Singapore’s Start-up Ecosystem – Part II: Opportunities for Overseas Entrepreneurs

August 30, 2017 Posted by ASEAN Briefing Reading Time: 6 minutes

By Andrea Bottega and Erasmo Indolino

In the first article of this three-part series on Singapore’s start-up ecosystem, we discussed the factors behind the city-state emerging as a preferred base for international entrepreneurs. In this second article, we look at the opportunities that Singapore offer young overseas entrepreneurs.

The city-state as a start-up hub

With the Singapore government regularly rolling out new initiatives to attract start-ups, the reasons for establishing a base in the city-state are many. No wonder, the country has the sixth-highest percentage of immigrant founders in the world, with immigrants making up 35 percent of start-up founders compared to a global average of 19 percent.

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Access to capital

The continuous inflow of investment and wealth into Singapore over the last two decades has led to a concentration of angel investors, venture capitalists, and private equity firms. In 2011, Singapore-based venture capital and private equity firms registered a total of S$26.5 billion (US$ 19.4 billion) in assets under management. These cash rich industry participants are actively seeking to make equity investments in new ventures. For those who prefer debt financing, three of Singapore’s largest banks (OCBC, DBS, and Standard Chartered) offer special lending schemes and banking services focused exclusively on start-ups.

The Singapore government provides a wide range of financing schemes and grants to encourage the development of entrepreneurship in the country. These government-backed funding and assistance options for start-ups can come in the form of equity financing schemes, cash grants, business incubator schemes, and debt financing. Within certain preferred sectors, the government may also subsidize the labor costs of a new business. These benefits are available to local as well as foreign-owned businesses.

Attractive tax system

Singapore has one of the world’s simplest and most rational tax system. It levies no tax on capital gains or on dividends received from a business. This makes the country particularly attractive to entrepreneurs who want to incorporate and build a new business. Singapore uses a tiered tax system for both personal and corporate taxes. New firms receive significant tax breaks during their first three years reducing their tax rate to 0% for the first S$100,000 of income. The corporate tax rate is capped at 17%. In addition, the Singapore government offers several tax incentive schemes designed specifically for start-ups. For example, qualifying start-ups receive full tax holiday on certain portions of their taxable income for the first three years of incorporation. Similarly, corporate profits are not double taxed when they are passed to shareholders as dividends. In other words, dividends are distributed to shareholders tax-free. Finally, Singapore charges one of the lowest value added tax rates in the world.

Intellectual property protection

Singapore government has passed intellectual property (IP) protection regulations that are considered models by other industrialized nations. The country is a signatory to major IP conventions and treaties, such as the Patent Cooperation Treaty, Paris Convention, Berne Convention, Madrid Protocol, Budapest Treaty, Agreement on Trade-Related Aspects of Intellectual Property Rights, and World Intellectual Property Organization. As a result of its IP protection policies, Singapore has become a venue of choice for businesses seeking to manage their IP assets. The World Economic Forum (WEF), the Institute for Management Development (IMD) and the Political Economic Risk Consultancy (PERC) all rank Singapore as the top IP destination in Asia. Start-ups with breakthrough ideas can come to Singapore and be assured that they will receive the full economic benefit from their novel ideas.

Talented and dynamic workforce

Another advantage of Singapore is the access to a highly qualified workforce. The country has been ranked first in BERI’s Labour Force Evaluation Measure for the last thirty years. Singapore’s immigration policies on foreign talent are one of the least restrictive such policies in the world, and the country is ranked second on IMD’s list of ‘most attractive environment for highly skilled foreigners’. The city-state has now overtaken Silicon Valley to become number one in the world for start-up talent. Singapore clinched the top spot for talent due to its strong performance in access to quality talent and cost, according to the Global Startup Ecosystem Report and Ranking 2017.

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FinTech

Financial technology (Fintech) is a sunrise industry that Singapore has actively embraced in recent years. Without a doubt, the Government’s efforts have been integral in the development of the local Fintech scene. The country is now seen as one of the top Fintech hubs in the world, with strong government support regularly cited as a factor for its success thus far. Much has been done by the government. On the regulatory front, the Monetary Authority of Singapore (MAS) set up the regulatory sandbox framework for financial institutions (FIs) and others to test their Fintech innovations in a more free, safe and controlled environment. On the development side, MAS organised the Singapore Fintech Festival, the world’s first large-scale gathering of various Fintech players.

The Government has also launched the Fintech Office, a one-stop shop to develop the sector. The crucial element of funding is not forgotten as MAS is committing S$225 million over the next five years to attract FIs to set up their innovation labs in Singapore. Beyond the regulatory sandbox, there are other tax incentives promoting innovation, research and development and intellectual property management. These incentives also seek to attract new technologies into Singapore. These initiatives underscore the MAS’ vision and demonstrate its commitment to transform Singapore into a Smart Financial Centre – a place where FIs are encouraged to embrace innovation, forge collaborations with Fintech players and experiment with the latest technologies.

Fintech has been identified as a key factor for Singapore to remain a regional financial hub. Fintech players have the potential to offer novel solutions for FIs, in terms of their internal operations, as well as the way they serve their customers. Singapore has set the pace in its trailblazing efforts to nurture the Fintech industry at the start of this global race, and if it can continue to enhance its hunt for talent, technology and funding, the future would be bright in this sunrise industry.

In the third and concluding part of this series, we will discuss the role of venture capital (VC) funds in nurturing entrepreneurship and innovation in Singapore.

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