Singapore, a vibrant city-state in the heart of Southeast Asia, offers businesses a number of competitive advantages in setting up a treasury function. Singapore is rated the second most competitive economy in the world and is ranked the top investment destination in Asia.
The city has a well-established business infrastructure with a transparent and efficient institutional framework, a pool of highly skilled English-speaking professionals and a regulatory system that meets international standards. Singapore is also the largest foreign exchange market in Asia Pacific and it has more than 200 banks with a presence in the country, and a growing number of companies choosing it as a base for their regional operational headquarters. It has an established financial sector, mature capital markets and a wide variety of sophisticated financial instruments.
Singapore has preferential investment and business policies with members of the Association of Southeast Asian Nations (ASEAN) and preferential trading arrangements with 61 countries. Singapore also has tax treaties with more than 85 countries and territories, offering tax incentives for businesses. In addition, it offers approved finance and treasury centres a reduced corporate tax rate of 8% on income derived from qualifying finance and treasury centre (FTC) services.
Singapore's geographic location has made it a major shipping and logistics hub, and it is the second busiest port in the world and the top maritime capital.
What solutions are available in Singapore?
|Treasury Centres||A centralised treasury is one way to reduce the tax burden, centralise risk management, improve liquidity and enhance yield on cash.|
|Interest Optimisation||Maximise your interest yield from for your balances held with the bank.|
|Notional Pooling||Cash balances in different accounts are notionally offset to derive the net balance, which is then used to calculate interest.|
|Sweeping/ Zero Balance Account (ZBA)||ZBA are checking accounts with zero balances where funds are physically swept to eliminate excess balances and maintain greater control over disbursements.|
|In-house Banks (IHB)||In-house banks provide corporate treasurers with another method of centralising and consolidating their business.|
|Intercompany loans||Similar to bank loans, intercompany loans refer to lending between entities within the same group.|
Corporate Tresury in Singapore
Singapore, a vibrant city-state in the heart of Southeast Asia and ASEAN, offers a number of competitive advantages for setting up a treasury function. Here, we highlight some of the key benefits relevant to treasury and cash management.
Financial Market Development
- The World Economic Forum ranks Singapore third in the world for financial market development in The Global Competitiveness Report 2017-2018.
- It states that Singapore’s financial sector is well-developed, stable and trustworthy, rated first in the world for the regulation of its securities exchanges, with easy access to loans and sound banks.
- Singapore has a well-established business infrastructure with a transparent and efficient institutional framework, a pool of highly skilled English-speaking professionals and international regulatory standards.
- The Monetary Authority of Singapore (MAS) has set up a FinTech and Innovation Group to oversee regulatory policies and development strategies in the financial sector.
- There are no restrictions on capital flows in and out of Singapore.
Sophistication of Banking Systems
- There are around 200 banks in Singapore, including 40 representative offices, with a growing number choosing it as a base for their regional operational headquarters.
- Singapore is the banking hub in Southeast Asia.
- Singapore is the largest foreign-exchange market in Asia Pacific and the third largest in the world (Bank for International Settlements triennial global survey 2016).
- Singapore's debt market has grown in depth and breadth over the past decade, with an extensive range of both Singapore government securities and foreign corporate bonds available, with outstanding bonds worth SGD363 billion.
- The Monetary Authority of Singapore regulates the banking industry with a regulatory framework in line with international standards, although capital requirements for Singapore-incorporated banks are set higher than the Basel III minimum requirements.
- The corporate income tax rate is 17%. There is a rebate of 40% of the corporate income tax payable subject to a cap of SGD15,000 for Year of Assessment 2018 and a rebate of 20% capped at SGD10,000 for Year of Assessment 2019.
- Both resident and non-resident companies are taxed on their Singapore-sourced income. However, in respect of resident companies, foreign-sourced income is taxed when it is remitted to Singapore although a remittance exemption may be available subject to the fulfilment of certain conditions set out.
- Foreign company branch profits are taxed at the same rate as resident company profits. There is no branch profits remittance tax on the remittance of profits to a head office by the branch of a foreign company.
- The standard rate for goods and services tax is 7%, with certain goods and services being zero-rated whilst others are exempted, including financial services.
- Income from investment such as dividends, interest and rent is subject to tax in Singapore, although Singapore dividends are tax exempt.
- Gains made on capital transactions are not subject to tax in Singapore unless it can be proven that the gains were trade in nature.
- Interest expenses that are used for business purposes are generally tax deductible. There are no thin capitalisation rules in Singapore.
- Stamp duty of 0.2% is charged on the purchase price or value of shares, whichever is higher.
- Withholding tax of 15% is charged on interest paid or payable to non-resident companies where no tax treaty is in place. Rates range from 0% to 15% where a tax treaty is in place and the non-resident can provide a Certificate of Residence. Certain domestic law exceptions are available.
- Under the Financial Sector Incentive Scheme (FSI), certain activities for qualifying institutions are taxed at 5%, while a broader range of financial activities are taxed at 10% and 13.5% for a period of five to 10 years.
- Income derived from qualifying FTC services is taxed at 8% for an initial period of five years. Interest payments to overseas banks or approved network companies, where the funds borrowed are used for approved qualifying FTC services, are exempt from withholding tax.
- Approved regional headquarters in Singapore are taxed at 15% on qualifying overseas income.
- Singapore has tax treaties with more than 85 countries and territories.
- Singapore is a signatory to the Organisation for Economic Co-operation and Development's Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations, to provide a single, global picture on some key indicators of economic activity within multinational enterprises.
Benefits for Regional Treasury Centres (RTCs)
- Singapore offers approved FTCs a reduced corporate tax rate of 8% on income derived from qualifying FTC services.
- Singapore offers approved FTCs withholding tax exemptions on interest payments on loans from overseas banks or approved network companies provided the funds borrowed are used for qualifying FTC services.
- Singapore is the regional risk management and treasury hub for Asia Pacific, as well as a renminbi gateway, second to Hong Kong in the region.
- Singapore has preferential investment and business policies with ASEAN members and free trade agreements with 35 countries.
- Singapore's Global Trader Programme provides a reduced corporate tax rate of 5% or 10% on qualifying income, including from physical trading, brokering of physical trades and derivative trading income, for three or five years.
- Cash concentration is widely available in Singapore on a domestic and cross-border basis. Different legal entities can participate in the same cash-concentration structure.
- Notional pooling is allowed in Singapore on both a domestic and cross-border basis. Different legal entities can participate in the same notional cash pooling structure.
Comparison of Singapore and Hong Kong as a Location for RTCs
- Singapore and Hong Kong offer significant benefits to FTCs.
- Corporate income tax for approved treasury operations in the two locations is broadly similar, at 8% for Singapore and 8.25% for Hong Kong.
- Singapore offers a withholding tax exemption to FTCs on interest payments on funds borrowed from non-resident banks and approved network companies, provided the funds are used for qualifying FTC services, while Hong Kong has no withholding tax on interest.
- Singapore has the edge in terms of tax treaties, having agreements with more than 85 locations, compared with around 40 for Hong Kong. Singapore also has free trade agreements with 35 countries.
- Both cities have highly developed infrastructure, deep capital markets and strong talent pools.
- When both tax and non-tax issues are weighed up, Singapore tends to have the edge for businesses that are active in Southeast Asia, while Hong Kong tends to be the location of choice for corporations focused on Mainland China due to its status as an offshore renminbi hub.
Three banks dominate Singapore's commercial banking: DBS Bank, Overseas-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB).
- Singapore has 128 commercial banks, of which 94 are foreign and four are local. In addition, there are three finance companies, 40 representative offices and 29 merchant banks.
- Foreign banks are full banks and provide a full range of banking services under Qualifying Full Bank (QFB) privileges.
- Commercial banks operate as full banks, wholesale banks (full services excluding SGD retail bank services) and offshore banks.
- The Monetary Authority of Singapore (MAS) encourages foreign banks to participate in domestic banking through the QFB programme.
- A company with a permanent or registered address in Singapore and with its management operations in Singapore is regarded as resident.
- Residents, both domestic and overseas, and non-residents may hold foreign exchange and local currency (SGD) accounts. Local currency accounts are freely convertible into foreign currency for residents and non-residents.
- Residents and non-residents have overdraft facilities available to them.
- Interest is available to demand deposit and currency accounts.
Legal and Regulatory
- MAS takes on the role of central bank and operates autonomously. It does not require full central bank reporting.
- Singapore is a member of the Association of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Corporation (APEC).
- Singapore has in place anti-money laundering legislation which is applied by MAS. It is also a member of the Financial Action Task Force (FATF), Asia/Pacific Group of Money Laundering (APG) and Group of International Finance Centre Supervisors (GIFCS).
- A financial intelligence reporting unit has been set up, the Suspicious Transaction Reporting Office (STRO), which is a member of the Egmont Group.
(Fast And Secure Transfers)
|Interbank electronic transfer system|| |
|PayNow||Digital funds transfer system|| |
Singapore's Real Time Gross Settlement (RTGS) system
(Automated Clearing House)
Nationwide clearing system
(Interbank Giro System)
Deferred multilateral net settlement system
(SGD Cheque Truncation System)
Cheque and paper-based truncation system
(USD Cheque Truncation System)
USD cheque- and -paper-based truncation system
(Network for Electronic Transfers)
Interbank electronic credit and debit transfer system
- Used for salary and supplier payments in SGD.
- High-value and urgent interbank transfers settled via MEPS+ same day.
- Low-value, non-urgent and high-volume electronic credit transfers settled via IBG same day.
- Paper-based payments used for standing orders and sometimes payroll payments.
Direct Debits (auto debits)
- Used for low-value, regular payments in SGD such as utility bills.
- Processed through IBG, for next day.
- Singapore has a high penetration of credit and debit cards, and their popularity has in turn boosted the widespread usage of contactless payment systems.
- Visa is main card of choice, with MasterCard, American Express and Diners Club also in use.
- Processed via NETS same day.
- Electronic money schemes available as top-up prepaid cards. The main prepaid payment cards are MatchMove Mastercard and Fevo Mastercard.
- Stored-value cards come in two types: Single-purpose stored-value cards (SPSVC) used to pay only for services provided by the card issuer; and multipurpose stored-value cards (MPSVC) used for a variety of payments, with CashCard, ez-link and FlashPay the most common. E-money payments are settled next day.
- MAS and the Infocomm Media Development Authority have developed the Singapore Quick Response Code (SG QR), a series of protocols adapted from the specifications set out by EMVCo, the organisation responsible for setting global standards in debt and credit payments.
- Payments by mobile phone can be done by downloading the app onto a smartphone and storing credit in a 'mobile wallet'.
- A consortium of seven mobile wallet providers — Diners Club, EZi Wallet, EZ-Link, Liquid Pay, Mastercard, UnionPay International and Wirecard — have come together to offer a single QR-based payment scheme available for domestic and international transactions.
- In 2017, mobile payment usage grew by 53%, with 26% of cardholders using this technology (JD Power Singapore).
- The three leading global digital wallets — Samsung Pay, Apple Pay and Android Pay — have an established presence, with a network of local and regional mobile wallet providers, such as Dash, PayLah! and AliPay, infiltrating the digital payment market.
- PayLah! is operated by DBS/POSB, but can be used by non-DBS/POSB account holders. It has mobile payment and banking solutions, is operable using QR codes and has linked up with the 7-Eleven store network as a payment provider.
- Infocomm Media Development Authority (IMDA), in collaboration with the Land Transport Authority and other industry players, has launched the Specification for Contactless e-Purse Application — CEPAS — which provides a national interoperable standard for different multi-purpose stored value (MPSV) card payment schemes. Several wearable devices now carry the ez-link CEPAS purse for contactless payments.
- DBS has launched the POSB digibank Virtual Assistant, a banking facility that operates through a ‘chatbot’, using Facebook Messenger as the media platform, and offering banking services beyond customer service.
- Cryptocurrencies have not been widely adopted (0.02% of global bitcoin trading volume according to PwC), but Singapore has become a hub for initial coin offerings (ICOs) and the government has provided a conducive environment for their use and exchange.
Cash, Cheques and Money Orders
- Cheques are the most common cashless payment method in terms of value.
- Truncated and cleared at ACH.
- Possible to use USD- and SGD-denominated cheques.
- USD and SGD cheques processed via SCHA and settled via MEPS+.
- While cash is also preferred, especially for low-value transactions, the government has stated its aim to reduce the use of cash and become cheque-free by 2025.
- Money orders are available in Singapore through vendors such as Western Union and MoneyGram. Money can be sent domestically or internationally, either online or in person.
PayNow Corporate seen as 'game-changer' in Singapore's cashless drive
PayNow, the peer-to-peer fund transfer service operated by the Association of Banks in Singapore and nine of its member banks, is now extended to businesses. PayNow Corporate, which was launched on 13 August 2018, enables business-to-business and business-to-consumer transactions. Businesses can use the service by linking their bank account to their Unique Entity Number. Consumers and other businesses will then be able to make payments to them using their UEN, without needing to know their account details.
Read more about the development here.
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Sources: The World Economic Forum The Global Competitiveness Report 2017-2018; Monetary Authority of Singapore; Bank for International Settlements; PwC; OECD; Infocomm Media Development Authority of Singapore; Singapore Business Review
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