In this comparative report, we look at the advantages of and differences between doing business in Singapore and the United States.
This report refers to data from World Bank’s 2014 ‘Ease of Doing Business’ report and World Economic Forum’s Global Competitiveness 2013 – 2014 as well as 2014 Global Enabling Trade reports. It measures five indicators, namely company incorporation, corporate tax rate, foreign investment friendliness, intellectual property protection and workforce.
Following the economic recession, the U.S. is expected to grow at a modest pace. It remains somewhat attractive to foreign investors. The country is still seen as an economic superpower and has some strengths that supercede Singapore’s. These include enforcing contracts, registering property, market size, business sophistication and innovation.
Although the U.S. government has been making some progress in rebuilding global confidence, the new economic landscape raises questions and seems quite challenging for global businesses looking to set a hub for their business. For example, the Federal Reserve will continue to maintain its interest rates this year so as not to halt the stimulus program. In addition, the IMF has downgraded the country’s growth forecast to 2% this year.
In addition, the GCR listed the following as the five most problematic factors for doing business in the U.S. – tax regulations, tax rates, inefficient government bureaucracy, and access to financing and restrictive labor regulations.
On the other hand, Singapore is a much smaller market, but it is well connected through good relations with its economic partners. Overall, it trumps the U.S. on many indicators in the reports evaluated. In the Doing Business Report, Singapore was ranked 1st while the U.S. ranked 4th worldwide. In the GCR, Singapore was ranked 2nd while the U.S. was ranked 5th worldwide. It has also emerged from the recession faster and has been adopting prudent fiscal and economic policies.
Nevertheless, no country is perfect, and this includes Singapore. The GCR listed restrictive labor regulations, inflation, insufficient capacity to innovate, inadequately educated workforce and tax rates as five biggest challenges to doing business in Singapore.
Let’s explore these in further detail below.
|World Bank’s Doing Business (DB) 2014|
Singapore vs. U.S.
|Starting a business||3||20|
|Dealing with construction permits||3||34|
|Trading across borders||1||22|
According to the Doing Business report, starting a business in Singapore requires 3 procedures and takes 2.5 business days. In the U.S., the number of procedures required is double of that in Singapore. In addition, it takes twice as long – five business days – to complete the process of starting a business in the U.S.
It is also more cost effective to start a business in Singapore. In the U.S., this entire process costs US$750. In Singapore, it costs S$385, or approximately US$308. As such, the Doing Business report ranked Singapore 3rd and the U.S. 20th worldwide in the category of starting a business.
Under the category of dealing with construction permits, Singapore was ranked 3rd while the U.S. was ranked 34th worldwide. This category measures the procedures, time and costs required to build a warehouse. In Singapore, a total of 11 procedures over a period of 26 days are required to complete this process. In the U.S., a total of 16 procedures over 91 days are required to do the same.
In the category of paying taxes, the Doing Business report ranked Singapore 5th and the U.S. 64th. The category, which measures the number of payments, time spent preparing, filing and paying taxes as well as the percentage of profits paid in taxes, shows that the U.S. has improved its ranking by 5 notches year-on-year.
In Singapore, a medium-sized business would make five tax payments and spend 82 hours a year preparing, filing and paying taxes. In the U.S., a similar business would make 11 payments and spend 175 hours a year preparing, filing and paying taxes.
The Doing Business report also showed that the federal marginal corporate tax rate in the U.S. starts at 34%. However, the KPMG corporate tax rates table shows that it is 35% on the highest income bracket (US$18,333,333 or more) and 15% for income lower than that bracket. In addition, state and local governments may impose additional taxes ranging from 0 – 12%. The effective corporate tax rate in the U.S. varies depending on the state the business operates from and altogether, may amount to approximately 40%.
In Singapore, the marginal corporate tax rate is capped at 17%. However, Singapore offers many corporate tax incentives to newly incorporated companies and resident companies to spur entrepreneurship and growth in sunrise sectors. For more details on tax rates in Singapore, please visit our page on Singapore taxation.
Foreign investment friendliness
In order to encourage investors to inject capital into businesses, countries must have regulations to protect them. The Doing Business report measures this through the Strength of Investor Protection Index.
The index analyses the transparency of transactions, the shareholders’ ability to sue officers and directors for misconduct and liability for self-dealing. Singapore scored 9.3 out of 10 while the U.S. came in fairly close with a score of 8.3. This places Singapore in the 2nd position and the U.S in the 6th position worldwide in the category of protecting investors. Thus, both jurisdictions offer strong protection to investors.
As US implements FATCA later this year and Singapore pledges to comply with it, both jurisdictions may see their ‘extent of disclosure index’ improve next year. As is, Singapore’s emphasis on compliance with regulations such as BASEL III capital requirements and the Singapore Financial Reporting Standard will continue to safeguard the interests of genuine investors.
The 2014 Global Enabling Trade report has also ranked Singapore at the top position and US in the 15th place due to trade friendly regulations and conducive business ecosystems.
Intellectual property protection
Other than foreign investment friendliness, protection of Intellectual Property (IP) rights helps boost investor confidence. According to the Global Competitiveness Report (GCR), Singapore was ranked second in the world and first in Asia for its IP protection. The U.S. was ranked 25th worldwide.
In Singapore, the costs of acquiring and in-licensing IP rights can be disbursed through cash payouts or corporate tax rebates. This is possible under the PIC (Productivity and Innovation Credit) scheme, which seeks to encourage Singapore business to invest in higher value added activities. Under this scheme, eligible private limited companies can claim either a 400% corporate tax rebate or a cash payout worth 60% of the related costs when they acquire or in-license IP rights in Singapore.
|WEF’s Global Competitiveness Index 2013 – 2014|
Singapore vs. U.S.
|Basic Requirements (60%)||1||36|
|Health and primary education||2||34|
|Efficiency Enhancers (35%)||2||1|
|Higher education and training||2||7|
|Goods market efficiency||1||20|
|Labor market efficiency||1||4|
|Financial market development||2||10|
|Innovation and sophistication factors (5%)||13||6|
According to the GCR, both Singapore and the U.S. have good labour market efficiency. The U.S. scored very well in four sub-indicators, namely redundancy costs, country capacity to retain talent, country capacity to attract talent as well as hiring and firing practices. For the rest of the sub-indicators, it performed fairly well, ranking well under 50 out of 148 for each sub-indicator.
Apart from women’s participation in the labor force, Singapore ranked very well in most of the sub-indicators. However, in that category, the U.S. performed better, scoring 47 worldwide. As such, Singapore ranked 1st overall and the U.S. 4th worldwide in the category of labor market efficiency.
Restrictive labor regulations were cited as one of the top 5 most problematic factors for doing business in both jurisdictions.
In a Nutshell
Better tax laws, more options for incorporating entities and a business-friendly government are the reasons for Singapore’s successful incorporation climate, as compared to the continued uncertainty of the business outlook in the US. According to the World Economic Forum’s recent global competitiveness reports, the five most problematic factors for doing business in the US are – tax regulations, tax rates, inefficient bureaucracy, unfavourable access to financing, and restrictive labour regulations.
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