Europe and America may be one of the most advanced regions in the world, but some others are fast catching up. Singapore is now often dubbed as the financial center of Southeast Asia. It is a place that is not only challenging the European and American hegemony but is also becoming an actual cosmopolitan place to live in, even as others are backpedaling on promises of open and free market. Lately, the city-state has emerged as the top contender when it comes to enabling startups in not only founding new enterprises but also building firmly on the momentum and attaining long-term viability of projects. Although Singapore’s total population accounts for even less than the population of some of the largest cities across the world, the advances in technology and innovation have created a facilitating ecosystem where small and medium scale entrepreneurs can execute their dreams with backing from the government and venture capitalists.
In the past few years, Singapore has been awarded and appreciated for its pro-business stance at various platforms, which in turn vindicates Singapore as a true enabler for the startup ecosystem. Very recently, Singapore was ranked at the top as the world’s most competitive economy in the annual Global Competitiveness Index compiled by the World Economic Forum (WEF) based in Geneva. Singapore replaced the United States, affirming its commitment towards being a business-friendly country and its growth-oriented policies and practices. Apart from this, in 2018, Singapore has been ranked at number 2 in ease of doing business and as number 4 in starting a business by World Bank.
In this blog, let’s find out how Singapore could realize these goals and how other countries can replicate the progress the city-state has made despite economic slowdown.
Facilitative Government Machinery
The role of any government is economical and social wellbeing of all inhabitants. The government that backs liberal and out-of-the-box thinking manage to outdo conservative governments. Although many economies around the globe have created specialized agencies to meet funding and non-funding needs of startups, not all initiatives have produced desired outcomes. When in lack of seed capital, the young entrepreneurs of Singapore have increasingly relied on government support. Since inception, Enterprise Singapore has served as an enabler for new-age entrepreneurs by not only providing non-financial assistance that covers talent development and export guide but also financial support that includes grants, soft loans, and business insurance services. Startup SG, a program covered under Enterprise Singapore, is a multi-pronged device targeting comprehensive support to Singaporean SMEs. From giving capital grants to new entrepreneurs (based on how unique their project is) to co-sharing of funding by the Singapore government with private parties, Startup SG is an example of why and how any government should back entrepreneurship.
The Red Tape is Virtually Non-existent
Red tape or bureaucratic hurdles in the way of setting up and running of business exist either because a conservative and inward-looking government rules the country or officials in positions of power seek undue favors. None of these, however, ail the Singaporean economy. That Singapore is one of the top three countries in the 2019 Corruption Perception Index (CPI) of Transparency International is in itself the vindication of government’s vow of minimum interference and transparent and predictable rules for all businesses. Singapore pays the state staffers well, and the retribution for any kickbacks secured out of a corrupt deal serves as a deterrent. One of the biggest buyouts globally in the startup landscape, the US retailer Walmart picking up stake in India’s e-commerce startup Flipkart, had a Singapore link. Walmart paid for its share of dues in Singapore as Flipkart is registered there. No prize for guessing why. The city-state offers unrivaled benefits to foreign investors, and the non-existence of bureaucratic interference makes Singapore a default choice. While in other Asian countries – including the giant in terms of size of the economy, China – businesses often complaint about numerous restrictions on bringing in foreign investment, Singapore allows complete freedom to foreigners to invest in the city-state, without having to undergo cumbersome exercises of obtaining approvals and permissions.
Human Resource Like No Other
The fact that Singapore has topped the Pisa rankings did not come as a surprise to anyone. The rating exercise, undertaken by OECD with focus on the capabilities of 15-year old school children across the world, was last carried out in 2015, and the city-state of Singapore finished at the top position with even the UK being an average performer. Children get tested in math, science, and reading skills, and what the rankings reveal is that Singapore has a vast talent pool at its disposal, set to take the city-state to newer heights in technological advancements and intellectual property. Indeed, Singapore has come a long way from being a highly unskilled region when it secured independence in 1965. An in-depth reading of the Pisa 2015 report points towards how Singapore recruits its teachers. It is done by picking the top 5 percent of graduates as teachers and then focusing on their in-depth training at a state-sponsored institute. SMEs of Singapore are led by students who acquired their skills from the best in the market. It makes for most of the emerging winners in their projects and further strengthening the education ecosystem of Singapore. The government also takes the lead in upskilling of the talent pool through initiatives such as Skillsfuture and enabling enterprises to help employees acquire the latest skills through heavily subsidized programs.
Real Tax Incentives
Although many countries claim to give substantial tax rebates to startups to facilitate innovation and kickstart overall economic growth, Singapore is one economy that has extended real tax incentives, which are both rewarding and transparent at the same time. To put things into perspective, let us look into what the tax liabilities of Singaporean SMEs are and how they help in the retention of profits. The corporate tax rate in Singapore is already low at 17 percent, and special provisions allow startups to claim full relief on income up to S$100,000. This tax rebate can avail for the initial three years of operation, and it comes with a 50 percent exemption on any additional income up to S$200,000. For startups, it is essential to note that the exemptions can only be availed for firms that are incorporated in Singapore and are a tax resident in the city-state with no more than 20 shareholders. In addition to direct tax benefits to startups, the government has declared Angel Investors Tax Deduction scheme under which individual investors in a qualifying startup can claim tax deduction of 50 percent of the investment made at the end of 2-year holding period. A tax incentive, popularly referred to as Section 13H, is available for venture capitals who invest in startups, and the Fund Management Incentive gets targeted at fund management companies.
Legal Protections to Businesses
No brand can ever survive in an environment where intellectual property is not protected. The city-state of Singapore gets identified as one of the regions with the best protection for invention and artistic work. The International Property Rights Index places Singapore at the top in the region for protection of IP rights, and the flocking of international brands to Singapore validates the findings. Not many may know that businesses here are also incentivized to relocate their headquarters to the city-state. Tax benefits can avail if enterprises fall under the category of regional headquarter (RHQ) or international headquarter (IHQ). Repatriation of dividends earned from a subsidiary unit in any foreign territory is tax-free for Singapore-headquartered enterprises. Singapore has also signed free-trade agreements, commonly called FTAs, on bilateral and regional levels, and hence, enterprises based in Singapore are spared of steep tariffs when exporting goods and services across international borders.The relatively low crime rate and the rule of law in commercial transactions between Singaporean firms and foreigners add to the security net of businesses, which is why the city-state has always been a name to reckon with in arbitration of cross-border disputes. Unlike many Asian countries, including China, Singapore has steered clear of exposing its businesses and entrepreneurs to unwanted tax litigations.
Location and Infrastructure
Singapore boasts of world’s leading financial institutions and infrastructure that include one of the best public transport systems and reliable power supply. Ranked as one of the best infrastructure globally, Singapore is renowned for its air and port connectivity with the rest of the world. The emerging markets of Thailand, Vietnam, Brunei, and Indonesia lie in the vicinity of the city-state, and many Singaporean companies are leading the economic development of neighboring countries. Southeast Asia, when viewed as a single market, is the third-largest in the world, more significant than the United States or the European Union. The 600 million-strong consumer base of the region is well-targeted by Singaporean companies, with SMEs and tech startups being the flagbearers of Singapore’s overseas expansion. Many startups of yesterday have turned into unicorns (valuation of more than USD 1 billion) of today. Grab, a ride-hailing firm with operations in much of Southeast Asia and Lazada, an e-commerce firm selling goods across the region, are both headquartered in Singapore. The city-state, dubbed as the gateway to Southeast Asia, with its political stability and numerous financial incentives for startups, has continued to attract businesses for long.
Apart from the above factors, Singapore being a business-friendly ecosystem is its robust economy and an extensive network of Avoidance of Double Taxation Agreements (DTAs), which protects a Singapore tax resident company from double taxation in case of multi-national transactions. In addition to this, reasons for the international companies to set up their businesses in Singapore is the fact that Singapore allows a foreigner to own 100% of the shares in a company incorporated in Singapore. Without requiring to have any local partners or shareholders on board compulsorily. Singapore has minimum regulations on the movement of foreign currency into or out of the country. Also, it is accessible to repatriation the funds to the home country. In addition to this, Singaporeans have a reputation of being highly educated, English speaking, productive, and rule-following. Plus, a vast global talent is attracted to reside and work in Singapore owing to its liberal immigration policy.
Singapore is a true enabler for businesses is an established concept. The approval has come from various sources, and the lately released rankings by the World Economic Forum that place the city-state at the top of the list of most competitive economies corroborate the view. From infrastructure and financial system to healthcare and labor market, Singapore leads the pack by a sizeable margin. Even the United States, home to the world-renowned Silicon Valley, has been placed at the second position. The rankings aptly reveal how Singaporean enterprises benefit from the world’s best labor market and government’s unmatched financial and non-financial support to startups. Although few things still need to be worked out – for example, bringing in more talent from overseas to effectively bridge the gap in new tech such as cloud computing and cybersecurity. Ending the reputation of not being an early adopter of tech that may still be in its embryonic stage (Silicon Valley takes the lead here). Providing for easy access to late-stages funding for startups (in a similar way how early-stage funding by VCs gets incentivized) – in the near-term, the hegemony of Singapore in Asia remains unchallenged, backed by government’s commitment towards rolling out a red carpet for new businesses. Entrepreneurs need a great deal to tap in the startup ecosystem of Singapore, and other countries have much to learn and replicate.