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Starting a business: Singapore versus Malaysia

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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.

Global rankings

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:

Singapore Malaysia
Starting a business #3 #122
Trading across borders #45 #48
Enforcing contracts #1 #33

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.

Shares

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.

Tax

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%.

Tax exemptions

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) 

  • 100% of the first $100,000 of chargeable income is exempted for the first 3 years.
  • 50% on the next $200,000 of chargeable income is exempted for the first 3 years

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. 

Grants

The Singaporean government has also provided various grants and schemes to support innovative companies. If you are interested in pursuing these, we encourage you to take a look at this (non-exhaustive) list of grants with bodies such as Enterprise Development Grant (EDG) and IDA.

External investment

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.  

Immigration

Anyone intending of working in either Singapore and Malaysia must have a valid visa/pass before they can start working.

 

The most common visa for foreigners in Singapore and Malaysia is called the ‘Employment Pass” (EP). As it is intended for managers and skilled workers, it requires a minimum monthly salary that generally increases as the candidate becomes more experienced:

  • Monthly salary for EP in Malaysia: above RM 5,000/month
  • Monthly salary for EP in Singapore: above SG $3,600/month*

* This is the Ministry’s official guideline but in practice is usually $5000/month +

Business owners from overseas can also choose to apply for an EntrePass in Singapore, or Professional Visit Pass, Short-term Social Visit Pass or Temporary Employment Pass in Malaysia.

Workforce and talent

Take a look at how the countries compare when it comes to English proficiency according to the EF English Proficiency Index:

Singapore Malaysia
English language proficiency ranking #5 #13

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.

Business language

  • Singapore’s official languages: English, Mandarin, Malay and Tamil
  • Malaysia’s official language: Malay and English (second language)

When starting a business in another country, you may face a language barrier. Singapore and Malaysia both have a high literacy rates and are educated. Most Singaporeans generally can speak more than one language, English being the main business language. In Malaysia, the business language is technically Bahasa Malaysia – however English is widely spoken and commonly used.

 

Malaysia being bigger in size, may have more opportunities but business owners might find it easier to converse with Singaporeans, with English being the main spoken language.

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).

Next steps

 

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.

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