For people who want to start a business in Southeast Asia, Malaysia and Singapore are two popular options. Both countries are good places to do business and offer lots of chances for traders, such as forming a company for foreigners. But before you make up your mind, it’s important to fully understand how the two are different. In this article, we’ll delve into the primary distinctions between Singapore and Malaysia concerning initiating a startup.
Relationship between Singapore-Malaysia
Due to their rich shared history and cultural bonds, coupled with their geographical closeness, Malaysia and Singapore maintain a distinctive bond. The ties encompassing economic, political, and interpersonal dimensions have been robust between them. Ever since Singapore’s independence in 1965, the dynamics between the two nations have been a blend of mutual reliance and occasional strains.
Both Singapore and Malaysia recognize the significance of their strong economic and financial ties. Their positive political rapport fosters enhanced trade, investment opportunities, frequent mutual visits, and deepened collaboration across various sectors. Both nations are consistently exploring avenues to further enrich their bilateral relationship.
Workforce
While Malaysia boasts a population that is sevenfold compared to Singapore, it provides a more extensive reservoir of potential employees. Both nations, due to their intertwined histories, have a workforce proficient in two languages, including English. However, while English dominates in Singapore, most Malaysians primarily communicate in Malay, with English being a secondary language for many. Investors might find Malaysia’s broader talent spectrum advantageous, but the sector of business plays a pivotal role in this decision. The Singaporean workforce is more versatile and seasoned in the tech and financial domains. On the other hand, Malaysia’s employment strengths lie in the service, construction, and production sectors.
During the second quarter of 2022, both nations witnessed a positive shift in their unemployment figures. Singapore recorded an unemployment rate of 2.1%, whereas Malaysia’s stood at 3.7%
Infrastructure and Resources
Both nations hold prime positions, making them ideal for startups eyeing the Southeast Asian market. Singapore boasts excellent links to emerging economies and top-tier infrastructure, vital for trade ventures.
Singapore, responding to its surging demand and swift expansion, is consistently enhancing its transportation systems. The nation is set to channel more than US$2.7 billion into eco-friendly infrastructure endeavours in the coming years, underlining its commitment to a green future. On the other hand, Malaysia has been amplifying its infrastructure grid by funding diverse projects over recent years. Yet, while Singapore leans towards reducing its carbon footprint with strategies like railway development and car usage limits, Malaysia’s primary aim is to broaden its roadways.
In terms of size and natural wealth, Malaysia stands out, harnessing its abundant resources to fuel its economic growth. Singapore, given its limited natural bounty and dependence on imports, might seem at a disadvantage. However, this hasn’t deterred Singapore from innovating and emerging as a global benchmark for cutting-edge urban solutions, solidifying its reputation as a modern-day metropolis.
Tax Rates
|
Type of tax |
Singapore |
Malaysia |
|
Corporate income tax |
17% |
17-33% |
|
Personal income tax |
0-22% |
0-30% |
|
GST |
7% |
6% |
|
Capital gains tax |
0% |
0-30% |
|
Dividend tax |
0% |
0% |
|
Interest tax |
15% |
15% |
|
Royalty tax |
10% |
10% |
Government Initiatives
Both Singapore and Malaysia have initiated diverse schemes to bolster business growth. While Malaysia emphasizes the manufacturing, agriculture, hospitality, and tourism sectors, Singapore prioritizes the finance, technology, and trade sectors.
In Malaysia, notable incentive programs include the Pioneer Status and the Investment Tax Allowance initiative, which offers a 70% income exemption for half a decade. Additionally, manufacturing businesses relocating to Malaysia can enjoy a decade-long tax-free period. There’s also a global trade incentive that grants a tax break on 20% of the augmented export value for five years.
Conversely, Singapore extends financial advantages to both local and international companies, with grants reaching up to S$6 million and tax reductions of as much as S$10 million. Beyond monetary incentives, Singapore also promotes business growth through skill enhancement and training programs.
Tax Residency
In Singapore, a company’s tax residency is determined not by its registration location but by its control and management location. For individuals, tax residency in Singapore is based on citizenship, permanent residency, or if a foreigner has stayed in the country for at least 183 days in the tax year. Similarly, Malaysia defines tax residency for companies and individuals using the same criteria. But, unlike Singapore, which adopts a single-tier system and doesn’t tax foreign income, Malaysia does levy taxes on income from abroad.
Benefits of the Singapore Tax System
The benefits of the Singapore Tax Benefits are:
- The primary corporate tax rate in Singapore stands at 17%.
- There’s no capital gains tax imposed in Singapore.
- The country has set its value-added tax at 7%, with certain products being tax-exempt
- Singapore boasts a comprehensive array of tax agreements, ensuring that its businesses operating globally aren’t subjected to dual taxation.
- In Singapore, dividend distributions are not subjected to tax.
- The country has set its value-added tax at 7%, with certain products being tax-exempt.
- Singapore provides over 80 distinct government support schemes, catering to both emerging startups and seasoned enterprises.
Benefits of Company Formation in Singapore
Singapore provides various benefits to the Entrepreneur or Foreign Individual who wants to incorporate a company in Singapore:
Tax Exemption Scheme for New Start-Up Companies
For the first three years, people who qualify can get 75% of their first S$100,000 in taxable income tax-free and 50% of their next S$100,000 in taxable income tax-free.
SG Tech Startup
Companies that qualify will be able to get up to S$500,000 for projects that test the scientific and technical viability of new technology or the business viability of a technology that has been proven in the lab.
Program for Startups in Singapore
For an initial investment of S$250,000, startups that are making current technologies better will get 70% of the money. After that, the Singapore government will put in S$1 for every S$1 that private buyers put in, up to a maximum of S$2 million. For startups that are considered “deep tech,” the Singapore government will pay 70% of the original S$500K investment.
Conclusion
Singapore is often a better place to start a business than Malaysia because of its great location, strong laws, efficient tax system, and world-class facilities. Singapore is a great place for businesspeople and investors from all over the world to do business because it is easy to do so and the government is open and supportive of businesses. Malaysia has some good points, but Singapore’s status as a global financial hub and its dedication to growth and innovation often make it the better choice for companies that want to expand in Southeast Asia.
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FAQ’s
Singapore is often preferred due to its strategic location, robust legal system, efficient tax regime, and pro-business environment. The World Bank has consistently ranked Singapore as one of the easiest places to do business.
Singapore offers one of the most competitive corporate tax rates in the world, with a headline rate of 17%. There are also various tax incentives and exemptions available for startups and specific industries. Malaysia, while competitive, may have a more complex tax structure for certain businesses.
Singapore consistently ranks at the top in the World Bank’s Ease of Doing Business Index. The country is known for its efficient bureaucracy, transparent regulations, and quick company registration process. Malaysia has been improving but may not be as streamlined as Singapore in certain aspects.
