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Starting a business: Singapore versus Vietnam

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With a young, educated workforce, a fast-growing middle class and a rise in mobile penetration, Vietnam is rapidly growing in profile as a desirable base in South East Asia. 

With consistent policy focus on promoting growth and economic stability, its economy grew by 7% year-on-year basis between January and September 2018. It has now emerged as the 46th largest economy in the world in terms of GDP and 35th in terms of purchasing power parity.

 

Does this mean Vietnam is a better place than Singapore to do business? While the communist country is growing fast, the city-state has been the world’s premier financial and high-tech hub for decades now. It is often cited as the shining example of flourishing, well-diversified economy as well as an efficient logistics hub. With a corruption-free and extraordinarily business-friendly environment, Singapore continues to attract investors.

 

There are pros and cons to setting up your business in either country. This guide sets out how to start a business when you have both Singapore and Vietnam as options.

Global rankings

See how Vietnam fares in comparison to Singapore (figures from the World Bank’s Ease of Doing Business Report 2018).

 

Singapore

Vietnam

Overall ease of doing business

2

69

Starting a business

3

104

Taxation

8

131

Cross-border trading

45

100

Enforcing contracts

1

62

Company registration

 

Minimum requirements

Singapore

Vietnam

Directors

1 director
(min. 1 local director)

1 director
(min. 1 local director)

Shareholders

At least 1 shareholder

At least 1 shareholder (any nationality)

Any other requirements?

Requirement for local address

Requirement for company secretary

S$1 paid-up capital

Single fee

Requirement for local address

Need a foreign investment certificate Requires proof of sufficient capital

Fees at multiple levels

Local nominee to reduce capital requirements

Ease of incorporation

Starting a business in Vietnam is considerably more difficult than starting one in Singapore. Although both allow for 100% foreign ownership, the process in Vietnam requires more time (45 days) and more bureaucratic approval – getting approval from the Department of Planning and Investment for an Investment Registration Certificate (IRC) and then an Enterprise Registration Certificate (ERC) to create your company.

 

In comparison, the incorporation of a company in Singapore is reasonably swift, with a company typically being incorporated in 5 – 7 business days by using a filing agent to submit your application with ACRA (the Accounting and Corporate Regulatory Authority). Unlike Singapore, Vietnam has restricted foreign investment in certain sectors while conditional approvals, mandatory licenses, and the requirement for sublicenses are common.

Shares and foreign ownership

Singapore allows unrestricted voting shares and 100% foreign ownership across all sectors. But in Vietnam, foreign ownership is limited in many areas and conditional business is a norm. It is 49% in listed companies. In banking, aviation, and telecom, the foreign investment cap is 30%. 

 

The government is considering a move to let foreigners have full ownership listed companies after 2019 only if managers and shareholders agree. Some sectors of national and strategic importance is out of purview of foreign investment.

Directors

To register a company in Singapore, you need at least one shareholder and a director. If you are a foreigner, you must appoint a resident director, either a citizen of the city-state or a foreigner staying there with a dependent or working visa. It is not mandatory to appoint directors as shareholders.

 

In Vietnam, you need at least a director and a shareholder like Singapore and there is the requirement for a resident director too. The difference is that the directors are shareholders.

Taxation

  • Singapore ranks seventh for having a liberal corporate taxation. Vietnam is 86th.
  • Singapore imposes 17% corporate tax. In Vietnam, it is 20% for all except oil, gas, and natural resource sectors, which is subject to 32% to 50% tax.
  • Singapore levies a 7% GST compared to 10% VAT in Vietnam, which also has a provision for 5% to 150% special sales tax on luxury goods.
  • Singapore’s income tax has multiple slabs starting from 2% to 22% for residents and 15% to 22% for non-residents. Vietnam taxes income between 5% and 35%. Foreign-sourced income is tax exempt in Singapore, but not in Vietnam.

Transparency and corruption

The Global Competitiveness Report has repeatedly lauded Singapore for its transparency, openness, and business facilitation free from corruption. The city-state has taken ample steps to curb corruption both in public and private sectors. The Transparency International’s Corruption Perceptions Index ranks Singapore sixth. In comparison, Vietnam is at 107th position.

 

The case-by-case business approval, the need for licenses and sublicenses, restricted entry, weak legal system, and bureaucratic red tape in Vietnam give rise to high-level corruption, a key obstacle in doing business there.  Entrepreneurs and investors often have to make facilitation payments for getting things done.

Grants and tax exemptions

Vietnam has set up a VND 11.75 billion (about S$695,000) SpeedUP fund to financially support startups. The US$47-million National Technology Innovation Fund and the National Agency for Technology, Entrepreneurship, and Commercialization Development give soft loans to new businesses.  The government also extends tax holidays, preferential tax rates, and tax credits. However, this lacks the scale, management, regulation, and funding Singapore has on offer.

 

Singapore provides grants covering up to 70% of startup costs in 10 selected areas. No tax is levied on S$100,000 income for the first year. A 50% exemption is granted on second, third, and fourth years on S$200,000 income. The ACE fund provides a S$7 matching grant (maximum S$50,000) to startups spending every S$3. A separate $$10 million fund caters to seeding of tech startups. SMEs get tax rebates for their investment in technology and skill development. Apart from 5% exemption on acquisitions, tax rebates on loan repayments are also allowed.

Immigration

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

 

The most common visa/permit for foreigners in Vietnam is called the “Work Permit”. Foreigners need to have a work contract and an employer who is willing to arrange all details for them (eg. Apply to the local Department of Labor, War Invalid & Social Affairs in their city). Specialists, managers, executive directors, interns and short-period contract experts can apply for this Work Permit. It is highly advisable for these documents to be submitted a couple of months beforehand if possible.

 

In Singapore, the most common visa for foreigners is Employment Pass “EP”. This visa can be issued to foreign professionals, managers and executives who are required to have a monthly salary of more than SG $3,600. If you are looking to start a new business in Singapore, you can also apply for an EntrePass.

Workforce

According to the 218 Global Competitive Index, Singapore leads the world in higher education and training. Vietnam is at 84th. Singapore is second in labor market efficiency is concerned while Vietnam occupies the 57th position.  The city-state has high scores in 9 out of 10 factors affecting manpower while the communist-ruled nation does well only in 2 fields – pay and productivity and women participation in the workforce.

 

According to a Forbes report, about 78% of Vietnam workforce lack qualification for working in high-tech manufacturing requiring advanced studies. Just 9% have credentials to be considered skilled for value-added exports. However, this lack of talented workforce is not an issue in Singapore, which boasts an exceedingly skilled workforce that can contribute to any business, including the “future-proof” jobs. The city-state is known for its highly-skilled, exceedingly efficient, and productive labor force.

Business language

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

When starting a business in another country, you may face a language barrier. Most Singaporeans generally can speak more than one language, English being the main business language. In Vietnam, the business language is technically Vietnamese – however English is widely spoken and commonly used.

 

Vietnam 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

In May 2018, Vietnam announced a $920 million plan to improve its infrastructure. Only 20% of its roads are paved while the rail and logistics need an overhaul. The Global Competitiveness Report places the country 79th for the quality of infrastructure,  82nd for ports, 59th for railways, 103rd for air transport, 90th for electricity, and 92nd for road transportation.

 

On the other hand, Singapore is the second best in the infrastructure category, ports, and the quality of roads, first in air transport, and third in electricity quality. Its ICT infrastructure and info-communication are counted as the best in the world.

Foreign investor friendliness

  • Singapore has in place a transparent, online, and open system that helps investors overcome any procedural issue. Vietnam’s policy of case-by-case review often causes harassment.
  • Singapore's economy is fully open to foreign investors while many areas are restricted in Vietnam.
  • Singapore has strong and proper legislation in place to protect investors while Vietnam is yet to have it in place. (the Strength of Investor Protection Index, Singapore 2nd, Vietnam 79th)
  • Regulatory, audit, and financing system in Vietnam is way below that of Singapore, which has a reputation for the emphasis on compliance.
  • Singapore tops the Global Enabling Trade Index while Vietnam is at 73rd place.

Summary

Singapore truly earned its reputation as the gateway to Southeast Asia. Those looking for a regional hub to carry out business will find Singapore fit for most purposes, although those willing to set up in Vietnam, while facing bureaucratic difficulties and tax disadvantages, may find the proximity to such a mobile-savvy up-and-coming market enticing.  

Want to learn more about how to set up your company in Singapore? Our incorporation experts can typically get you up and running in 5 – 7 business days if you have all your documents ready. Sign up for a complimentary 30-minute company consultation to find out more.

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