Singapore

Introduction

 

About Singapore

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 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 80 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, making it the second busiest port in the world and the top maritime capital.

 

 

 

What solutions are available in Singapore?

Solution Description
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 south-east 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 second in the world for financial market development in The Global Competitiveness Report 2015-2016.

  • It states Singapore is the best performer in the index for the overall efficiency of markets, with a well-developed financial sector, sound banks and strong regulation, as well as good availability of credit.

  • 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 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

  • More than 200 banks have a presence in Singapore, with a growing number choosing it as a base for their regional operational headquarters.

  • 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.

 

Regulatory Bodies

  • 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.

 

Tax

  • The corporate income tax rate is 17%, with 75% of the first SGD 10,000 of chargeable income and 50% of the next SGD 290,000 of chargeable income exempt. In 2017 there is a corporate income tax rebate capped at SGD 25,000 of 50% of tax payable.

  • Foreign-sourced income not brought into Singapore is tax exempt.

  • Income from investment, including dividends, interest and rent, is classes as taxable income in Singapore.

  • Gains made on foreign exchange on capital transactions are not classed as taxable income.

  • Stamp duty of 0.2% is charged on the purchase price or value of shares.

  • Singapore has tax treaties with more than 80 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 finance and treasury centres (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 non-resident banks provided the funds are used for qualifying activities or 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 preferential trading arrangements with 61 countries.

  • Singapore's Global Trader Programme provides a reduced corporate tax rate of 5% or 10% on qualifying trading income, including from physical trading, brokering of physical trades and derivative trading income, for three or five years.

 

Comparison of Singapore and Hong Kong as a Location for RTCs

  • Singapore and Hong Kong both offer significant benefits to FTCs.

  • Corporate income tax for 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 loans from non-resident banks, provided the funds are used for qualifying activities, while Hong Kong has no withholding tax on interest and dividends.

  • Hong Kong offers tax deductions on interest paid by a Hong Kong corporate treasury department to its overseas associated corporations, but offshore interest expenses are not deductible, while in Singapore they are.

  • Singapore has the edge in terms of tax treaties, having agreements with more than 80 locations, compared with around 40 for Hong Kong. Singapore also has preferential trading arrangements with 61 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 South-east 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.

 

Banking

 

Banking System

Three banks dominate Singapore's commercial banking: DBS Bank, Overseas-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB).

  • Singapore has 127 commercial banks, of which 122 are foreign and five are local. In addition, there are three finance companies, 41 representative offices and 32 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 MAS encourages foreign banks to participate in domestic banking through the QFB programme.

     

Bank Accounts

  • 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

  • The Monetary Authority of Singapore (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.

 

Payments

 

Payment Systems

MEPS+

 

Singapore's Real Time Gross Settlement (RTGS) system

  • Processed through the MAS Electronic Payment System (MEPS).
  • Owned and operated by MAS.
  • Used for high-value, urgent SGD interbank transfers.
  • Processes final settlement of participants' net balances from other Singapore clearing houses.
  • Settled in real time.
  • 63 participants.

FAST

(Fast And Secure Transfers)

Interbank electronic transfer system

  • Processes SGD interbank transfers for a maximum of SGD 200,000 within Singapore.
  • Available 24/7 and transfers settled almost immediately.
  • 19 participants.

ACH

(Automated Clearing House)

 

Nationwide clearing system

  • Operated by Singapore Clearing House Association (SCHA).
  • Divided into three subsystems (described below).

IBG

(Interbank Giro System)

 

Deferred multilateral net settlement system

  • Subsystem of ACH.
  • Processes low-value and bulk electronic transactions same day.

SGDCTS

(SGD Cheque Truncation System)

 

Cheque and paper-based truncation system

  • Deferred multilateral net settlement system.
  • Subsystem of ACH.
  • Processes SGD-denominated cheques next day, with no value limits.
  • 64 participants, of which 34 are direct participants.

USDCTS

(USD Cheque Truncation System)

 

USD cheque- and -paper-based truncation system

  • Deferred multilateral net-settlement system.
  • Subsystem of ACH.
  • Processes USD-denominated cheques for next day for transactions originating in Singapore and if remitting bank is a direct member of USDCTS, with no value limits.
  • 48 participants, of which 32 are direct participants.
  • The USDCTS settlement bank is Citibank.

NETS

(Network for Electronic Transfers)

Interbank electronic credit and debit transfer system

  • Owned and operated by Singapore's three main banks: DBS, OCBC and UOB.
  • Processes all ATM, EFTPOS and CashCard payments.

 

 

Payment Instruments

 

Credit Transfers

  • 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.

     

Cheques

  • 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+.

 

Card Payments

  • Fast increasing in popularity.

  • 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.

  • 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.

 

Mobile Banking

  • Payments by mobile phone can be done by downloading the app onto a smartphone and storing credit in a 'mobile wallet'.

  • There are two mobile payment systems available: Singtel Dash and DBS PayLah.

  • Dash can make payments via Dash terminals only, not near-field communications (NFC) terminals. Users must have an account with a participating bank, but a debit or credit card is not required. Dash is operated by SingTel and Standard Chartered Bank, but can be used by individuals with accounts with other telcos and banks.

  • PayLah can be used to make payments to other users of the app and participating online sites. It is operated by DBS/POSB, but can be used by non-DBS/POSB account holders. PayLah can also be used as a bill payment solution for merchants in Singapore where payments and collections are made to and on behalf of individual users of the app. 

 

Demographics

 

 

Recent Developments

 

Singtel to Offer Mobile Payments Across Asia

Singapore Telecommunications (Singtel) is creating a platform to connect mobile wallets across Asia. The initiative will kick off in Thailand in the middle of this year after Singtel and its partner Advanced Info Service pcl obtained regulatory approval. Singtel hopes to expand the service, which is aimed at travellers and small and medium-sized enterprises, to the Philippines, India and Indonesia in the second half of this year.

Read more about the development here.

 

PayNow to be Extended to Businesses

PayNow, the peer-to-peer fund transfer service operated by the Association of Banks in Singapore and nine of its member banks, is set to be extended to businesses. PayNow Corporate, which will be launched around August, will enable 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.

 

Financial Services E-marketplace Launched

Financial services e-marketplace MoolahGo has launched in Singapore. The platform, which enables users to become buyers and suppliers of financial services, is initially offering currency exchange and cross-border payments. It hopes to expand to include other services, including insurance and investments in the near future. It also plans to expand across the Asia-Pacific region and is currently in advanced talks with local partners in the Philippines and Thailand. The platform is licensed and regulated by the Monetary Authority of Singapore.

Read more about the development here.

 

 

This Market Profile is brought to you by DBS. Get in touch with us for further insights on doing treasury in Singapore and take advantage of our innovative solutions to empower your business. Click here to find out more.

 

 

Sources: IMF World Economic Outlook database, October 2016; CIA World Factbook; Trading Economics; PwC

Please note that the information contained in this document, assembled based on information available and accurate as at July 2017, is of a general nature only and is subject to change whether for economic, political, social or other reasons.

 

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Last updated on 20 May 2018