Of Australia’s 100 largest companies, 40 have subsidiaries in Singapore.
According to the UCA report, 61 of ASX 100 firms have subsidiaries in “secrecy jurisdictions” of which the most popular were Singapore, Hong Kong, Jersey, the British Virgin Islands, the Cayman Islands and Luxembourg.
Report author Mark Zirnsak said the report did not mean to suggest that ASX 100 firms were using their overseas subsidiaries for “any unethical purpose” but sought to promote a greater level of transparency.
He warned that Singapore had become a growing concern for money laundering, but acknowledged that there were plenty of legitimate business reasons for Australians to set up shop there as well.
Here are some of the attractions:
1. Tax advantages
Singapore has a corporate tax rate of 17%, compared to Australia’s 30%, which according UHY Haines Norton is the 8th highest corporate tax rate in the world.
Zirnsak says there are legal loopholes that allow corporates to be taxed on their profits in other jurisdictions, but argues that they should pay taxes in the country whose infrastructure and legal protections they benefit most from.
“There are laws against certain forms of profit shifting, but there are also legal loopholes,” he says. “If a country is providing a lower tax rate but also services to a business, [paying tax in that country] is certainly reasonable.
“A country that provides a lower tax rate is benefiting at the expense of another government when taxpayers have effectively provided services that a company is not paying for.”
2. A robust legal system
As a former British colony, Singapore has a strong, English-language legal system with similarities to Australian law. That makes Singapore an attractive base for overseeing operations in other South East Asian nations.
ASX 100 miner Oz Minerals told UCA that it had established a Singaporean subsidiary as a holding company for its exploration office in Laos.
“Again the reason for establishing this company in Singapore was due to the Singapore legal system, a companies law that is similar to Australia, a business friendly location, and low risk of appropriation of assets by government,” Oz Minerals wrote.
3. It’s easier to do business
Singapore has topped the World Bank’s Ease Of Doing Business Index for the past seven years. The index accounts for infrastructure, taxes, cost and time of international trade, protections for investors, and regulatory transparency.
Australia was 10th in the 2013 Ease Of Doing Business rankings, which involved 185 countries globally.
Oz Minerals cited clearer regulations as one reason for it setting up a Singaporean subsidiary.
In its submission to UCA’s report, the miner explained that it had set up a captive insurance company in Singapore because of the “pragmatic and cooperative approach of the insurance regulator … a pro-business environment and no restrictions on the mix of insurance and reinsurance businesses”.
According to Ernst & Young, Singapore’s regulatory environment is a “driver for deal activity” and thus a drawcard for private equity firms. “Safeguards for investors and the overall ease of doing business act as additional incentives to operating in the city-state,” according to EY.
4. Good for expats, if you don’t mind the smog
Singapore’s Economic Development Board boasts that the country is Asia’s best to work in, based on World Economic Forum standard of living rankings, Mercer quality of life rankings and IMD’s 2011 assessment of its “business-centric immigration laws”.
For Australian expats, Singapore’s humid climate and occasionally “hazardous” air pollution levels may sour the experience. Singapore’s smog level was so bad last month that the government issued an advisory urging residents to stay indoors and “avoid vigorous outdoor activity”.
5. Fewer wage restrictions
UCA’s Zirnsak suggested that Australian companies would also be drawn to Singapore’s highly educated, English-speaking workforce.
The World Economic Forum last year highlighted Australian labour restrictions as “the most problematic factor for doing business”, with commonly raised issues being high wages, union spats, and restrictive hiring and firing practices.
In contrast, Singapore rated well on the WEF’s “labour market efficiency” metrics and the EDB boasts of a “highly motivated” workforce with good labour-employer relations.
6. Location, location, location
In its Asia-Pacific private equity outlook report earlier this year, Ernst & Young highlighted growing opportunities in Southeast Asia, within which Singapore was a “gateway to the region”.
Singapore Airlines operates more than 100 flights between Australia and its home country every week.
ASX 100 companies were not initially queried about their Hong Kong and Singapore subsidiaries for the UCA report.
“Both jurisdictions are regional business hubs, so it was accepted the explanation for the location of a subsidiary in these places would be for this reason,” Zirnsak noted. “At the same time both these places are financial secrecy jurisdictions.”