetary Authority of Singapore. However, hedge funds offering their services to retail investors must obtain a Capital Markets Services licence from the MAS. The minimum investment for a retail investor is SGD100,000 for a single manager fund and SGD20,000 for a hedge fund of fund.

In September 2011, the Monetary Authority of Singapore (MAS) issued a consultation paper to seek comments on the draft legislative amendments to give effect to the revised regulatory regime for fund management companies (FMCs), as well as additional proposals to further enhance the business conduct requirements for FMCs.

The draft legislative amendments reflect the proposals set out in MAS’s first policy consultation on the regulatory regime for FMCs conducted in April 2010, and its response to feedback received, which was published in September 2010. The revised regime is expected to take effect in 2012.

As part of its on-going review of the regulatory framework, MAS is also proposing additional requirements to enhance the business conduct requirements for FMCs. MAS proposes to require FMCs to put in place a risk management framework over their fund management operations to identify, address and monitor the risks associated with the assets that they manage. MAS also proposes to require FMCs which operate under the notification regime to undergo independent annual audits.

The MAS also intends to introduce a new Capital Markets and Financial Advisory Services (CMFAS) examination requirements for representatives of Licensed Retail FMCs which manage or offer Specified Investment Products to persons who are not accredited or institutional investors. This is aimed at raising the competency and product knowledge of FMC representatives.

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.”

Property Funds

Singapore has emerged 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 USD1bn 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.

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.

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 would continue to monitor the situation closely and would introduce additional measures if required later.

With effect from August 30, 2010, the Ministry of Finance increased the holding period for the imposition of seller’s stamp duty (SSD) from one year to three years. An Additional Buyers Stamp Duty (ABSD) was imposed in December 2011 (see below).

Securities Markets

The Singapore Exchange (SGX) connects investors in search of Asian growth to corporate issuers in search of global capital. It is Asia’s most internationalised exchange with more than 40% of companies listed on SGX originating outside of Singapore. The exchange is the world’s biggest offshore market for Asian equity futures market, centred on Asia’s three largest economies – China, India and Japan.

As at the end of May, 2012, there were 770 securities listed on the SGX, for a total market capitalisation of SGD882bn. Securities traded on the exchange include stocks, ADRs, REITs, ETFs, ETNs, fixed income products and derivatives.

Despite recording lower securities trading volumes, the Singapore Stock Exchange (SGX) announced an increase in profits for the six months ending December 31, 2011, after expanding its product range to capture more business.

SGX recorded revenue of SGD148.1m, net profit of SGD65.4m (SGD74.2m) and earnings per share of 6.1 cents in the second quarter of the current financial year, which runs from July 1 to June 30. This brings SGX’s net profit to SGD152.9m for the six months ended December 31, 2011, 3% higher than last financial year’s SGD148.4m. The Board of Directors has declared an interim dividend of 4.0 cents per share, payable on February 14, 2012.
However, the exchange said that investor sentiment was affected by macroeconomic uncertainty and this led to lower securities trading volumes.

Securities daily average trading value was SGD1.1bn in the second quarter of the 2012 financial year (SGD1.8bn in Q2 2011) and SGD1.4bn in the first half (SGD1.7bn in H1 2011) respectively.

Price volatility, on the other hand, led to increased risk management activities by existing and new customers in the derivatives market. Derivatives daily average trading volume (DAV) was up 11% to 274,757 contracts (248,325 contracts in Q2 2011) with market share of key contracts remaining steady. DAV for H1 2012 was 22% higher at 298,796 contracts (245,025 contracts in H1 2011). After-hours trading contributed 16% (14% in H1 2011) of the overall volume this quarter.

Chinese A50 futures DAV doubled year-on-year to 16,959 contracts and was 36% higher quarter-on-quarter. Year-on-year DAV of Nikkei options rose 39% to 10,202 contracts and Rubber futures were up 24% to 1,118 contracts. The average monthly open interest of derivatives grew 44% year-on-year to 1,346,544 contracts.

There were nine new listings in the second quarter including Lonza Group (the SGX's first Swiss listing) and CMNC Goldmine. A total of SGD2.4bn (SGD7.3bn) of equity funds was raised: SGD214.7m in IPO funds and SGD2.2bn in secondary fund raising. In addition, SGD19bn was raised through 35 new bond issues.

Magnus Bocker, SGX CEO, said: “SGX reported a net profit of SGD65.4m in difficult market conditions following a decline in securities turnover. We continue to expand our products and services, including the start of the world’s first clearing of OTC Foreign Exchange Forwards. We also welcomed our first Catalist mineral, oil and gas listing. During the quarter, we effectively transferred customers’ positions and margins following the collapse of MF Global. This demonstrates the importance of a strong and capable clearing house. We remain cautious and focused on cost discipline amid global economic challenges.”

The SGX expanded its range of investment products in Q2 by listing six new exchange-traded funds and adding 15 Depository Receipts to its GlobalQuote platform. The exchange is also working on the ASEAN (Association of South East Asian Nations) Trading Link, under the auspices of the ASEAN Exchange collaboration, to collectively promote ASEAN as a highly investable asset class.

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 reduced the minimum bid size for securities as of July 4, and this was 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.”

By September 2011, the SGX became 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 includes 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.

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.

Witnessing close to 1m contracts valued at almost USD30bn traded in the first quarter of 2012, SMX grew over 20-fold compared to the same period in 2011. From a mere volume of 37,088 contracts traded in the first quarter of 2011, the exchange’s trading volume rose to 865,249 contracts for the corresponding period in 2012.

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 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 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. In 2010, 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 (USD1.2bn) Sukuk deal.

However, he disclosed that “to provide greater tax clarity and certainty to the industry”, he was able to announce that 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.”

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.


The Port of Singapore is the world’s busiest in terms of total shipping tonnage, transhipment and containers, handling some 140,000 vessels each year. The port also operates South-East Asia’s most technically advanced and efficient shipbuilding and ship-repair facilities.

The Singapore Shipping Register, established in 1966, now ranks among the world’s top 10, with over 3,000 registered vessels totalling 43.7 million gross tons.

Major attractions of registering a vessel in Singapore are that it is a party to all the major International Maritime Organization (IMO) conventions on ship safety and marine pollution prevention and is on the ‘White List’ of key port state control regimes. A dedicated flag state control unit (FSCU) that actively monitors, identifies and regularly penalises any non-conforming ships in the SRS.

The Singapore Registry is also recognised as a non-flag of convenience registry by both the United Nations Conference on Trade and Development and the International Transport Workers’ Federation.

Nine internationally recognised classification societies, in addition to Maritime and Port Authority of Singapore, are authorised to survey and issue tonnage, safety and pollution prevention certificates to Singapore ships, including American Bureau of Shipping (ABS); Bureau Veritas; China Classification Society; Det Norske Veritas; Germanischer Lloyd; Korean Register of Shipping; Lloyd's Register; Nippon Kaiji Kyokai; and Registro Italiano Navale.

Owners of Singapore-registered ships are entitled to employ offices and crew of any nationality, although all crew must meet the standards of the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) 1978.

Profits derived from the operation of a Singapore vessel are exempt from Singapore income tax and there are numerous other tax and other financial incentives available for owners of Singapore-flagged vessels.

An increasing number of shipbroking companies and associated professionals have established their offices in Singapore in order to tap the growing opportunities in Asia, driven by the dynamic expansion of China and India. Today, there are over 100 local and international shipbroking firms operating there. With Singapore’s growing importance in the shipbroking sector, the Institute of Chartered Shipbrokers – an internationally recognised professional body representing shipbrokers, managers and agents globally – operates a branch in Singapore.

Other than the traditional core services of chartering and sale & purchase, Singapore-based shipbrokers are also increasingly offering value-added services such as research & consultancy, shipping finance and forward freight agreement (FFA) broking. Shipbrokers with FFA desks often act as inter-dealer brokers to assist in finding counterparties and negotiating FFA trades. They also constitute an important group in the SGX AsiaClear, Asia’s first over-the-counter (OTC) clearing facility for the trading of oil swaps and shipping derivatives.

Company Formation

Most types of Singaporean company are formed under the Companies Act (Cap 50 of the 1994 Revised Edition of the Singapore Statutes), and the most common type of company to be incorporated in Singapore is the Private Limited Company. initial and ongoing fees for Singapore company registration are competitive with other low-tax and offshore jurisdictions.

Also known as a Pte Ltd company, The company is a separate legal entity in its own right, and so shareholders are not liable for its debts. The maximum number of shareholders allowed is 50. Although 100% foreign ownership is allowed, at least one director must be a Singapore citizen, resident or employment pass holder.

A Pte Ltd company must register with the Accounting and Corporate Regulatory Authority (ACRA). The registration fee is SGD300, plus SGD15 for company name approval. Accounts must be audited annually and filed with ACRA. An annual tax return must be filed with both ACRA and IRAS within one month of the company’s annual general meeting.

A foreign company may establish a Branch or Subsidiary in Singapore. The foreign company’s head office is ultimately responsible for a Branch. Moreover, a Branch does not benefit from tax incentives and exemptions enjoyed by local businesses. The Branch must bear the same name as the head office, and must have a registered office address in Singapore. Two ordinarily resident agents in Singapore must be appointed by the Branch to accept notices and services of process. Earnings and capital can be repatriated to the parent company, and income attributable to or derived from activities outside of Singapore are not subject to Singapore corporate income tax. A Branch must be registered with ACRA.

Alternatively, a foreign company can establish a Subsidiary as a locally incorporated private limited company, with the parent company as its majority or only shareholder. The Subsidiary is a separate legal entity from its parent, and its liabilities do not extend to the parent. The Subsidiary can benefit from the same tax incentives and exemptions as local companies.

A Representative Office cannot trade in Singapore. Instead, it undertakes marketing and oversight activities in Singapore on behalf of the foreign parent company. Depending on the activity the Representative Office represents, it must register with either International Enterprise Singapore or the Monetary Authority of Singapore.

Other business forms which may be formed in Singapore include the following types of entity:

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.

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 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. 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.

Following his meeting with Singapore's Prime Minister Lee Hsien Long, the President of the European Commission, Jose Manuel Barroso said in September 2011 that a comprehensive Free Trade Agreement between the EU and Singapore will likely be finalized "very soon".

An agreement would aim to double trade between the EU and Singapore within five years. Singapore is already the EU’s twelfth largest trading partner, while the EU is the second largest export market for Singapore. The EU has also provided around 30% of all foreign direct investment into Singapore, almost three times as large as investment from the US.

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.

As of June 2012, bilateral FTAs are also in force between Singapore and: Australia, China, Jordan, India, Japan, New Zealand, Panama, Peru, and the US. There is also an FTA in force between Singapore and the EFTA member states (Norway, Iceland, Liechtenstein and Switzerland.

Furthermore, Singapore has signed additional FTAs with Costa Rica and the Gulf Cooperation Council (comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), while negotiations with Canada, the EU, Mexico, Pakistan and Ukraine are ongoing.

Living in Singapore

Work and Residence

Non-residents must hold a valid work pass before they can work in Singapore. Employers who hire foreigners without valid work passes can be prosecuted under the Employment of Foreign Manpower Act.

The Employment Pass (EP) is the main type of work permit issued to foreign workers in Singapore and is aimed at professionals working in managerial, executive or specialised jobs earning at least SGD3,000 per month. EP applications are however closely scrutinised by the Ministry of Manpower, and applicants will need to show appropriate qualifications and work experience to be successful. The application will also depend on the employer's track record in Singapore. EPs are valid for up to two years for first time applicants, and up to three years for renewals.

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.

Alternatively, the EntrePass scheme exists for those wishing to make a less substantial investment in Singapore. To qualify for an EntrePass, applicants must must register a Private Limited Company with the ACRA and submit a credible business plan. The company must have at least SGD50,000 in paid-up capital and the applicant must hold at least 30% of the shares of the company. The company must not have been registered for more than six months at the point of application. An EntrePass has an initial validity period of one year and will remain valid as long as the business remain sound. Immediate family members of the EntrePAss holder are also allowed to stay in Singapore while the business develops.

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.

Singapore is the most expensive city in South East Asia and the third most expensive in Asia as a whole in terms of cost of living, according to Mercer's 2012 Cost of Living survey. This survey, which compared the cost of 200 items including housing, food, clothing and household goods, transport and entertainment, measures the cost of living in 214 cities worldwide, and is designed to help multinational firms and governments decide on compensation packages for expatriate employees.

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 are not 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.

Furthermore, in December 2011, the government announced an Additional Buyer’s Stamp Duty (ABSD) to be imposed on certain categories of residential property purchases, in addition to the current buyer’s stamp duty.

The ABSD applies, at a rate of 10% on the purchase price or market value of the property (whichever is higher), for purchases by foreigners and non-individuals (including corporate, trusts and collective investment schemes, amongst others) of any residential property.

Permanent residents owning one and buying a second and subsequent residential property pay an ABSD of 3%; and Singaporeans owning two and buying the third and subsequent residential property also pay an ABSD of 3%.

The ABSD took effect on December 8, 2011. Remission of ABSD will be given for options granted on or before December 7, 2011 and exercised within three weeks (that is, on or before December 28) or the option validity period, whichever is the earlier.

The ABSD applies in addition to the existing buyer’s stamp duty on property purchases, which is charged at the following rates: 1% on first SGD180,000 (USD140,000) of the purchase consideration or market value of the property (whichever is higher), 2% on the next SGD180,000 and 3% for the remainder.

It was explained that the government's objective is to promote a sustainable residential property market where prices move in line with economic fundamentals. At the time of the ABSD announcement, prices of private residential properties were 13% above their peak in the second quarter of 1996 and 16% above the more recent peak in the second quarter of 2008.

However, by April 2012, there was evidence that the government's property market cooling measures were having some effect. According to the Urban Development Authority (UBA) Singapore’s estimated private residential property price index fell in the first quarter of 2012, by 0.1% from 206.2 to 206.0, compared with the 0.2% increase seen in the previous quarter. This was the first decline since the second quarter of 2009.

In fact, in the first quarter, prices of non-landed private residential properties decreased by 0.9% in the core central region of Singapore, compared with a 0.5% rise in the previous quarter; while prices in the rest of the central region fell by 0.7%, after being unchanged in the last quarter of 2011.

It is said that the imposition of the ABSD has affected property investment demand at the beginning of this year, especially for the more expensive homes. However, it was also indicated that demand remains high for mass-market accommodation outside of the central region, leading to continued rising prices, and the market is still aided by low interest rates.

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. An established trading and financial centre, Singapore is also a rising star in the world of alternative investment, and 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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