07 SINGAPORE: THE GATEWAY TO ASEAN

SINGAPORE: THE GATEWAY TO ASEAN

Singapore: The Gateway to ASEAN for MNCs

The Asia Development Bank has called ASEAN a 'borderless economic community'62, a reputation that will likely be known on the global stage now that the RCEP has been signed and implemented. As MNCs flock to tap into ASEAN’s success, they will need a launchpad for expansion, operation and investment. Singapore, one of the founding members of ASEAN, has long earned high marks from global investors for its economic stability and business friendly environment. These favorable conditions make Singapore a strategic gateway for mainland MNCs from around the globe wishing to set up shop or strengthen their market position in the ASEAN region.

Already a hotspot for MNC headquarters, we anticipate Singapore to grow even more in popularity as a launchpad for global business expansion in ASEAN. FDI flows in the past decade show the city-state's dominance in capturing investment from foreign interests:

Foreign Direct Investment (FDI) Inward Flows to ASEAN, 2011-20208

Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

5.70m

Population

364.2bn

GDP (US$)

3.1%

GDP Growth Rate

SGD

Singapore Dollar ($)

25

Free Trade Agreements globally

Apr 1 Mar 31

Fiscal Year World's fastest approval for artificial intelligence patents

Why Start Up a Business in Singapore?63

>150

venture capital funds, incubators and acceleratos

2nd most globally connected country

100%

Tax deduction for qualifying expenditure for eligible R&D activites

One of the World's Easiest Places to Do Business Asia's Most Competitive Economy Southeast Asia & Oceania's Most Innovative Country

The following key attributes make Singapore the 'Gateway to ASEAN' for MNCs from mainland China:

Open for Global Trade

Singapore’s role as an enthusiastic trade partner and leading signatory in the ASEAN region has been welldocumented throughout the decades. The Common Effective Preferential Tariff (CEPT) scheme, Singapore’s first free trade agreement (FTA), was ratified in 1992 to relax duties and customs costs on inter-ASEAN imports. Known as the ASEAN Free Trade Agreement (AFTA), this opened the door for companies to set up shop in Singapore and trade freely with other ASEAN markets.

Since that landmark passage, Singapore has entered into a series of bilateral FTAs with key trade partners, including mainland China, US, Australia, Japan, New Zealand and more.60 Over time, these FTAs have eased market entry into Singapore and made market presence possible for products and services from signatory countries. When the US-Singapore Free Trade Agreement (USSFTA) came into effect in 2004, US exports of goods to Singapore surged by 49% from US$16.6 billion in 2003 to US$24.7 billion in 2006.64

As a leading member of ASEAN, Singapore has also served as the regional signatory to the establishment of 10 regional free trade areas, including ASEANAustralia-New Zealand, ASEAN-China and ASEANIndia. Singapore’s appetite for free trade continues having signed three globally significant FTAs, namely the RCEP, European Union-Singapore Free Trade Agreement (EUSFTA) and the CPTPP. Notably, the EUSTFA is the EU’s first bilateral FTA with an ASEAN member nation and is aimed at facilitating greater market access, offering more investment protection and removing non-tariff barriers for European companies to trade in the ASEAN region.65

The Singapore Economy 2030 vision was unveiled by the Ministry of Trade and Industry (MTI) in March of 2022, outlining a plan for long-term, sustainable growth through the year 2030. Notably, the plan identifies economic targets for professional services, manufacturing, trade and enterprises. The plan is likely to raise Singapore’s global trade footprint. For example, as part of the 2030 vision, MTI has targeted to raise Singapore's export value from S$805 billion in 2020 to at least S$1 trillion by 2030, while doubling offshore trade value to US$2 trillion. Furthermore, the master plan lays out new initiatives under Singapore's Manufacturing 2030 strategy, which was announced in 2021 and aims to increase manufacturing value-add by 50%.

Sophisticated Supply Chains, Manufacturing & Innovation

Unquestionably, the RCEP ushers in a transformative opportunity for Singapore’s supply chain ecosystem, critically linking the city-state to heavyweight markets in mainland China, Japan and South Korea.

Owing to Singapore’s free port status, local firms will now gain greater market access and be able to seize more commercial activity opportunities in RCEP markets. But there are other unique opportunities for Singapore built into the agreement. With the RCEP extending new protections to intellectual property (IP), Singapore’s reputation as a high-end manufacturer stands firmly intact. In particular, the IP safeguards are expected to be of particular benefit to the electronics, precision engineering and aerospace manufacturing industries. Apart from introducing new IP protections, RCEP will also catalyze crucial domestic regulatory reforms across ASEAN in key areas such as labor law, cybersecurity, investment liberalization and data protection. As supply chain dynamics change globally and global companies continue to balance costs and risks, these reforms will serve as important selling points for FDI and global supply chain activity through ASEAN. Singapore is already well ahead of other ASEAN member states in these areas – so its current framework will likely serve as a guiding baseline for these reforms throughout ASEAN. MNCs choosing Singapore as a destination for investment and expansion will enjoy the comfort, ease and transparency of these reforms from day one, and consequently, will be more agile in expanding throughout ASEAN.

Tax Incentives Abound

For MNCs, the first five years in a new market are critical for growth and success. Typically, tax burdens can slow down the pace of growth. Sometimes, taxation can cause a global expansion to ultimately fail.

With large profit margins and specialized compliance requirements, MNCs are particularly hard hit by tax burdens when they open operations and expand into a new country. But in Singapore, this is generally less of a problem than elsewhere. Not only does it have one of the lowest corporate tax rates in ASEAN (17%), the city-state offers an array of tax incentives and grants to further reduce companies’ tax burdens.66

Moreover, Singapore has established a strong double taxation agreement (DTA) footprint67 with many other countries. Essentially, a DTA reduces or eliminates the need for double taxation in Singapore and the MNC's parent country. This could potentially offer even more tax savings to MNCs in Singapore.

Top Talent Pools

Singapore’s workforce may be relatively small compared to other ASEAN member states, but it is one of the most highly-skilled, developed and diversified workforces in Asia. Singapore recently ranked in second place in how well countries around the globe attract, develop, support and retain talent, according to the 2021 Global Talent Competitiveness Index (GTCI) report which is published annually by Institut Européen d'Administration des Affaires (INSEAD) and Portulans Institute.68

The Singapore government is also becoming increasingly proactive in keeping its workforce current and abundant in the skills needed for various job functions. For example, Smart Nation Singapore69, which homes in on digital upskilling, gives MNCs access to new digital technologies and makes it easier for them to hire locals who have future-ready capabilities.

Furthermore, there are several types of employment visas available to foreign professionals. These visas are also more abundant and available in Singapore when compared to other ASEAN nations, empowering MNCs in Singapore to hire top talent from their parent country or anywhere around the globe.

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OPPORTUNITIES & CHALLENGES