Singapore and Indonesia are key to Southeast Asia’s economy. Despite their proximity, each offshore jurisdiction offers a unique business environment. This article provides insights on establishing a company in both nations. International Wealth experts compare their business environments, tax systems, setup procedures, and regulatory requirements to help you determine which country best suits your business needs and goals.
Top Reasons to incorporate in Singapore
- Complete Foreign Ownership: Businesses can be fully foreign-owned, with no restrictions on capital acquisition from overseas.
- Free Profit Repatriation: Investors repatriate profits to their home countries without any constraints.
- Economic Resilience: Singapore boasts low unemployment and inflation rates, high per capita income, and significant national savings.
- Political Stability: The country enjoys a stable political environment with stringent law enforcement.
- Tax Incentives: Investors benefit from double taxation avoidance agreements with over 80 countries and unilateral tax credits for those from different states.
- Global Connectivity: Singapore’s strong ties with both emerging and established markets are supported by world-class infrastructure.
- Efficient Administration: The business registration process is quick (taking only 1 to 3 days) and cost-effective.
- Superior Location: Singapore’s advantageous position offers greater business opportunities.
- Government Support: The government provides substantial support to startups through tax breaks, grants, and hiring subsidies.
- Transparent Governance: The jurisdiction is known for its transparent and non-corrupt governance.
Key Advantages of Starting a Business in Indonesia
Indonesia’s vast market potential and rapid economic growth make it an attractive destination for global entrepreneurs. With projections estimating the nation’s economy to reach USD 10 trillion by 2025, the benefits of establishing a business in Indonesia are significant:
- Market Accessibility: Proximity to major economies like China, Singapore, and India enhances international trade opportunities and job creation.
- Efficient Registration Process: Indonesia offers a transparent and simple procedure for business registration and company incorporation.
- Cost-Effective Labor: Labor costs in Indonesia are competitively low, providing a significant cost advantage.
- Regulatory Simplicity: The jurisdiction has minimal legal barriers regarding regulatory and operational requirements.
- Financial Stability: Indonesia boasts an efficient financial sector supported by strong lending practices from local banks.
- Business-Friendly Environment: The country provides digital platforms for company registration and tax administration, simplifying business operations.
- ASEAN Membership: As a member of ASEAN, Indonesia benefits from various free trade agreements.
- Attractive Tax Policies: The country offers appealing tax benefits, including DTAs with key trading partners (the USA, China, Australia, and India).
Business Prospects in Singapore and Indonesia
When choosing the ideal location for your business, it’s crucial to consider several key factors:
Business Climate
Singapore is known for its favorable business climate, ranking second globally for ease of doing business. It attracts investments in high-tech, biotechnology, and financial services. Indonesia, Southeast Asia’s largest economy, is enhancing its investor appeal by reducing bureaucratic hurdles. Both countries offer unique opportunities, creating a diverse environment for international entrepreneurs and investors.
Taxes
Taxation is a key factor when comparing Singapore and Indonesia. Singapore follows English common law, while Indonesia uses a civil law system. In Singapore, businesses make about five annual tax payments, compared to 52 in Indonesia. The corporate tax rate is lower in Singapore at 17% versus 22% in Indonesia.
For new startups, Singapore offers a 75% tax exemption on the first SGD 100,000 and 50% on the next SGD 100,000. Indonesia provides a 50% discount at a fixed rate for SMEs. Singapore also has a partial tax exemption (PTE) with a 9% to 10% tax rate on initial net profits up to SGD 200,000, which Indonesia does not offer.
In Indonesia, SMEs can get up to a 0.5% turnover discount for gross turnover under IDR 4.8 billion. Public companies in Indonesia receive a 3% tax discount if they meet the minimum listing requirements, a benefit not available in Singapore.
Requirements for Company Directors and Shareholders
Corporate structures and shareholder requirements differ between Singapore and Indonesia. In Singapore, the Private Limited Company (Pte Ltd) is the most common entity, allowing 100% foreign ownership. To establish a Pte Ltd, you need at least one local director and one shareholder.
In Indonesia, foreign investors often choose the Perseroan Terbatas Penanaman Modal Asing (PT PMA), which permits complete foreign ownership and caters to various sectors. Setting up a PT PMA requires at least one director, two local shareholders, and one commissioner, who may be a foreign national.
Company Formation
Setting up a business in Singapore and Indonesia involves different steps and unique characteristics that affect international growth.
- Business Structures: Singapore offers Private Limited Company (Pte Ltd), Partnership, and Sole Proprietorship. Indonesia provides PT PMA, Representative Office, and Subsidiary options.
- Registration Time: In Singapore, registration takes 1 day if documents are ready or 14 to 60 days with extra checks. In Indonesia, it averages 1 to 3 months.
- Minimum Investment Requirements: Singapore has no specific minimum investment standards, while Indonesia requires IDR 10 billion for PT PMA.
- Licensing and Documentation: In Singapore, you need to reserve a company name, register with ACRA, set up a bank account, and acquire a business profile. In Indonesia, the requirements are limited to company name reservation, a notarized memorandum, a domicile letter, NPWP, NIB, and additional licenses if necessary.
- Government Role: Singapore’s ACRA oversees business registration, while Indonesia’s BKPM handles investment coordination.
- Annual Reporting: Singapore requires IR8A, ECI, AGM, annual returns, tax returns, and VAT returns. Indonesia mandates financial statements, tax returns, plus regular license and registration checks.
- Tax Regime: Singapore offers a favorable tax regime for Pte Ltd. In Indonesia, the corporate tax rate for subsidiaries is 25%.
- License Validity: License validity varies in Singapore, with renewals typically required. In Indonesia, representative office licenses must be renewed every 2 years.
Expert Advice for Your Business Needs
Understandably, you may be caught between the two incorporation options. To help you out, we recommend Singapore for international ventures and tech startups, while Indonesia is ideal for businesses targeting local market growth. Need more assistance? Contact the International Wealth expert team to seamlessly set up a business in either jurisdiction with professional support and tailored recommendations!