Why do Indian companies choose to establish themselves in Singapore? 10 important factors
The laws of India and Singapore make it simple for an Indian citizen to form a Singapore corporation. But why would anyone undertake such a thing? What are the benefits of forming a Singapore corporation for an Indian citizen or a firm based in India? These questions are addressed in this article. It outlines (and provides examples of) commercial circumstances in which a Singapore company-based framework probably benefit Indian residents and enterprises.
India and Singapore: a Comparison
India and Singapore are key trading partners, and their business connection is growing. History, culture, and ethnography are all shared between the two countries. Both owe their social norms and values to South Asian Indo-Chinese cultural patrimony; both were long parts of the British empire; both gained independence from British domination about the same time, and both were badly impoverished nations when they gained freedom.
However, since their independence, they have taken quite different paths. While India’s route from a tight communist economy to a market-based economy has been winding but democratic, Singapore’s commitment to markets has been firm, albeit tinged with authoritarianism.
India’s economic progress has been gradual and uneven. In contrast, Singapore has emerged being a model for economic development. It is now regarded being a leading first-world country.
The business climates of the two nations are similarly completely different. Singapore is a rule-based, corruption-free, market-based economy. In contrast, India struggles with high levels of public corruption and nepotism. Singapore and India have taken quite different approaches to economic regulation: while Singapore favors a light-touch compliance-based regulatory structure, India continues to rely on a complicated, heavy-handed “licensing raj.”
The tax systems of the two nations are similarly completely different. Singapore is the best in the world relating to political stability, crime rates, the rule of law, multicultural harmony, economic stability, foreign reserves, currency stability, and global integration.
For these reasons, many Indians have either emigrated to Singapore or formed strong economic links with the nation; they just find Singapore to be a more appealing location to live and work. India’s 1.3 billion inhabitants, two-thirds of whom are under 35, provide a tremendously appealing market and a huge labor pool for any entity.
As a result, the best of all worlds for an Indian company would be a form that allowed it to use Singapore’s core benefits while having access to the Indian market and talent pool. This type of construction is fairly common; it has been successfully used by several well-known Indian and Indian enterprises, including household names like Flipkart, Milaap, Mobikon, InMobi, and Medialink.
This article contains thorough information that will help you establish whether or not such a form is appropriate for you or your firm.
Key factors for Singapore’s business attraction
The following are the main factors that contribute to Singapore’s appeal being a business site for Indian enterprises and Indians in general:
1.In India, the corporate tax rate for domestic enterprises is 30%, while it is less than 17% in Singapore.
2.Dividend distributions (paid from a company’s after-tax profits) are taxed in India. On the other hand, Singapore avoids double taxation by not taxing dividends paid to shareholders.
3.India levies a capital gains tax of roughly 15-20%, making entrepreneurship and risk-taking more difficult. In Singapore, capital gains are taxed at a rate of 0%.
4.The value-added tax (commonly known by the term GST) ranges from 5% to 28 percent in India. It is set at 7% in Singapore, and many items and services are excluded from the tax.
5.There are no major taxes or other gains available to entrepreneurs in India, but Singapore welcomes them with open arms.
6.India is ranked #77 in the World Bank’s 2019 Ease of Doing Business Report being one of the world’s most difficult nations to do business. Singapore is rated second in the world.
7.Both nations have pledged to use accommodating policies to further their existing robust commercial relations.
8.Singapore has world-class infrastructure and amenities, but India’s quality of life may be challenging even for its wealthy.
9.Singapore was placed 4th in the world and first in Asia in the World Economic Forum’s Global Competitiveness Report 2016-2017 for having the greatest IP protection, while India was ranked 42nd.
10.Singapore has a large network of tax treaties with other countries (including one with India) that aid Singapore corporations doing global business in avoiding double taxation.
Indian-origin entrepreneurs have founded several successful businesses in Singapore, and their achievements have been well-recognized. These entrepreneurs have not only gained professional success and awards, but they have amassed significant riches, with several of them at present seeming on Forbes Singapore’s Richest List.
Can an Indian Incorporate a Singapore Company?
Yes, and the process is quick, easy, and affordable. Both India and Singapore have rules that allow an Indian citizen or a firm domiciled in India to own a Singapore company (i.e., 100 percent of the shares).
Indian citizens are treated the same like foreigners from any other country under Singapore’s corporation legislation. As a result, the same rules for foreigners forming a Singapore company apply to Indian individuals and enterprises.
How to Start a Company in Singapore?
Indian individuals and enterprises must engage a registered filing agent for their new company in Singapore. They must meet the standards listed below.
- Initial Paid-Up Capital: S$1 is the minimum Initial paid-up capital.
- At least one local director is needed (Singapore Citizen, Singapore Permanent Resident, or EntrePass holder)
- A minimum of one and a maximum of 50 shareholders are needed.
- A registered physical office address in Singapore is a registered local office address.
Company Secretary: Within six months after the formation date, hire at least one company secretary.
- ACRA can help you register a business name. With ACRA, you may register a distinctive and useful company name free of copyright issues.
- Company name registered with ACRA
- Description of business activities
- The registered local address of the company
- Details of shareholders, directors, company secretary
- Foreign Entrepreneurs: A copy of their passport and proof of residential address (overseas)
- Foreign Companies: Company Constitution, Certificate of incorporation
To incorporate a company in Singapore, apply to the ACRA.
Apply to ACRA and provide all required papers. Foreigners are unable to register their businesses in Singapore on their own. Your authorized agent can register your Singapore business online using the BizFile+ platform.
Structures for several Scenarios
This part will go over the several instances in which a Singapore-based entity probably be beneficial to an Indian individual or a business in India. A suitable business structure is specified in each scenario.
Please remember that the information below is planned being a broad guideline and may or may not apply to your circumstance. As a result, you should gain professional counsel before acting on this material.
Few reasons why Indian startups see Singapore being the preferred location for their operations.
1. Easy Establishment
According to the World Bank Group’s Doing Business Report, the complete registration process for a startup takes an average of 2.5 days and 3 phases, compared to a regional average of slightly more than 34 days and seven steps for the incorporation procedure.
In India, the full establishment procedure of a corporation takes 30 days and 13 phases to complete.
2. Better Infrastructure & Lower Corruption
Singapore is ranked second out of 144 nations in terms of supporting new enterprises in the World Economic Forum’s 2018 Global Competitiveness Report, while India is ranked 60th. The government is a huge backer of innovation, planning to build a smart nation to deal with concerns like aging and urbanization, which opens up new markets and possibilities for innovative startups.
India has a fast-rising economy, but it lacks enough infrastructure and is not on par with Singapore due to high levels of corruption.
3. Friendly Tax Scheme
Singapore’s low corporate tax rate promotes new businesses. Taxable income is taxed at a fixed rate of 17%. For the first three years of its assessment, Singapore grants startup tax exemptions (SUTE) for newly created enterprises, with the first $100,000 tax-free income and the next S$200,000 chargeable revenue subject to only 8.5 percent tax.
However, if the company is based in India, it will be subject to a 30% tax on its earnings.
4. Availability of Skilled Workforce
One of the main reasons a startup with a strong idea fails is that it does not have suitable staff. The amount of talent accessible in Singapore is directly related to the competence that a startup company’s workers can possess. Singapore is ranked second in the Global Talent Competitiveness Index by INSEAD.
The absence of a competent workforce in India has lowered competitiveness. Firms are having trouble hiring qualified people to propel their enterprises ahead.
5. Opportunity of Testing
Singapore is a microcosm of the globe, making it an ideal location for startups to test their goods and services before launching them and improving them. It is a technologically advanced and network-ready country.
Singapore fulfills and surpasses the demands of any startup. Provided that the existing performance difference between India and Singapore continues, more Indian startups will probably continue to set up shop in Singapore.
Launching a Startup in India
While the suggestion to build an Indian business in Singapore may seem to be an oxymoron, it is extremely sound. Some of India’s most well-known entities (like Flipkart, InMobi, and Medialink) are based in Singapore. A substantial number of new Indian digital startups are following suit.
This method has strong grounds, which can best be conveyed by outlining the reasoning behind Flipkart’s migration to Singapore.
Flipkart’s relocation to Singapore was envisaged while the company was looking for international funding to help it develop. Many specialized rules are imposed on several sectors of the Indian economy, including the retail sector, by India’s red-tape bureaucracy (in fact, simply discovering all of these rules is a large task in itself, and several well-known entities specialize solely in providing services to help you find all of the rules that will apply to you!).
To get around India’s ban on foreign direct investment (FDI) in multi-brand retail, the Flipkart founders chose to relocate their backend operations to a new corporation, Flipkart Singapore, and declare their Indian companies (Flipkart India, ekart, and WS retail) subsidiaries of the new Singapore company.
Flipkart After it, Singapore was able to attract international investment. It then gave the money to its Indian businesses in form of a Loan. However, FDI regulations are only the top of the iceberg; comparable regulations stifle an Indian firm in a variety of ways (foreign exchange restrictions, rules on import of machinery, prohibition on export of certain products, etc.).
They reduce productivity and squander resources by enforcing kafkaesque compliance requirements. Furthermore, there was another significant ancillary benefit to Flipkart’s Singapore move: the Singapore Government’s sovereign wealth fund, GIC, opted to sponsor its Singapore firm.
Many additional Indian businesses seeking international funding (notably in the industries of information technology, gaming, social media, and mobile) have used a similar structure:
1. Practo, an online medical appointment scheduler provider,
2. Knolskape is an education software company that delivers management lessons for corporate entities,
5. Of the 50 companies it has helped incubate, Singapore’s Joyful Frog Digital Incubator has 12 from India.
Most experienced VC companies and PE groups will only make investments in an Indian company through a Singapore-based framework; otherwise, they would not invest. This form enables these companies to avoid paying Indian capital gains taxes in the event of a sale and to decrease taxes on profits if they are distributed in form of dividends.
On the capital gains front, Sequoia Capital’s experience with Druva in the United States is instructive. Sequoia had intended to put money into Druva. Druva rebuilt itself in form of a new Singaporean business with an ownership structure that was identical to the last Indian companies. Sequoia’s equity was subsequently transferred to Mauritian enterprises instead of Sequoia’s Indian investment vehicle, evading Indian capital gains tax.
If the Indian subsidiary produces a profit that needs to be given to its investors, a Loan-dividend arrangement is sometimes used to minimize taxes on dividends. The Indian subsidiary would be liable to a 15 percent withholding tax if it merely declared a dividend.
Instead, the subsidiary arranges for a Loan to be made to the overseas owners or the parent business. Taxes are not applied to the Loan amount. The Loan is either canceled (and the parent company never has to pay it back) or amended in the long run through a tax-neutral transaction between the parent and the subsidiary.
If you’re thinking about starting a business in India, you should think about incorporating your holding company in Singapore rather than India. If you form a company in India and then wish to relocate it to Singapore, the process is substantially more expensive and time-consuming. Rather, forming a holding company in Singapore from the beginning is a more efficient and cost-effective strategy.
International Expansion of India-based Business
A Singapore corporation can help you extend your business internationally organically or through acquisitions if you have a strong business in India. The following are some of the benefits of such an approach:
1. Singaporean investors may invest in any nation in a secure, quick, and discreet manner. In India, however, this is not the case.
2. Singapore’s favorable tax treatment of foreign-sourced income, and the absence of capital gains and dividend taxes, result in considerable tax benefits for both retaining and departing assets. The proceeds from such transactions can then be re-invested without incurring a tax penalty. If the investments were made by an Indian corporation, this would not be conceivable.
3. Singapore is seen positively by most international countries being a clean, law-abiding state that welcomes foreign investment. Investments made outside of India, on the other hand, are investigated for political corruption, which sometimes causes the clearance process to be delayed.
4. With a world-class airport and a variety of lodging alternatives, Singapore is a popular location for international dealmakers.
5. A Singapore corporation can operate like your company’s M&A arm. Singapore has a strong M&A infrastructure, with almost all of the world’s leading investment banks, consultancy companies, and accountancy entities based there.
6. Finally, Singapore’s legal system is attractive to foreign dealmakers since it is clean, well-functioning, and efficient. If there are any disagreements between the parties, they can be handled through Singapore’s judicial system or its very successful Alternative Dispute Resolution system.
Holding Company for India-based Business
A holding company is a corporation formed to acquire and own the shares of other companies, which are the holding company’s subsidiaries. The holding company doesn’t make any items; its sole job is to provide the firm with a financial framework. Frequently, the holding company owns the assets that its subsidiary utilizes.
When a firm is developing and taking on unknown and unquantifiable risks, a holding company structure might be beneficial. The holding company structure can give risk management and flexibility to the parent and other subsidiaries by sandboxing the risks in a subsidiary. The holding company structure can allow for the division of component business ownership and several parties.
A holding company can potentially provide considerable tax benefits to its shareholders or subsidiaries’ shareholders. Segregating tax losses or profits in jurisdictions that provide optimal tax outcomes, gaining tax incentives by aligning the mission of a subsidiary with the stated policy objective for the tax incentive, tax optimized transfer pricing between This can be accomplished in a variety of ways, including matching the tax residency of a subsidiary or holding company with the domicile (or resident) status of the owners, and so on.
A holding company located in Singapore is a popular business structure. Many multinational corporations (like Flextronics, Wilmar, Trafigura, Temasek, and CapitaLand) employ it, and it is particularly well suited to subsidiaries situated in India. Because of India’s high tax rates and red tape, investing in an Indian firm through a holding company based in a tax-friendly country provides obvious tax benefits.
Furthermore, such a structure allows risk isolation for the subsidiaries, i.e., if one of the subsidiaries has a negative outcome (like bankruptcy), the health of the other components of the firm will not be affected.
The well-functioning legal system in Singapore makes it an excellent forum for adjudication of any legal issues that may occur in the future for any subsidiary. Finally, if the holding company structure is properly established, income from one subsidiary can be used to fund the expansion of additional subsidiaries without incurring a tax penalty. All of these goals may be met with a Singapore-based holding company structure.
Investing in an Indian Business
If you’re thinking about investing in a entities situated in India, you should think about doing so through a Singapore-based corporation. If you’re a non-Indian investing business or a non-Indian individual, this is unquestionably the best plan. However, it is stated later in this section, it may make sense for Indian investors or India-based investment companies to make such an investment through a Singapore-based business.
Before April 2017, there were specific advantages to making such investments through Mauritius; when the Indian business’s shares were sold, the Mauritian company did not have to pay tax in India on its capital gains. However, the tax exemption provided by the double taxation avoidance agreement between India and Mauritius has been changed.
On the transfer of Indian shares purchased after March 31, 2017, capital gains tax is payable in India. Gains from investments in India were before taxed neither in India nor in the nation where the investing corporation was situated due to a loophole in tax treaties.
The treaty, which was intended to prevent double taxation of the same income in two nations, resulted in the revenue being “double non-taxed.”
Both Mauritius and Singapore now enjoy equal tax treatment in India being a result of the legislation. As a result, before deciding whether to invest through a Mauritian business or a Singaporean firm, investors must consider the local benefits afforded by these two countries.
On this front, Singapore easily defeats Mauritius. As a result, Singapore-based entities’ foreign direct investment (FDI) in India has surged considerably since April 2017. Singapore received $16,228 million in FDI in 2018-19, compared to $8,084 million from Mauritius. Singapore defeated Mauritius for the third time in the FDI race in India.
Furthermore, an examination of FDI from Singapore indicated that the huge majority of the investors were not Singaporean entities. MNCs and Indian corporations, on the other hand, invested through their Singapore subsidiaries.
Bharti Airtel, Triguna Hospitality Ventures, Flip Kart, and Snapdeal are included in the well-known Indian corporations that have used their Singaporean subsidiaries to make an investment in India.
But why is Singapore, a tiny country, India’s largest investor? What draws multinational corporations to invest in Singapore through their subsidiaries?
The explanation is partly due to Singapore’s natural advantages and partly due to the two nations’ bilateral tax treaties. The Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore was signed in 2005.
Limits of Benefits are included in this section. A foreign shell company in Singapore can benefit from capital gain tax exemption under this provision if its annual expenditure on operations in Singapore exceeds S$200,000 in two years and the firm is listed on the Singapore Stock Exchange.
Capital gains from the alienation of shares in a company are not taxed in the country where the firm is based under the Singapore – India DTA. Such profits, on the other hand, are taxed in the nation where the shares are sold.
If the parent firm is based in the United States, this clause probably result in large tax savings or allow it to optimize its US taxes. Furthermore, if the revenues from the India subsidiary are held with the Singapore holding company for future Asian investments, US taxation of the income may be avoided.
Due to Singapore’s foreign-sourced income exemption policy, no Singapore tax is charged on dividends from India or Thailand if revenues from the Indian subsidiary are routed through the Singapore holding company to a Thai subsidiary (and no cash goes through the US parent company).
The parent business in the United States is unlikely to face any tax implications. As a result, such a structure probably give the most tax-efficient path to growth for the investor.
Export of Products or Services from India
By forming a Singapore firm, an Indian company that provides products or services to international clients might decrease the red tape involved with its operations. The Singapore business (say SINGCO) operates like a distributor for the Indian company’s products or services.
The treaties between India and Singapore make it easier to move products and payments between the two nations and, therefore, between SINGCO and its Indian parent. SINGCO is in charge of all international customer relations, including invoicing and payment collection from overseas clients. SINGCO pays the Indian business a portion or all of these payments on a regular basis.
Given Singapore’s simple import-export procedures and the few restrictions on collecting revenue from abroad, such a structure can greatly simplify overall corporate operations. The owners can optimize their overall tax strategy by appropriately arranging the transfer price for the products (or management fees for the services) between the Indian parent and SINGO.
Import of Foreign Products into India
The scenario outlined above for an Indian export-oriented company applies to an Indian import-oriented company (say IMPORTCO). IMPORTCO can establish a Singapore subsidiary (SINGCO) to function like its international agent and manage all of its foreign supplier interactions.
This would reduce the amount of Indian red tape that IMPORTCO would have to deal with if it dealt directly with its overseas suppliers through India. The treaties between India and Singapore make it easier to move imported goods and payments between the two nations and, therefore, between SINGCO and IMPORTCO.
Optimizing IP Transfer Pricing for an Indian Business
If you have commercially valuable intellectual property, you can increase its long-term economic worth by putting it in a Singapore corporation (say SINGIP). The intellectual property is sold or transferred to SINGIP. The IP assets are then owned by SINGIP, which licenses them to the parent firm (or its subsidiaries) for a charge.
The licensees probably be based in India or anywhere else in the world. Due to the Singapore government’s particular handling of IP-based enterprises, the licensing fees accrue with the Singapore company at exceptionally low tax rates.
Furthermore, the Singapore subsidiary evaluates the IP’s long-term economic worth by creating an income stream. This may make it easier to sell the IP asset in the future. If the asset is owned by a Singapore firm at the time of sale, the sale will result in a considerable tax benefit since the sale will be subject to a 0% capital gains tax.
Hiring International Staff for India-based Business
By recruiting a top-level overseas executive through their Singapore subsidiary, an Indian company can boost the executive’s after-tax take-home salary and benefits package. After that, the executive is deputized for the Indian operation and can work there. Internal secondment is a proven approach for attracting and maintaining top-tier foreign talent. However, in order to put such a structure in place, you’ll need a Singapore subsidiary to recruit the CEO.
Facilitating International Travel for Indian Executives
For holders of Indian passports, most nations have stringent visa requirements. When Indian business people have to travel globally, these rules become a headache. Most nations, on the other hand, look favorably on an Indian passport bearer with a Singapore work visa when contemplating giving a visa to such a person.
As a result, an Indian company can establish a Singapore subsidiary, which can subsequently secure a work visa for the Indian company’s employees. Indian business people will be allowed to work in Singapore on an as-needed basis and travel globally with fewer limitations, thanks to the work visa.
Because this is a more thorough strategy, the businessperson’s total job profile must include a large amount of time.
Because this is a more complicated technique, the businessperson’s total job profile must include a huge quantity of overseas travel and work in Singapore to justify such a plan.
Managing Currency Risk for India-based Business
If the target foreign currency (e.g., the Russian ruble or the Brazilian real) swings in the opposite direction to the Indian rupee, Indian enterprises face large currency risk. This danger is quite significant, given the tremendous volatility of the Indian Rupee. Futures and options can be used to hedge it, but these tactics can be rather costly.
Another option is for the company to keep its assets in a stable currency like the US dollar, the British pound, the Euro, or the Singapore dollar to lessen the volatility of its target currencies in the INR pair. This can be accomplished by establishing a Singapore subsidiary that will keep the company’s assets in the selected stable currency.
Singapore has one of the best-run foreign-currency markets in the world, so it’s a great place to manage currency risks for your company’s treasury operations.
Wealth Management for an Indian HNWI
A family office is a business established by a family for the exclusive purpose of managing the wealth of that family. The business handles the day-to-day management of the family’s assets and prepares the long-term strategy for their acquisition, expansion, and disposal.
A family office’s principal main aim is to build, safeguard, and safely transmit the family’s assets from one generation to the next. A Singapore-based corporation can be used to set up a Family office like this.
Aside from wealth and asset management, a family office frequently collaborates with other professionals to provide relevant services to family members. Legal and tax advice, family trust creation, insurance provision, property and estate administration, educational possibilities for children, provision of high-end medical treatments, and other lifestyle services are examples of these services (like the purchase of private jets and yachts, vacation planning, etc.).
A family office can help with wealth transfer and succession planning across generations. It has the following benefits:
- Clear family wealth governance guidelines may be developed and followed regularly.
- Diverse assets, some of which may be located in different countries, can be managed in form of a single entity.
- Through a single point of delegation, risk management, asset protection, and wealth preservation may be outsourced to a competent manager.
- Wills, family offices, foundations, residency jurisdiction choices, and long-term Powers of Attorney can all be part of a cohesive plan.
Switzerland has always been the favored jurisdiction for establishing a family office. However, in the last ten years, Singapore has become the ideal destination for Ultra-High Net Worth Individuals (UHNWIs) to set up their family office. Almost all of the world’s major financial institutions have a presence in Singapore or are in the process of doing so. The site chosen for a family office has long-term implications.
It must be a place where the family’s long-term interests may be serviced and protected. UHNWI from China, in particular, are looking for a rule-following, secure, and politically stable jurisdiction to safeguard and transfer their wealth because they face harsh government policies, a slowing economy, a sinking currency, and the potential loss of financial stability in Hong Kong. These and more benegits are available in Singapore:
Singapore provides a politically stable, business-friendly climate, and in addition a well-regarded judicial system based on British Common Law.
Singapore has one of the lowest levels of any sort of corruption of any country on the planet.
The Singapore government, through its Economic Development Board (EDB), is working to entice affluent investors to the nation and, as a result, has put in place regulations that are particularly favorable to family offices. For example, rich families that create a family office can get instant permanent resident status in Singapore through the Global Investor Program (GIP).
Singapore’s tax system is expressly designed to encourage family offices to relocate to the city-state. For assets managed by family offices, gains on Special Purpose Vehicles (SPVs) – whether onshore or offshore – may be tax-deductible. The more than 90 Double Taxation Agreements in place in Singapore can help a family office’s global assets pay less tax.
Singapore has one of Asia’s top quality of life and one of the world’s best educational systems.
In many aspects, a Singapore corporation may be a beneficial and diverse platform for an Indian business or individual. However, this is a big and complicated subject. If any of the scenarios mentioned here ring true for you, we advise you to learn more about the subject and consider if a Singapore corporation is right for you. Many skilled Indian entrepreneurs are already doing so, notably Binny Bansal, the founder of Flipkart.
edited and proofread by nikita sharma