Challenges of Doing Business in Singapore

16.06.2024
Jeremy Cheong
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Jeremy Cheong

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+65 8800 8074

Singapore is heralded as one of the most favourable locations in Asia for conducting business, whether for entrepreneurs, start-ups, or global organisations looking to expand into the Asian marketplace.

Rated highly as business-friendly in different surveys and business rankings, Singapore often outstrips even global giants like the USA. It packs a punch way beyond its relatively small island status. The World Bank ranks Singapore in second place globally for ease of doing business.

However, despite this seemingly golden environment, operating a business in Singapore does have some drawbacks, and these can affect all types of business regardless of size and global reach. We examine them here in more detail.

You may wish to consider this content in relation to our other article on the benefits of doing business in Singapore to get a rounded view.

High business costs

Businesses looking to have a physical presence in Singapore will find that rent is one of the highest costs on the balance sheet. Rental charges in Singapore are amongst some of the highest in the world, but that’s not all.

General utility and internet costs for commercial entities have risen consistently and can be extremely expensive. Perhaps one of the most challenging and costly aspects outside of rent is finding and hiring good labour. As a high cost market, salary expectations are high and you can quickly find that large portions of your revenue are eaten up on fixed costs.

This is perhaps one of the biggest challenges that Singapore will face within the regional context as neighbouring markets are offering much cheaper alternatives. Whilst Singapore often remains the “go-to” market for MNCs setting up their regional hubs, the high costs may make it less attractive to start-ups who are more concerned with reigning in the costs.

Registering a company

In Singapore, setting up and registering a limited company is quick and easy; it can be done in a couple of hours with the correct documentation. However, one issue that catches out many foreign investors is that at least one company director must be resident in Singapore.

This residency requirement lasts throughout the life of the company, not just at the start. Thus, a resident director cannot resign or be dismissed unless another Singaporean resident is waiting to step into their shoes.

Some businesses circumvent this by using corporate secretarial services, which fulfil the role of company secretary, and provide what is termed a nominee director to comply with the residency requirement.

Failure to keep a Singaporean resident director on the board at all times can land companies in hot water with fines for each company officer of up to S$5,000.

Taxation

Singapore is famous for its low taxes and ranks as one of the least complex jurisdictions in Asia in terms of tax and accounting. There is no tax on company dividends or capital gains.

The corporate tax rate in Singapore is 17%. It has been reducing over the years from a high of 26% in 1997 specifically to create a business-friendly environment.

The low rate is attractive for new and existing businesses. However, the regulations must be complied with. Step outside the law, and the penalties and sanctions are harsh.

New companies are exempt from paying tax on their first $100,000 of chargeable income for the first three consecutive years of assessment. For the subsequent three years, the exemption is 75% of the same amount. These tax benefits can be a real benefit for smaller sized organisations looking to set-up shop in Singapore.

A tough regulatory environment

One of Singapore’s big attractions is its transparent and robust regulatory framework, designed to keep corruption at bay and maintain a healthy business environment, in contrast to some Asian neighbours.

However, whilst this is undoubtedly an attraction for many new and established businesses that value protection and stability, companies must spend time and resources understanding the regulations and legislation to ensure they comply.

Intellectual property rights

Singapore is consistently recognised for its robust intellectual property (IP) legislation and regulations, offering a secure environment for innovation companies. Partner this with the city state’s pre-eminence in the tech and digital field – companies such as Facebook, Google, and LinkedIn have an established presence there – and Singapore is a natural magnet for technological enterprise with the addition of valuable support from government initiatives and incentives.

However, some international companies have been guarded about Singapore’s IP protection and feel it doesn’t go far enough. Innovators and entrepreneurs, especially in tech, must tread carefully and ensure this is a safe and secure environment for intellectual property in a fast-moving industry.

Workforce issues

Singapore has a high standard of living, but it’s also expensive; residential and commercial property is top dollar. This is a consideration when it comes to finding the right staff for a business. Partnering this with a competitive labour market pushes salaries upwards, which is challenging for start-ups. Other areas of Asia offer lower employment costs.

Singapore has been imposing tighter restrictions on foreign labour, which has impacted areas already suffering from staff shortages. It has also driven salaries up and hindered specific sectors that just can’t find enough staff. This has led many companies to look at other lower cost markets in Asia such as Vietnam.

The requirement for a work pass

Irrespective of the level of investment, all foreign nationals who want to start a business in Singapore and bring in foreign employees must apply for a work pass for each individual. The Singaporean Immigration Department issues work passes, and there are restrictions.

Foreign workers can only work for their designated employer; they cannot change jobs. Extra work or self-employment outside of the main job is also prohibited.

The work pass situation is complex, with different authorisations, such as an employment pass, EntrePass, and personalised employment pass. There is often quota and restrictions based on your number of Singaporean employees and your operating industry.

Most companies need professional help from corporate service providers to navigate this area successfully.

Long working hours

Many countries, especially after COVID-19, have changed their working practices and moved to remote working or hybrid, a mixture of office/business premises, and remote. However, this isn’t the case in Singapore.

Singapore remains wedded to the traditional five-day week, with 35 hours running from 9 to 5 daily, a significant negative when attracting new talent to a company’s workforce. Most people have got used to flexible and hybrid working, with reduced or zero commuting, and easier domestic arrangements for families.

Singapore is known to be the second hardest-working city in the world, runner-up to Tokyo, so it’s no surprise that the average Singaporean works a 45-hour week. Long hours are not necessarily a problem if hours and location are flexible, but they are quite a drawback if these hours are rigid and on-site. Consequently, work-life balance is not as highly scoring as in some cities in Northern Europe.

A victim of its own success

Because Singapore is so popular with foreign companies, the demand for services and workers makes for a challenging and competitive market. Many MNCs have historically set-up their regional headquarters in Singapore due to the financial and political stability along with the access to highly educated workforce. This may continue to come up further threat however as neighbouring countries have caught up and provide a much lower cost of doing business.

Is Singapore the right choice for your business?

Although doing business in Singapore has drawbacks, there are also a host of positives. Singapore regularly ranks as the best country in the world for doing business. Here are just a few of the advantages.

  • A geographically strategic location in Asia, Singapore is a major trading hub with excellent transportation connections and infrastructure.
  • There is a pool of skilled and highly motivated labour with a hardworking ethos.
  • The economy is open, transparent, and in good health, backed by robust governance, and a politically stable landscape.
  • Singapore has a booming free market economy and low inflation.
  • Corporate taxation is low, and there is no tax on company dividends or capital gains tax. New businesses receive favourable tax concessions and benefits for the first three years of trading.
  • Foreigners are allowed to own 100% of the stock in a company incorporated in Singapore; there is no requirement for local shareholders or partners.
  • There are no restrictions on profit repatriation.
  • Foreign currency can go in and out of the country without restrictions.

Final thoughts

Its strengths partly and rather perversely generate Singapore’s challenges and weaknesses for new and established businesses. Whether Singapore is the right location for a business is a strategic decision that ultimately depends on the type of business and whether the drawbacks of operating there outweigh the advantages. One thing is sure: companies require qualified and informed input to make that decision and survive and thrive in this competitive and fast-paced economy.

There are tremendous opportunities available in Singapore, and for the majority of companies, the pros outweigh the cons. However, business operating costs are high, it can be hard to source local staff in some sectors, and it’s essential to understand the intellectual property legislation to ensure sufficient protection in the innovation industries. These factors alone mean that while suitable for some, Singapore is not the right choice for every business.

Jeremy Cheong
Author

Jeremy Cheong

WhatsApp

+65 8800 8074

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