A recent study revealed that between 2000 and 2012, 4000 Indian startups have registered in Singapore. As of 2020, this number has grown to nearly 8,000. This is despite the fact that the Indian ecosystem is the third largest in the world after the United States of America and China.
- Corporate Taxation Structure
- Dividend Distribution Tax
- Capital Gains Tax
- GST Structure (Value Added Tax)
- Taxation and Other Benefits
- Infrastructure and Quality of Life
- Global Advantage for Business Expansion
- Ease of Foreign Investment
- Ease of M&A Activities
- Efficient Legal System
- Setting up a Holding Company
- Currency Risks for India-based Businesses
A Brief History
India and Singapore share a common culture, history and ethnography. The countries’ values and social norms can be traced to South Asian Indo-Chinese cultural patrimony. Both countries are a part of the commonwealth of nations and were under British rule for a long time. India and Singapore received their Independence around the same time. After independence, both countries were severely underdeveloped. India and Singapore have strong trade ties.
However, this is where the similarities ended. While Singapore has grown to become a showcase of economic progress, India’s economy has progressed unsteadily and haltingly. India has followed a meandering but democratic path from a closed socialist economy to a market-based economy. Singapore’s market approach has been resolute, steadfast and undergirded by a tinge of authoritarianism.
Even when it comes to topics like law and order, Singapore ranks higher than India having been successful in running a rule-following, corruption-free, market-based economy. The wide gap between the two countries is visible in their approaches towards the regulation of their economies. Singapore promotes a light-touch compliance-based regulatory framework, while India operates a complex, heavy-touch system that is mired in corruption.
Singapore also ranks higher than India in other factors like political stability, crime levels, rule of law, multicultural harmony, economic stability, foreign reserves, currency stability and global integration.
Reasons for Startups' Registration in Singapore
There are some generic and specific reasons which are prompting Indian startups to register their companies in Singapore. India is one the toughest countries to conduct business. In the World Bank Ease of Doing Business report of 2020, India at no. 63 as opposed to Singapore’s rank of No. 2.
Corporate Taxation Structure
There is a marked difference in the Corporate Tax rate between the two countries. Indian Corporate tax rate for domestic companies is at a whopping 30%, whereas Singapore’s corporate tax is more attractive at 17%.
Dividend Distribution Tax
In India, the dividend is paid from the company’s post-tax profits. However, the dividend amount that is paid is also taxed. Singapore avoids this double taxation and the company is not taxed on the dividends that are paid to the shareholders.
Capital Gains Tax
India’s Capital Gains Tax structure is high. It is anywhere between 15% and 20%. Such a high tax structure works almost like a penalty for entrepreneurship and risk-taking. Singapore does not have Capital Gains Tax within its Taxation framework.
GST Structure (Value Added Tax)
India’s GST structure ranges from 5% to 28%, depending on the products or services sold by the company. In Singapore, however, the value-added tax is fixed at 7% with many goods and services exempt from it as well.
Taxation and Other Benefits
The Indian government does not give any significant benefits to startups – either in Taxation or any other advantages. To put it bluntly, Singapore rolls out the red carpet for new entrepreneurs.
Infrastructure and Quality of Life
Singapore offers world-class infrastructure for burgeoning businesses and also a better quality of life. Indian Infrastructure is yet to reach that level and amenities of life can be challenging even for the rich elite within the country.
Global Advantage for Business Expansion
Singapore’s extensive network of tax treaties with other countries, including India, makes it easy for Indian companies to conduct international business. Of course, the bigger attraction is that businesses avoid double taxation on their income.
Ease of Foreign Investment
India’s laws on foreign investment are complex with a lot of red tape. Singapore, however, makes it easy to do foreign investments which is quick, secure and confidential.
Ease of M&A Activities
Singapore’s robust infrastructure for Mergers and Acquisitions (M&A) is ideal for an Indian startup to operate the Singapore business as an M&A arm. Nearly all of the world’s investment banks, consulting firms and accounting firms have a strong presence in Singapore.
Efficient Legal System
Singapore has a clean, efficient and well-functioning legal system which is very attractive to international deal-makers. Any disputes can be settled either through Singapore’s court system or its extremely effective Alternative Dispute Resolution System.
Setting up a Holding Company
A Singapore-based holding company is a very common corporate structure for Indian startups. It is very useful when a company is growing and taking unquantified risks. Such a holding company can provide risk management and flexibility in terms of dividing the ownership of the component companies among various parties. Often the holding company may own the assets that are used by its subsidiaries. Investing in an Indian company through a holding company based in Singapore provides substantial tax benefits.
Currency Risks for India-based Businesses
Indian businesses that deal with payments in foreign currencies run a significant currency risk, the target foreign currency moves in an adverse direction to the Indian Rupee. Due to the high volatility of the Indian Rupee, this risk is high and real. An alternate approach is to hold assets in stable currencies like USD, GBP, EURO or SGD. This is easily achieved by creating a Singapore subsidiary which has one of the most well-run foreign currency markets.
As more entrepreneurs join the growing Indian Economy consensus is building regarding providing recommendations to the Indian Government to pave the way for ease of operations for startups.
Why do startups prefer Singapore?
Startups prefer Singapore because of its extremely attractive tax rates. Singapore’s corporate tax of 17% is one of the lowest in the world.
Why did Flipkart register in Singapore?
One of the most prominent reasons why Flipkart registered in Singapore is the customs duty. Compared to India, Singapore has no export duty and only a limited import duty on products like petroleum, tobacco, etc.
What are the benefits of having a company in Singapore?
The following are the benefits of having a company in Singapore:
- The corporate Tax rate is 17%
- Dividends are tax-free
- Ease of Foreign Investment
- No capital gains tax
- A low value-added tax of 7%