The two most important economies to Southeast Asia are Singapore and Indonesia. There are specific business environments that every offshore jurisdiction has to offer although they may be side by side. This article gives information on opening up a company in the two countries. International Wealth professionals compare their business circumstances and taxation, the conditions of establishment procedure and the necessity to fulfill the requirements which allow you to identify the most contributing country to the realization of your objectives.
The best reasons to incorporate in Singapore
Singapore is a business-friendly country and this is seen when foreign investors interested in starting a successful business invest in this country. It has good economic environment, effective tax regime and a big network of the global market which citizens of the country need. In case one is thinking more strategically, it can be an idea to research how to do an investment holding company. There are other advantages that can be enjoyed in this format like simplification of management of investment. Now, what are the key advantages of establishing a company in Singapore?:
- Full Foreign Ownership: Companies are allowed to be 100 percent owned as long as there is no limit to the amount of capital that may be foreign-owned.
- Free Profit Repatriation: Repatriation of profits is not limited to investors and they can transfer them to their home countries.
- Economic Resilience: The Singapore Labor Force has low unemployment rate, low inflation rate, high per capita earnings and national savings.
- Political Stability: The political environment in the country is stable with law enforcement being strict.
- Tax Incentives: Investors are also advantaged by the more than 80 countries that has a double taxation avoidance agreement and unilateral tax credit among the different states.
- Global Connectivity: Singapore has a well-developed infrastructure, which translates to excellent links with the emerging and established markets.
- Effective Administration: The process of registering the business is fast (only 1 to 3 days) and affordable.
- Better Location: The better location of Singapore means more business advantage.
- Government Support: The government gives a lot of support to the startups by way of tax exemptions, grants and hiring subsidies.
- Transparent Governance: The governance in the jurisdiction is toothless and non-corrupt.
Indonesia Advantages of Starting a Business in
It is a good market to explore because Indonesia has a large number of people and a high economic growth rate. The advantages of setting up a business in Indonesia are therefore vast with projections showing that the nation economy is set to hit 10 trillion dollar mark in the year 2025:
- Market Accessibility: It is close to massive economies such as China, Singapore and India that increase prospects of international trade and creation of employment opportunities.
- Smart Registration: In Indonesia there is a clear and easy framework on how to incorporate a company or even register a business.
- Affordable Labor: Indonesian labor is considered to be quite affordable and affordable labor offers a big cost benefit.
- Regulatory Simplicity: There are very few legal impediments to regulatory and operational requirements in the jurisdiction.
- Financial Stability: Indonesia is characterized by the existence of a well oiled financial system gathered by the existence of strong lending principles exercised by local banks.
- Pro-Business Climate: It offers the firms with digital platforms where they can be registered as well as administration of the taxes, making the activities very easy.
- Membership in ASEAN: Indonesia is a member of ASEAN, and this has the advantage of Indonesian enjoying a number of free trading agreements.
- Favorable Taxation Policies: This country provides favorable taxations like the DTAs allowing with major trading partners (USA, China, Australia and India)
Singapore and Indonesian Business Opportunities
There are many factors that you should put in consideration when selecting the best place to position your business:
Business Climate
Singapore has a excellent business climate, it is in the second position in the world with ease of doing business. It is appealing to high tech investments, biotechnology and financial service investments. Indonesia, the largest economy in southeast Asia is increasing its investor attractiveness through less bureaucratic barriers. Each of the countries has its own opportunities making a diversified setting for global businesspersons and investors.
Taxes
A major thing that can be compared in Singapore and Indonesia is taxation. Singapore and Indonesia differ in that they honor English common law and civil law system respectively. Businesses in Singapore pay taxes approximately 5 times in a year, which is compared to 52 times in Indonesia. Indonesia has a higher rate of corporate tax 22 per cent unlike that of Singapore which has a rate of 17 per cent.
On fresh start-ups, Singapore has a tax exemption of 75 percent on the first SGD 100,000 and 50 percent on the second SGD 100,000. In Indonesia there is a fixed rate of 50 percent discount given to SMEs. Singapore also offers partial tax exemption (PTE) whereby the initial net profits up to SGD 200, 000 is subject to various taxes ranging between 9 and 10 percent which Indonesia does not provide.
In Indonesia, a turnover discount up to 0.5 percent of gross turnover up to IDR 4.8 billion can be claimed by SMEs. In Indonesia, the tax of the public companies is discounted by 3% as long as they fulfill the minimum listing elements which are not applicable in Singapore.
The Company Directors and Shareholder requirements
Singapore and Indonesia have different corporate structures and requirements of shareholders. The most prevalent entity in Singapore is the Private Limited Company (Pte Ltd) which can be fully owned by a foreign entity. Pte Ltd requires that at least one of the directors must be a local person and must have 1 shareholder.
In Indonesia, foreigners tend to incorporate the Perseroan Terbatas Penanaman Modal Asing (PT PMA), where the reality of having a full foreign ownership is acceptable and fits both industries. By establishing a PT PMA, at least one director, two local shareholders, and one commissioner are appointed and can belong to a foreign country.
Company Formation
The process of establishing a business in Singapore and Indonesia follows some steps, and has some peculiarities that influence international expansion.
- Business Forms: Available forms of business in Singapore include Private Limited Company (Pte Ltd), Partnership and Sole Proprietorship. Indonesia has PT PMA, Representative Office and Subsidiary.
- Registration Time: In Singapore, registration is done within a day when all necessary documents are ready or it can take 14 to 60 days with extra scrutiny. It is 1 to 3 months on average in Indonesia.
- Minimum Investment Requirements: Singapore does not have any specific minimum investment requirements, and in Indonesia, PT PMA is required to have IDR 10 billion.
- Licensing and Documentation: In Singapore, the company name has to be reserved, registration at ACRA, opening a bank account and obtaining a business profile. In Indonesia, the requirements are minimal, they include reserving company names and a notarized memorandum of association, domicile letter, NPWP, NIB and other licenses where necessary.
- Government Role: Singapore the ACRA takes care of business registrations and in Indonesia it is the BKPM which is the institute that deals with investment coordinations.
- Annual Reporting: Singapore has IR8A, ECI, AGM, annual returns, tax returns and VAT returns. In Indonesia, it is required to maintain financial statements, tax returns and frequent checks on licenses and registration.
- Tax Regime Singapore provides attractive tax regime to Pte Ltd. The subsidiaries pay the rate of corporate tax of 25% in Indonesia.
- License Validity: License validity also differs in Singapore and most licenses have to be renewed. In Indonesia, licenses to have representative offices are renewed after every 2 years.
Professional Help in Your Company
Naturally, you are bound to be in a dilemma between the two incorporation options. To provide you with a helping hand, we suggest you use Singapore in the case of international ventures and tech startups and Indonesia when your business is aimed at reaching local market growth. Still need some support? Contact the International Wealth expert team to straightforwardly organize an enterprise in any of the jurisdiction with professional guidance and customized advice!