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The Guide of Company Setup in Singapore to do Business in Malaysia
As one of the most dynamic and business orientated nations in the world, Singapore’s excellent connectivity, world-class infrastructure, strategic location, first class labour force and breadth of global industry experts and professionals offer unrivalled opportunities for Malaysian businesses.
Singapore is a global financial hub and is considered to be one of the premier asset management centres of Asia, with steady growth and total assets under management of around $1 trillion. As a business centre, there are some 37,400 international companies with headquarters in Singapore, including 7,000 multinationals. Malaysia is Singapore’s biggest trading partner, with bilateral trade totalling roughly 91 billion US dollars in 2012, accounting for over a fifth of total trade within ASEAN.
Singapore is said to be one of the most politically stable economies in the world. Its high ease of operations is due to its almost negligent rate of corruption.
Encouraged by the Singapore Government’s liberal foreign direct investment policies, business-friendly corporate tax policies, tax exemptions on foreign-sourced incomes and first-world infrastructure, more and more Malaysian companies are making Singapore their incorporation destination.
Ease of Doing Business
The World Bank’s yearly Doing Business Report has ranked Singapore consistently amongst the top in the world for ‘Ease of Doing Business’. In contrast, Malaysia is ranked 23rd. Singapore scored high points in areas that are important for entrepreneurs and start-ups; namely access to capital and credit, as well as how effectively insolvencies are resolved. Singapore is the only country in Asia to hold an AAA credit rating from each of the world’s three leading agencies.
Ease of setting up
There is also a stark contrast in the ease of business setup. Singapore company incorporation takes only 1 day and involves just two steps while company formation in Malaysia involves 9 procedures spanning around 11 days. In Singapore, registrations can even be submitted online once you fulfil all the requirements. Moreover, finding an office in Singapore is also not difficult. There are many business parks in the country where you can find the right office space.
Better Access to Financing and Lower Corruption
Start-up companies need all the assistance they can get in order to achieve their maximum potential. Even the most experienced entrepreneurs cannot operate in an environment that is hostile towards business growth. The difference between Singapore and Malaysia, with regards to fostering new businesses, is apparent. In the latest Global Competitiveness Report released by the World Economic Forum, Singapore is ranked 2nd out of 138 countries, Malaysia is at 25th.
Although Malaysia has a rapidly growing economy, it still proves to be a difficult place for businesses to operate from. A breakdown of the report shows that the lack of access to financing and corruption are two of the biggest stumbling blocks for start-ups in Malaysia. As a result, a neighbouring country like Singapore that does so well in these rankings appeals to budding business owners.
Robust legal system
As a former British colony, Singapore has a strong, English-language legal system. Companies are establishing in Singapore as a result of Singapore’s sound and comprehensive legal, institutional, policy and supervisory framework. It is business friendly location makes Singapore an attractive base for overseeing operations in other South East Asian nations.
Better Access to Emerging Economies
One factor that works in Singapore’s advantage is its location. Any start-up based in Singapore places itself right at the doorstep of multiple emerging economies in South-East Asia, including Indonesia and Thailand. Singapore is very well-linked with the rest of the world thanks to its excellent infrastructure. For many start-ups, expanding to international markets in the early stages is crucial and Singapore provides a much better platform.
Selling in strong Singapore Dollar and low cost in Malaysia
Having a Singapore set-up presents the opportunity to sell in strong Singapore Dollars along with lower costs in Malaysia. The profit margin can be very high especially when the Malaysian ringgit has depreciated significantly against the Singapore Dollar in recent times.
Low Singapore corporate tax rate
Singapore has one of the most attractive corporate tax rates in the world. Singapore has a corporate tax rate of 17%, compared to Malaysia’s 25%. In addition, Singapore offers tax exemption for newly-formed companies.
This has often been one of the prime factors why businesses choose Singapore as their hub for South and South-East Asia. It is only natural then that even start-ups would want to benefit from this. Singapore has a comprehensive Avoidance of Double Taxation Agreement (DTA) in place with Malaysia, which ensures that Malaysian entrepreneurs are not penalised for establishing their start-ups in Singapore.
Tax advantages of incorporating a Singapore Company
Singapore’s double taxation agreement (DTA) with Malaysia puts a limit on the level of withholding taxes payable on dividends from overseas holdings. Moreover, the city-state’s low corporate income tax rate (17 percent) and lack of capital gains tax make it an ideal jurisdiction for basing the holding company operations. Comparatively, the headline corporate tax rate in Malaysia is 25%.
Understanding the Malaysia-Singapore DTA
Taxation on Dividends
Dividends distributed by the Malaysian subsidiary to the Singapore Holding is not subjected to withholding tax in Malaysia.
If qualifying conditions are met, the dividends received from the Malaysian Subsidiary can be exempted from tax under Singapore’s foreign-sourced income exemption scheme. This exemption applies only when the headline corporate tax rate in the foreign country from which the income (which is Malaysia in this case) is received is at least 15%, and the income had already been subjected to tax in that particular country.
Taxation on Interest Income
According to the DTA, the interest income is taxed at a rate of 10% in the country in which the income arises. A similar tax may be levied in the recipient country as well.
Taxation on Royalties and Technical Fees
Similar provision to the tax on interest income, though the rate for royalties is fixed at 8% and technical fees is at 5%.
Avoiding Double Taxation
If Malaysia sourced income of a Singapore company is subjected to taxation twice (once in Malaysia and then again in Singapore upon remittance), then the Singapore company can claim relief under the Foreign Tax Credit (FTC) scheme, which allows the company to claim a credit for the tax paid in Malaysia against the Singapore tax that is payable on the same income. The claim is called Double Tax Relief (DTR).
Moreover, under the Singapore Government’s tax exemption for new start-up companies, newly-incorporated qualifying companies in Singapore are given tax exemptions of up to 100% on normal chargeable income of up to S$300,000 for each of the first three consecutive tax years of its operation.
Other benefits such as the Corporate Tax Rebate scheme (50% on tax payable), no tax on dividends, tax exemption on foreign-sourced income, and the Foreign Tax Credit (FTC) pooling system, are added advantages.
Especially, the FTC Pooling system is noteworthy, which the Singapore Government introduced in 2011. This scheme while simplifying tax compliance has reduced the tax payable on foreign-sourced income for Singapore companies. To qualify for FTC Pooling, the headline corporate tax rate in the foreign country from which the income is received (which in this case is Malaysia) must be at least 15% (which it is), and the income must already be subjected to tax in that particular country.