Singapore As A Gateway To Asia For UAE Based Businesses

September 4, 2022 by Middle East Briefing

Bilateral trade between the United Arab Emirates and Singapore has continued to grow in recent years and was valued at S$22 billion (US$15.7 billion) in 2021. As such, the UAE is Singapore’s largest partner in the middle east.

Supporting the increased trade between the two countries is the Gulf Cooperation Council and Singapore free trade agreement (GSFTA), which came into force in 2013. This FTA was a milestone agreement because it was the first FTA signed by the GCC and the second by Singapore with a country in the middle east, following the Singapore-Jordan FTA in 2004.

UAE and Singapore trade still dominated by oil

The UAE enjoys a trade surplus mainly which is dominated by oil and its derivatives. More than US$11 billion worth of mineral fuels, mineral oils and products of their distillation were exported from the UAE to Singapore in 2021.

Singapore is one of the most important trading and oil refining hubs in the world and has a total refining capacity of 1.5 million barrels per day. In addition, Singapore is a market leader for floating production storage and offloading (FPSO) and a number of multinational oil companies have their headquarters in city-state. In recent years output from Singapore’s oil and gas industries was valued at over US$60 billion to the local economy.

Further, Singaporean companies such as Trescorp and Rotary Engineering have built oil storage tanks in the UAE, specifically in Fujairah and Jebel Ali.

In addition to oil and its derivatives, the UAE’s other major export to Singapore is precious stones, precious metals, and natural or cultured pearls, totaling more than US$800 million in 2021.

For Singapore, its main exports to the UAE include precious metals and stones (more than US$914 million) machinery and nuclear reactors (more than US$900 million), and electrical equipment (more than US$750 million).

According to the UAE’s Ministry of Foreign Affairs, more than 600 Singaporean companies are operating in the UAE in a variety of fields ranging from construction to information technology to infrastructure and real estate.

The Singapore-UAE Comprehensive Partnership

In 2019, Singapore and the UAE signed the Singapore-UAE Comprehensive Partnership (SUCP) which was witnessed by UAE’s President (Crown Prince at the time) Sheikh Mohamed bin Zayed Al Nahyan and Singapore’s Prime Minister, Lee Hsien Loong.

The SUCP is a framework to deepen existing areas of cooperation such as in defense, sustainable development, trade, investment, and leveraging on the GSFTA.

Under the agreement, both countries will hold regular political consultations between respective foreign ministries and explore ways to enhance diplomatic cooperation. In the field of trade and investment, the UAE and Singapore will do more to promote viable commercial opportunities, particularly in the aviation and maritime sectors.

Both countries will also facilitate the effective supervision of each other’s financial institutions and promote innovative financial services.

Why should UAE businesses establish in Singapore?

Access to ASEAN

Singapore has long been a preeminent destination for setting up a regional headquarter to pursue business opportunities across ASEAN and Asia. ASEAN includes Brunei, Cambodia, Laos, Myanmar, The Philippines, Thailand, and Vietnam in addition to the huge Islamic markets of Indonesia and Malaysia.

ASEAN is one of the fastest-growing economic blocs in the world and is projected to have the fourth-largest economy by 2030. By then, domestic consumption is expected to double to US$4 trillion and a population of over 700 million people and 575 million of which will be internet users. Over the next decade, ASEAN is also expected to add 140 million consumers.

Access to RCEP

Singapore, as a member of ASEAN, is also a member of the Regional Comprehensive Economic Partnership (RCEP) Free Trade Agreement. In addition to the ASEAN nations, RCEP also includes Australia, New Zealand, China, Japan, and South Korea. In terms of adding value, it allows the use of lower cost countries (such as some of the ASEAN nations) the ability to finish products from the more expensive brands in Australia, Japan and South Korea while retaining the ’Made in Japan’ (or similar) styled labels and provides manufacturing cost savings when producing premium brands, and access to this gigantic region. UAE businesses would need to establish a subsidiary in one of the RCEP countries to do so but having a subsidiary in a relatively low-cost jurisdiction such as Cambodia, and carry out finishing and related services there would also give free trade market access to premium markets in Japan, South Korea, and Australasia.

Business friendly policies

Singapore is globally renowned as a business-friendly destination that offers a stable socio-political environment, free market economy, highly efficient infrastructure, and an attractive tax regime.

As such, a primary advantage of Singapore is its ability to act as a centerpiece for the holding and management of regional assets. Holding companies are a vital component of any international expansion strategy, and Singapore offers investors a stable environment from which to administer operations in more speculative markets in Asia. The city-state has already attracted more than 37,000 international companies and 7,000 multinational companies that utilize Singapore as their regional headquarters.

A strong free trade agreement network

Despite regional players maintaining strong FTA networks, they are not as extensive as Singapore’s. Due to these factors, the country will continue to be the default location for businesses seeking to expand into Southeast Asia and neighboring regions.

The country’s 14 bilateral and 13 regional FTAs include some of the largest combined trade agreements in the ASEAN-China, ASEAN-India, and ASEAN-Hong Kong trade blocs — providing Singapore-based businesses with access to preferential markets, free or reduced import tariffs, as well as enhanced intellectual property regulations.

There are two types of FTAs: bilateral (agreements between Singapore and a single trading partner) and regional (signed between Singapore and a group of trading partners).

Bilateral FTAs

China-Singapore FTA (CSFTA);
India-Singapore Comprehensive Economic Cooperation Agreement (CECA);
Japan-Singapore Economic Partnership Agreement (JSEPA);
Republic of Korea-Singapore FTA (KSFTA);
New Zealand-Singapore Comprehensive Economic Partnership Agreement (ANZSCEP);
Panama-Singapore FTA (PSFTA);
Peru-Singapore FTA (PeSFTA);
Singapore-Australia FTA (SAFTA);
Singapore-Costa Rica FTA (SCRFTA);
Singapore-Jordan FTA (SJFTA);
Sri Lanka-Singapore FTA (SLSFTA);
Turkey-Singapore FTA (TRSFTA);
United States-Singapore FTA (USSFTA); and
UK-Singapore FTA (UKSFTA).

Regional FTAs

ASEAN-Australia-New Zealand Free Trade Area (AANZFTA);
ASEAN-China Free Trade Area (ACFTA);
ASEAN-Hong Kong, China Free Trade Area (AHKFTA);
ASEAN-India Free Trade Area (AIFTA);
ASEAN-Japan Comprehensive Economic Partnership (AJCEP);
ASEAN-Republic of Korea Free Trade Area (AKFTA);
ASEAN Free Trade Area (AFTA);
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP);
EFTA-Singapore FTA (ESFTA);
Singapore-Eurasian Economic union (EAEUSFTA);
Regional Comprehensive Economic Partnership (RCEP)

GCC-Singapore FTA (GSFTA); and
Trans-Pacific Strategic Economic Partnership (TPSEP).

Singapore’s corporate tax landscape

Singapore’s tax system is internationally recognized as efficient and competitive, which allows foreign investors to enjoy low tax rates and numerous tax incentives. The country operates a single-tier, territorial tax system, which means that foreign-sourced income would not face additional taxes in Singapore. There is also no capital gains tax and there is no tax on dividends. Singapore imposes corporate income tax (CIT) at a flat rate of 17 percent for both foreign and domestic companies, the lowest among all ASEAN member states.

An extensive double taxation agreement

Singapore has one of the world’s most extensive DTA networks, attracting international businesses from a multitude of conventional and nuanced industries. The country has signed over 90 DTAs, which comprise of three types: comprehensive, limited, and exchange of information arrangements (EOIAs).

Ease of incorporation

Singapore’s efficient business environment is demonstrated by the ease with which foreign investors can incorporate a business in the country. Registering a company can take as little as one day provided all the files are in order.

The private company limited by shares, commonly known as a private limited company, is the most preferred type of entity among foreign investors in Singapore. This entity is the most flexible, advanced, and scalable type of business form. The minimum paid-up capital is at least S$1 (US$0.71).

The relationship between the UAE and Singapore are indicative of growing trade and investment ties between the Middle East and South-East Asia, which have been growing anyway in recent years, but have been accelerated by Belt and Road infrastructure investment projects now coming to fruition and the recent geostrategic supply chain and opportunity changes wrought by the West’s sanctions on Russia. These have encouraged Eurasian based investors to consider the entire region as a priority ahead of investments into the West, a situation that is likely to result in increasing ties between the near and far eastern regions.

Dezan Shira & Associates maintain offices in Singapore and throughout the Asian region, including China, the other ASEAN countries in addition to Japan and South Korea. We have partner firms in Australia and New Zealand. Interested UAE investors may contact our Dubai office for regional assistance concerning Singapore, ASEAN and RCEP at dubai@dezshira.com or visit us at www.dezshira.com.

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