Starting a business: Singapore versus Malaysia
5 minute read
Singapore is often touted as the best place in Asia to set up your business, but what gives it the edge over Malaysia? Both countries share similar history, culture and are neighbours geographically. This guide will discuss the comparison between Singapore and Malaysia when it comes to setting up a business.
Based on World Bank’s Ease of Doing Business Report 2018, Singapore is ranked #2 in the world whereas Malaysia is ranked #15. This is how Singapore fares compared to Malaysia:
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Incorporation and foreign ownership
Incorporation and company registration for Private Limited company (Pte Ltd) or Sendirian Berhad (Sdn Bhd) in both countries is fairly simple. However, Malaysia has more onerous local resident requirements.
Directors and shareholders
Singapore only requires 1 resident director and 1 shareholder. Malaysia requires Sendirian Berhad (Sdn Bhd) to have at least 2 resident directors and 2 shareholders.
In Singapore, a company can be 100% foreign-owned. In Malaysia 100% foreign ownership is generally allowed at the moment. However, certain industries such as telecommunications, financial services, and transportation require at least 30% local ownership.
Singapore has been known to have one of the lowest corporate taxes in the world, ranging between 0 to 17%. This is further equipped with extensive tax treaties with more than 50 countries which provide companies greater advantage over other countries.
Malaysia’s corporate tax is higher – from 18% through to 24%.
The Singaporean government also has several policies to help new businesses and startups in order to promote them by reducing the overheads in their early stage. Here is a look at the tax exemption scheme for new startup companies (where any of the first 3 YAs falls in YA 2010 to YA 2019)
These exemptions are in flux over the next coming years – see the IRAS website for more details on the revised tax exemption structure.
Similarly, Malaysia’s corporate tax rate starts at 18% for the first MYR 500,000 moves to 24% for companies with a paid-up capital of MYR 2.5 Million or less.
Tax benefits for startups in Malaysia? There is a Multimedia Super Corridor (MSC) status given to qualifying tech companies to enjoy a 5+5 years of tax breaks. However at this moment, the governing agency MDEC is reviewing the eligibility and criteria of MSC.
Looking to get VC money? Many VC firms these days are based in Singapore or will only invest in companies with a Singapore entity. The relative stability of Singapore as well as the government’s moves to create an ecosystem friendly to entrepreneurs is piquing the interests of VC funds. Map of the Money displays the breadth of active investors in Singapore (and can be helpful to entrepreneurs navigating the funding landscape).
In comparison, Malaysian government has just started to focus on the startup scene. The government has given support towards its venture capital arm, MAVCAP, as well as attracting some larger regional players such as Vickers Venture Partners. Although Malaysia has made great strides to improve its VC scene, it still lags behind Singapore due to size of funds available in Singapore.
Workforce and talent
Take a look at how the countries compare when it comes to English proficiency according to the EF English Proficiency Index:
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In addition to a higher proficiency in English, Most Singaporeans are effectively bilingual with either Chinese, Malay, or Tamil. This is very beneficial for companies with an English-speaking headquarters as it can reduce miscommunication. Furthermore, as Singapore has a very diverse population, your business may benefit from the various cultural and commercial ties with other countries such as China, Taiwan, Indonesia as well as strong economies from the West.
Infrastructure and resources
Singapore is a small city-state, leading the government to focus its resources on ensuring high quality of workforce, extensive public transport for ease of accessibility and a high level of reliable internet connectivity.
Malaysia is approximately 460 times bigger than Singapore, and naturally richer in terms of its raw natural resources such as natural gas, rubber, and palm oil. This may be beneficial if your business requires these natural resources, however comes with the trade-off of poorer infrastructure.
Governance and transparency
Corruption is a major concern for many entrepreneurs and investors in Southeast Asia. The Corruption Perceptions Index by Transparency International shows that Singapore had the highest score of all Asian countries at 84/100 (on par with Sweden), with Malaysia scoring 47/100 (on par with Cuba).
While both countries are similar in culture, location and language, Singapore provides several significant benefits to Malaysia when choosing a location for your regional expansion.
Interested in setting up your investment vehicle or regional base in Singapore? Talk to us.