This exclusive guest article examines the kind of businesses being formed in Singapore - vital intelligence for wealth managers prospecting for future clients.

In another guest article (see the previous example here), Hawksford Singapore talks about wealth creation process going on in the Asian jurisdiction. For it stands to reason that if private banks and other firms catering to high net worth individuals want to build business, they need to know where the next generation of HNW persons is coming from and how they make their money. The editors of this publication are grateful to share these insights and as ever invite readers to respond with their own views. The author is Jacqueline Low, chief operating officer at Hawksford Singapore.

Business formations enjoyed a strong quarter in the third quarter of 2014. A total of 21,918 new businesses were formed, a 17 per cent increase over the previous quarter and 42 per cent higher than Q3 2013. The surge in registration is an indicator of the business confidence in Singapore despite the inflationary pressures caused by economic restructuring. The sustained global economic recovery has also contributed to the exceptional spike.

The Sole Proprietorship registration, with a total of 10,102 registrations, took over the Private Limited Companies category. The share of Private Limited Companies has conventionally remained over 50 per cent but in this quarter its share fell to 46 per cent. On the contrary the Sole proprietorship, whose share has always hovered around 35 per cent in the preceding quarters, started on an upward trajectory since last quarter.

This surge in sole proprietorship category may have been triggered by the recent proposal in the parliament to extend more government help and support to sole proprietors and freelancers. In addition, the cash payout option available for qualifying sole proprietors for eligible expenses under the Productivity and Innovation Credit (PIC) scheme, may have also served as an impetus for entrepreneurs to register their business activity in order to render a legitimate legal identity.

There were 38 foreign companies registered in Singapore, taking a share of 0.2 per cent. In terms of absolute numbers, this was a decline from 44 in the previous quarter. However the continued registration of foreign companies testified the continued traction that Singapore holds as an international hub for foreign companies.

On a Year-on-Year basis the Sole Proprietorship registered the sharpest growth. The LLP entities registered a comparably significant growth. This indicates a growth in number of more professional practices such as doctors, lawyers, engineers, architects etc.

In line with convention, the majority of the formations have been entities with a share capital of less than S$10,000. Entrepreneurs capitalise on Singapore’s regulatory framework that allows companies to be incorporated for as little as S$1 per share capital.

In Q3 of 2014 the share of companies with 100% local shareholders has increased marginally to 71 per cent from 69 per cent in the previous quarter, demonstrating the growing entrepreneurial spirit among locals. The share of this category has been incrementally growing in every quarter, reflecting the pro business environment that nurtures enterprises. The availability of credit, simple company formation procedures, minimal compliance requirements and tax incentives for local entities are some of the factors that contribute to this trend. Moreover, established large corporations strategically structure the organisation of their company to efficiently manage the tax expenses resulting in the formation of new locally held companies.

Foreign shareholding

The 100 per cent foreign shareholding companies (19 per cent) appear to have dropped by two-percentage points on a QoQ basis and four percentage points on a year-on-year basis. The concerns over the US tapering of QE and the stalled growth in China and lopsided recovery of the advanced economies are impeding the expansion of foreign companies resulting in the fall of their share. Singapore allows for 100 per cent foreign shareholding and has established extensive Avoidance of Double Taxation Treaties with countries around the world. It also allows free repatriation of profits and there is no tax on capital gains. Therefore foreign entrepreneurs and enterprises find it easy and beneficial to set up subsidiaries and companies in the city-state to tap on the Asian market opportunities.

The conventional trend upheld in Q3, with maximum number of business formations in the wholesale trade industry. This is no surprise in Singapore, which has a reputation as a regional trading hub. However there was a marginal fall against last quarter; the exports have generally taken a hit following the low global demand for goods and services.

On the contrary, the shares of computer and IT consulting services, retail, and business support services went up by one percentage point against the previous quarter. The government’s push towards improving productivity by harnessing technology and IT, strong local consumption aided by employment and wage growth, and enterprises relying on increased outsourcing to enhance productivity have contributed to the spike in shares.

Singapore continues to attract entrepreneurs and enterprises from around the world. The enterprise ecosystem supported by pro-business policies and extensive FTA agreements and Double Tax Avoidance agreements and stable government provides strong fundamentals for businesses.

Foreign individual shareholders accounted for nearly one quarter of the company formation by individuals. Singaporeans accounted for a majority (77 per cent) of the companies formed by individuals in Singapore. entrepreneurs from China, India and Malaysia constitute a majority. Chinese entrepreneurs accounted for the second largest share.  Singapore continues to be a top draw among foreign entrepreneurs from countries such as Japan, Australia, Indonesia, the UK and France.

Registrations by foreign companies accounted for nearly half of the subsidiary formations. Companies from countries like Australia, the US, the UK, and Japan have set up subsidiary companies in Singapore. Corporate entities from British Virgin Islands and Hong Kong with 8 per cent and 4 per cent respectively continue to account for the highest share of companies formed. Indian and Chinese companies are also finding a smooth landing into the region through their subsidiaries in Singapore.