Doing Business Internationally: Singapore

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Christy: Hello, everyone, and welcome to today's webinar, "Doing Business Internationally: Singapore." My name is Christy DeMaio Ziegler, and I will be your moderator. Please join me in welcoming our host Helena Ledic, an associate general counsel for CSC in the Chicago office. Helena.

Helena: Thank you so much, Christy, and thank you to the audience for joining us to learn about Singapore today with our Doing Business Internationally series. I'd like to introduce the audience to Agnes Chen, who is our Managing Director of Singapore, and then Raj Keloth, who is our Senior Director of Corporate Legal Services. Agnes.

Agnes: Thank you, Helena. Welcome to our Doing Business in Singapore series. My name is Agnes, and we look forward to sharing with you all about business specifics for Singapore. Over to you, Raj.

Raj: Thank you, Agnes. Welcome, everybody, to this Doing Business Internationally. I can't wait to share with you all the details. Thank you, everyone.

Helena: So let's talk about our agenda for today. First, we'll get into a little bit about CSC, and then we'll talk about why Singapore. Then we'll go into the what we call doing business, the types of entities and regulatory considerations. Agnes will talk about setting up funds in Singapore and then how CSC can help you.

For more than 120 years CSC has been the partner of choice for companies around the globe, trusted to handle everything from incorporating a company through maintaining compliance to corporate transaction work, protecting digital assets from the threats of the online world, and everything in between. We offer the solutions and technology that keep businesses running in the background, allowing clients to focus on the important work of growing their business.

CSC has offices and capabilities in more than 140 jurisdictions across Europe, the Americas, Asia-Pacific, and the Middle East. We're a global company capable of doing business wherever our clients are, and we accomplish that by employing local experts, such as Agnes and Raj, in every business we serve.

Singapore is located in Southeast Asia and is located one degree north of the equator. Its geographic size is comparable to El Paso, Texas, and it's comprised of 64 islands. Singapore is an incredibly diverse city. The three largest ethnic groups are Chinese, Malay, and Indian, which results in four official languages, but English is most commonly used in business. It has the largest port in Southeast Asia and the second busiest in the world. Its GDP per capita is the third highest in the world, and it is the only country in Asia with AAA sovereign credit rating from all the major credit rating agencies. It's the third largest foreign exchange center and sixth largest financial center. Financial services industry accounts for 10% of Singapore's GDP. The semiconductor is another 7%. And its judicial system is based on English common law.

Now let's learn a little bit more why Singapore is so attractive from a business standpoint. Raj, why don't you get us started off a little bit here?

Raj: Singapore is seen as a very business-friendly jurisdiction. It has a very attractive corporate tax rate and sufficient tax exemptions for newly incorporated companies. And in the world of business dividends, there is no tax on dividends, and there's an extensive network of tax treaties. Unlike some of the jurisdictions where there are certain minimum capital requirements, Singapore moved away from minimum capital requirements and foreign exchange controls.

Singapore ranks globally on the fourth for ease in doing business. It has good connectivity in Asia. Being a major shipping port, it has got connectivity with 600 ports in 120 countries. It is a highly competitive economy. In the 2019 report, it ranks among the top four in terms of health, labor market, and financial systems.

Over to you, Agnes.

Agnes: Thank you, Raj. Let's now find out how Singapore is a thriving financial hub. Singapore is the fifth most competitive financial center globally, with well over 800 financial institutions. Financial institutions are regulated by the Monetary Authority of Singapore (MAS). It has around 68% of total assets under management invested in the Asia-Pacific region originated from Singapore. Singapore is ranked as first in Asia for world-class in terms of asset management. The Monetary Authority of Singapore is active in this space and has introduced various initiatives to attract wealth managers.

Singapore also has a skilled, multilingual workforce. Firstly, Singapore is ranked first in Asia for world-class talent, 12th in the world for talent competitiveness. It is also ranked second the most attractive jurisdiction for global talent. The world's second highest population of high-skilled employment, with two-thirds of the country's strong workforce in professional, managerial, executive, and technical roles. Singapore has an adult literacy rate of 97.6%. Over 70% of Singapore residents communicate in two or more languages, which is very interesting and very, very good for the business.

Helena: So Raj, why don't you walk us through the different types of entities that are available in Singapore? Let's first talk about the proprietorships and then the partnerships.

Raj: Sure, Helena. I'll begin with the sole proprietorship. It's a business that can be owned and controlled by an individual, a company, or a limited liability partnership. There are no partners in the business. The legal status of a sole proprietorship can be defined as follows. It is not a separate legal entity from the business owner. The business owner has unlimited liability, i.e., that is the business owner is personally liable for all the debts and losses of the sole proprietorship. It can sue or be sued in the owner's name.

Moving from the sole proprietorship, we move into the limited partnership. A limited partnership is a vehicle for doing business in Singapore. It is a partnership consisting of a minimum of two partners, with at least one general partner and one limited partner. A limited partnership does not have a separate legal entity from the partners, and it cannot sue or be sued or own property in its own name. An individual or a corporation may be a general partner or a limited partner of the limited partnership. Appointing a local manager is not mandatory unless all the general partners are residing outside of Singapore. A general partner is responsible for the actions of the limited partnership and is liable for all debts and obligations in a limited partnership. A limited partner is not liable for the debts and obligations of the limited partnership. Beyond as a great contribution provider, he does not take part in the management of the limited partnership.

Helena: Raj, tell us about the other entities that are also available in Singapore.

Raj: So besides the limited partnership, we have the limited liability partnerships, company limited by shares, a variable capital company, and a representative office.

Let me let me touch on the limited liability partnership. A limited liability partnership is a vehicle for doing business in Singapore that gives the owners the flexibility of operating as a partnership while having a separate legal identity, like a private limited company. This means that the limited liability partnership is seen as a body corporate and as a legal personality separate from its partners. The limited liability partnership is perpetual succession, which means any change in the partners of an LLP, that's the limited liability partnership acronym, will not affect its existence, rights, or liabilities. A limited liability partnership is capable of suing and being sued in its name, acquiring and holding property in its name, having a common seal in its name, and doing such other acts and things in its name as bodies corporate may lawfully do and suffer. The partners of the limited liability partnership will not be held personally responsible for any business debts incurred by the limited liability partnership.

With that, I move on to the next vehicle, which is a company limited by shares. And the concept of a company limited by shares, a separate legal entity registered under the Companies Act. The typical forms of companies that are common in Singapore are the exempt private companies, companies limited by shares, and to a lesser extent companies limited by guarantee.

Companies that are exempt private are the most common types of company in Singapore. The name usually ends with a Pte. and an Ltd. It can have a maximum of 20 shareholders. No shareholder is a corporation and has a share capital.

In the case of limited by shares, the name usually ends with Ltd. That's the acronym for limited. It can have more than 50 shareholders. It may raise capital by offering shares and debentures to the public. Must register prospectus with the Monetary Authority of Singapore before making any public offers. And the liability of the shareholders to creditors of the company is limited to capital originally invested by the shareholders.

Finally, we touch on the limited by guarantee. In such vehicles, the name usually ends with the acronym Ltd. That's limited. Carries out non-profit making activities of national public interest, such as promoting arts, charity, etc. Has no share capital. And the liability of members is limited to the amount which they undertake to contribute to the assets of the company in the event of winding up.

Beyond companies limited by shares, we move into the variable capital company. The variable capital company is a type of legal vehicle which is tailor-made for the collective investment schemes. Some of the features of a variable capital company are it's a separate legal personality from the directors. It will have members, also commonly known as shareholders. A variable capital company will have a board of directors responsible for the governance of the VCC's, or the variable capital company acronym, operations. This board of directors of a variable capital company is the equivalent of the board of directors in a company incorporated under the Companies Act.

A variable capital company must be managed by a permissible fund manager. It can be set up as a single standalone or a non-umbrella fund, or as an umbrella fund with one or more sub-funds, each without legal personality and having segregated assets and liabilities from the other.

A VCC will not be required to disclose its registered members to the public, but this register must be disclosed to public authorities upon request for supervisory and law enforcement purposes. A variable capital company can issue and redeem shares without the need for member or shareholder approval. And a VCC can pay dividends out of capital and not only out of profits.

I will allow Agnes in the later portion of this presentation to touch a little bit more further on the subject of variable capital company. Meanwhile I'll now move on to the representative office.

A representative office is the form of a setup that is typically used by companies if they are not too sure whether Singapore is the jurisdiction which they wish to start the business. It's typically registered with the local regulator to facilitate these overseas corporations to consider evaluating the market for a year or two years before they look into a full extent of a setup.

I have covered with you the various types of vehicles that can be used in doing business.

Helena: Raj, why don't you tell us a little bit more about Singapore? Why don't we talk a little bit about the taxation and then the free trade zones and then, of course, employment and labor regulations and HR regulations?

Raj: Sure, Helena. Tax residency for individuals is based on the number of days spent in the country. Singapore has about 65 double tax treaty agreements concluded with other countries. It has nine free trade zone warehouses in Singapore, providing facilities for re-exporting goods with minimum customs formalities.

On the employment and labor regulation front, Singapore has what is known as the Central Provident Fund scheme. It is a scheme that covers for payment of social security for workers in their old age, and it's a contributory scheme that combines the employers and the employees. Typically the starting point for employees below the age of 55, it's a total combination package of about 37%, which is 17% by the employer and 20% by the employee. Foreign employees need to secure an Employment Pass before they can work in Singapore.

On the HR legislation front, there is no government set minimum wage in Singapore. An employee who's covered under the Employment Act would have at least, after three months, an entitlement of seven days of paid annual leave. And employers must comply with the fair hiring practices set out by the local authorities.

Helena: Raj, why don't you tell us a little bit more about doing business in Singapore? Why don't you cover the very, very important taxes and then also the work passes?

Raj: Sure, Helena. Let me begin with the corporate tax. The corporate tax is set at 17%, and this rate applies to tax resident companies in Singapore. What is a tax resident company? A tax resident company is a company where its management and control are exercised in Singapore.

Having grasped the concept of corporate tax, let's move into income tax. The income tax is the tax that's levied on the individual to make an income in Singapore, and there is a rate of income tax for resident employees ranging between 0% and 22%, depending on their remuneration. Again, there is a concept of tax resident employees. They will be eligible for personal allowances as well as benefits of double taxation treaties. For non-resident employees, it's a flat rate of 15%.

With that we move into what is known as a dividend tax. In Singapore, fortunately there are no dividend taxes. Dividends that are received in the hands of resident individuals are not taxable. Dividends paid to foreign corporate shareholders by a company resident in Singapore are also not subject to tax.

Finally, we move into goods and services tax. Singapore levies a goods and services tax at a rate of 8% for the year 2023, and this is expected to increase to 9% for the year 2024. Which are the businesses that are required to apply GST are businesses with a turnover of a million dollars and above. They can also claim the GST incurred on business purchases and expenses.

So much for taxes. Now we move into another area, which is equally important which is the work passes for foreigners working in Singapore. In the topic of work passes, there is the Employment Pass, Personalized Employment Pass, S Pass, and Dependent Pass.

Let me begin with the Employment Pass. Employment Passes are applicable to foreign professionals, managers, and executives. Candidates in the non-financial services sector need to earn at least S$5,000 a month and have acceptable qualifications. Candidates in the financial services sector need to earn at least S$5,500 a month and have acceptable qualifications.

From Employment Passes, we move into the Personalized Employment Pass. Who are the employees that are eligible for Personalized Employment Passes? Current Employment Pass holders or overseas foreign professionals earning a higher salary. Existing Employment Pass holders need to earn at least S$12,000 a month. Foreign professionals at least with S$18,000 for the last 6 months will be eligible. The S$12,000 that I mentioned earlier applies for existing Employment Pass holders, and the S$18,000 a month is the requirement set for new Employment Pass holders for the Personalized Employment Pass.

And from a Personalized Employment Pass, we moved into the mid-level skilled foreign workers, known as the S Pass. The candidates in the non-financial services sector need to earn at least S$3,000 a month and have relevant qualifications and work experience. In the financial services sector, this amount of salary requirement is increased to S$3,500 a month, and they must also have relevant qualifications and work experience.

Having covered the areas of employment passes, we move into Dependent Passes. Dependent Passes are passes issued to the family members and spouses of the foreign nationals. Legally married spouses or unmarried children under the 21 years of age of eligible Employment Pass or S Pass holders would qualify for a Dependent Pass. The pass is valid and tied to the validity of the main work pass holders, i.e., the Employment Passes or the S Passes.

With that, I've covered the topic on taxes as well as the work passes.

Helena: Well, we've heard from Raj on how to set up entities and some of those other things that we need to know about doing business in Singapore. So now let's move into talking about funds a little bit, and Agnes is going to walk us through the top considerations for setting up funds in Singapore.

Agnes: Thanks, Helena. There are several top considerations to consider on setting up funds in Singapore. Let us take you through them.

So firstly, local knowledge is essential to establishment of a fund. It is important to consider strong professionals and network of service providers to work with your team specifically on firstly liaising with MAS, which is the local regulator, local operating requirements, and launching your fund for tax efficiency and also compliance to local and international regulations in relation to asset management and investments.

The Singapore asset management space is a regulated activity by the Monetary Authority of Singapore, MAS. Fund managers will need to be licensed in Singapore to perform fund management activities. Fund managers can also, as an option, partner with Singapore fund managers and advisors to provide a platform to operate asset management activity for local governance as an alternative if you do not have a fund management license in Singapore. However, fund managers must reach out to administrators, lawyers, and tax advisors and determine who their target investors and investments are before deciding the optimal product structures to use.

Helena: So Agnes, why don't you tell us a little bit about setting up funds in Singapore in terms of what is a VCC and what are the benefits of a VCC?

Agnes: Sure. So in addition to what Raj has introduced earlier on the VCC itself, let's take us through more features of the VCC. Firstly, the VCC, Variable Capital Companies Act was passed into law in 2018. It is a legal entity designed for funds and extremely flexible for both open-ended, closed-ended, and can be a hybrid as well. So a key requirement is that the VCC requires a Singapore regulated manager licensed by MAS to operate and also to be incorporated.

There are several tax exemptions in regard to the VCC, such as the 13O and 13U new exemptions. It actually performs as the income from a VCC can be exempt from tax if certain conditions are met. The Singapore income exemptions are applicable if there are capital gains that are tax exempt. So generally, the gains derived from sale of property and investment in Singapore are not subjected to tax as a capital gain exemption. However, the gains may be taxable if one of the business is in trading shares. In this case, we have to consider the safe harbor rule to consider for any tax exemptions exempt applications.

So let's take us through the benefits of the VCC as well. So the VCC allows segmented investment portfolios through sub-funds. Assets and liabilities can be clearly separated and ring-fenced and segregated based on investment objectives and strategies. The investors also have flexibility to enter and exit the fund as needed. Their capital of the VCC is equal to their respective net asset valuation. Each subscription and redemption will have to be based on the nearest NAV, which is the net asset valuation, based on dealing date.

The VCC also allows us to achieve cost efficiencies by having a single administrator, a fund manager, an auditor. And also managing the main and sub-funds, for smaller funds, the VCC option with a sub-fund allows the fund manager to attain the tax exemption requirements with combined assets. Hence easier to hit the tax exemption requirements.

Helena: So Agnes, why don't you talk to us now about fund operations? You've got an infographic here that talks about those end-to-end fund operations. Can you walk us through that?

Agnes: Sure. This is a chart that takes you through an infographic of a fund end-to-end fund operations. This illustrates fully different parts of every fund that you need to consider during the life cycle of the fund.

Firstly, you'll see the top layer with the GP, which is generally the general partner of a fund. The second layer describes the fund as a whole in terms of its operations, and also lastly the reporting requirements. So let's just take you through this.

So on the first layer, in the case of general partner for Singapore, this can also be the licensed fund manager or a standalone private limited for risk segregation. What is important to consider in terms of essential requirements in terms of solutions is incorporation, accounting, corporate secretary, tax reporting requirements, payroll services, as well as statutory filings. However, on the fund perspective, it provides the day-to-day requirements of a fund operations. So depending on the life stages of a fund, you may require investor onboarding, investor reporting, capital calls and distributions notices to be issued.

The fund requires investor relations on a day-to-day or on a reporting requirement. The net calculation, the annual accounts and reports for audit purposes, the corporate secretary for recording and resolutions, the cash management perspective, and also SPVs if there's any double tax treaty or tax efficiency or holdings that you will need to actually hold under the SPV itself. The formation, the accounting and reporting, and the regulatory filing compliance is extremely important in that aspect.

You also need to deal with several parties, which your fund administrator can assist, such as CSC. You will probably deal with regulators in terms of regulatory reporting, filings of statutory documents and amendments if there's any, tax authorities in terms of annual tax returns, stamp duties if any, FATCA/CRS, the K-1 preparations if there's any U.S. elements in it, auditors in terms of audit liaison and assistance, preparation of annual accounts and reporting, and also banks in terms of opening, liaison, authorized signatories in terms of provision of signers, the cash management piece in terms of payment processing and also payment receipt.

This is a full end-to-end solution in terms of what you may require in terms of operations of your fund during any stage of the life cycle. So I hope this is helpful for you to illustrate what you need to consider when you're looking at setting up a fund, whether in Singapore or anywhere else in the world.

Helena: Now that we've learned from Agnes and Raj on how to set up entities and some of those other things we need to know about and also learning about funds, let's talk about how CSC can help you, our customers.

Let's now talk about how CSC can help you. Let's talk about our global coverage. CSC has a distinct advantage when it comes to serving our clients where they are. We have regional hubs around the globe in 140 different jurisdictions, with in-country experts, such as Raj and Agnes, who understand the ins and outs of the various jurisdictions. You will work with a dedicated service team, in your time zone, fulfilling all your service needs. In all, our team is wherever you need us to be.

Let's talk a little bit about the specifics of CSC in Singapore, how we can help you. So Raj, why don't you get us started off with entities, with the formations and the management of them?

Raj: Okay. So to begin on the formation of entities, we would help with the whole process, beginning with identifying the appropriate structure and following with the appropriate name reservation, following that to file the necessary papers, have the company incorporated, and following incorporation to help you with the formalities of ensuring that the initial mandates of essential corporate matters are tended to, like the appointment of the company secretary, the resolutions, deal with the opening of the bank accounts. Such important things that need to be addressed at the outset.

Once these things have been in place, on an entity management perspective, we guide our clients with giving them a sort of advisory on what to look out for in the annual regulatory obligations. We would also help them with the accounting and reporting. Over in accounting and reporting, we have the various forms of assistance varying depending on the type of organizations. For clients that require monthly accounting, we will provide monthly. For those who require quarterly, we provide quarterly. And then those who would only require an annual reporting, we facilitate the annual reporting.

We also help clients with the tax obligations. Now in here, we confine our tax assistance to procedural, advisory, and with relation to the typical corporate tax and personal tax filings. We ensure that every step of the way we get the clearances from you clients that what are the confirmations we have received before we actually file anything with the regulatory authorities.

In the process of the accounting, there is also the auditing services, which the clients would engage professional audit firms. But we provide a service known as our audit liaison services, where we form the bridge between the accountants and the auditors in clarifying and ensuring that the necessary informations are provided to the auditors in the liaisons that leads to a smooth and easy audit.

I have covered the entity formation. I've covered post-entity formation. I've covered the ancillaries that go along with keeping the entity in check. I would like to now hand over to Agnes to take you through trustee and escrow services as well as fund administration activities. Over to you, Agnes.

Agnes: Thank you, Raj. So for CSC, we are also a licensed trust company regulated by the Monetary Authority of Singapore to provide trustee services and escrow solutions. So in such case for structuring or solutions for ultra high net worth families and also for business and capital market solutions, we offer private trust and corporate trust creation, trustee services and administration, but also escrow arrangements, setups, and administration for the transactions and also for any of your M&A deals.

As we've discussed previously, CSC is able to support you administratively, professionally, and efficiently on fund administration. So fund administration and SPV accounting and reporting services, administration services, any independent directorships that you will require on board of your investment entity, investor reporting, investor relations, as well as any fund reportings in relation to FATCA/CRS and tax reporting is definitely part of our scope. We're pleased to be able to help and discuss with you what we may be able to offer in your operation.

Helena: As we have learned, CSC is the business behind business. You can see from our solutions listed here we're the partner of choice for global companies needing expertise in business administration and compliance, fund solutions, transactions and lending, capital markets, and then domain security and brand protection. Whatever your company needs to stay in compliance, transact business, or become secure against threats in the online world, CSC can help.