Doing Business In Singapore Vs Indonesia

August 30, 2022

7 mins read

Setting Up Companies In Singapore Vs Indonesia

Indonesia is known to be the largest economy in Southeast Asia, and it is also known as the largest archipelago in the world. With 17,500 islands, Indonesia is blessed with abundant, diverse natural resources such as minerals and natural gas. Besides having abundant natural resources, Indonesia is ranked 4th most populous country in the world, with over 275,000,000 population. Over 50% of its people are below 30 years old, providing a sizeable workforce to fuel the economy.

In contrast, Singapore is a small city-state with no natural resources. The natural resource constraint country is, however, one of the most prosperous countries in the world, with one of the highest GDP per capita. Being one of the most developed and open economy nations, Singapore relies on innovation, trade policy, and human capital to stay ahead of the competition and attract foreign investors.

Ease of doing business in Singapore

Singapore is ranked 2nd out of 190 countries as the easiest place to conduct business as compared to Indonesia. According to the Singapore Economic Development Board (EDB), registering a company in Singapore online takes only 15 minutes and approximately 1.5 days to set up a business. Apart from the quick set-up process, other areas such as enforcing contracts and investor protection also contribute to the score. The tax regime is also transparent. For instance, the corporate tax is 17 percent, and there is no capital gain tax from the sale of Financial Instruments, Shares, and Property. Furthermore, there is a comprehensive tax relief treaties with more than 85 jurisdictions for businesses. One should also note that although the official language consists of English, Chinese, Malay, and Tamil, business is conducted using English.

Singapore as an investment base for businesses

Singapore is also often known as the gateway to ASEAN due to its proximity to the ASEAN countries such as Indonesia. Additionally, Singapore enjoys a close diplomatic relationship with major economies such as the United States of America, China, and Australia.

As ASEAN is projected to be the 4th largest economy by 2030 with more than 649 million population in the region, it represents a massive opportunity for businesses to penetrate the vast market. Furthermore, many trade schemes and agreements are already in place for businesses and investors to gain direct access to the important and emerging market to facilitate trade easily. Therefore, using Singapore as an investment base allows businesses to tap on the opportunity in a timely manner.

Why are (Indonesian) investors likely to choose Singapore?

Indonesia has a vast amount of resources and workforce available to investors. Undoubtedly, Indonesia may be perceived as the ideal investment base. Despite the potential that Indonesia can offer, many investors based in Indonesia are more likely or prefer to choose Singapore as the base for investments. This is mainly due to the policy and laws that Singapore offers. For instance, the Intellectual Property protection law protects businesses for their inventions or ideas. The skilled and highly educated workforce is one of the reasons that contribute to the decision, and in many cases, the learning curve or training required to hire a worker to perform a job is lower. Furthermore, the proximity of Singapore to Indonesia makes it more attractive for Indonesian to set up bases abroad.

Singapore is a trade hub

Good Strategic Position – Singapore’s port is an economic gateway to connect the East and the West. It acts as a springboard to provide an opportunity for businesses in the region.
Reliable Banking & Finance Infrastructure – Singapore received one of the highest ratings (AAA) from all the credit agencies and has proven the robustness of its Banking & Finance Infrastructure to be reliable.
Competent workforce – Over 70% of the residents between 25 to 34 years old are tertiary educated in Singapore, which has shown that the workforce is ahead of the competition and can adapt to the challenge quickly.
Open Immigration Policies – The Singapore immigration policy to hire foreign professionals, managers and executives is relatively straightforward as long as the monthly salary meets the minimum requirement.
Good International Reputation – Singapore is constantly ranked top as one of the easiest places to conduct business. Additionally, Singapore is also known to be the regional home of leading tech companies such as Amazon, Facebook, and Google.

Singapore is a technology hub

Many leading tech companies such as Amazon, Facebook, and Google have set up their regional headquarter in Singapore due to the talent pool, strategic location, and digital infrastructure. Furthermore, the government has allowed innovative products to be tested in a conducive testbed environment. For instance, allowing FinTech players or Financial institutions to bypass the stringent regulatory requirements to conduct a test on the business model, technology, or products, which allows the business to react swiftly based on the real test result. If the test result is positive and delivers the expected result, the sandbox company can apply for a license with MAS to continue running their business. Lastly, inventions or ideas are protected under the Intellectual Property (IP) law, and there are lists of programs that help businesses accelerate the patenting process.

Singapore has multiple Double Tax Agreements

Double Tax Treaties are agreements/policies between countries to prevent double taxation from income earned from either country. Singapore has a strong network of double tax agreements with about 60 countries, which can provide tax relief and incentives, and Indonesia is one of them. The agreement between Singapore and Indonesia consists of the following:

Lower withholding tax rates for royalties and branch profits – Translating into more significant profit for businesses
Tax exemption for certain capital gains – Singapore investors are no longer subject to a five percent tax on gross proceeds from the sale of equity investments held by a foreign shareholder.
A higher requirement to claim Treaty Benefits – Errant businesses can no longer abuse the system to avoid taxes.

Such a tax agreement provides an attractive arrangement for countries to conduct business between countries.

Singapore as a preferred holding company jurisdiction

Singapore is the most preferred jurisdiction to set up a holding company for outbound investments and joint venture businesses for Indonesians because of the robust legal framework and tax system. The robust legal framework and system protect the parent company from the potential risks and liabilities of their holdings, especially if one may find it hard to navigate the complexity of Indonesia’s jurisdiction, which is why many businesses are incorporating holding companies in Singapore for Indonesian investment.

There are many advantages to setting up holding companies in Singapore for Indonesian investments. For instance, to leverage the simple tax system, world-class infrastructure and competent, skilled, and highly educated workforce. Furthermore, there are a lot of agreements with the major economies in place to help companies that decide to move beyond their home market. For example, to export minerals to China by using China-Singapore Free Trade Agreement (CSFTA) or the USA using the United States-Singapore Free Trade Agreement (USSFTA). Furthermore, businesses can make use of the double tax agreement. In summary, Singapore offers a set of robust frameworks for businesses to conduct business.

Conclusion

ApacTrust Consulting Group is a corporate service provider in Singapore with more than 20 years of experience helping local and foreign investors in structuring their holding and joint ventures. Our services include accounting and taxation, corporate secretarial, offshore incorporation, and business support. With our expertise in this field and a proven track record, you can fully rely on us to get things done efficiently. Give us a call today and get a free quote.

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