As the two key players in Southeast Asia, Singapore and Indonesia, though geographically close, present vastly different opportunities and challenges for businesses. In this blog, we will delve into the process of setting up a company in both nations, comparing crucial aspects such as the business environment, taxation policies, company setup procedures, and filing and compliance requirements.
Business environment
Understanding the fundamental differences in the business environment of Singapore and Indonesia is vital when comparing the two. The business environment in Singapore and Indonesia varies significantly. Singapore is the second easiest place to do business in the world. Comparatively, Indonesia, is not one of those easiest countries to operate a business. However, with ongoing reform efforts in place, Indonesia now stands among the world’s top 10 improvers.
As the largest economy in Southeast Asia, Indonesia’s economic growth is driven by the demand for infrastructure for urbanisation. Notably, petroleum and minerals constitute the majority of its exports. The government’s commitment to reforming the investment climate is evident through measures aimed at reducing red tape, opening sectors for investment, and enhancing public services.
On the other hand, Singapore, a highly developed and trade-oriented economy, stands out as a global leader in high-end manufacturing, engineering, biotechnology, and financial services. Its well-established institutions, effective policymaking, free trade philosophy, and a diversified economy collectively contribute to its status as a major attraction for investors.
Taxation policies
One striking difference between the two countries is their legal systems. Indonesia follows one of the civil law systems as its basis for legal matters. Conversely, Singapore adopts the English Common Law system. This difference impacts a lot on taxation policies. Businesses in Indonesia have to make 52 tax payments annually, while businesses in Singapore only need to make five tax payments annually, making paying taxes in Singapore more convenient.
Singapore’s corporate tax rate stands at a competitive 17%, lower than Indonesia’s 22%. Furthermore, Singapore offers attractive tax exemptions and incentives for companies. For qualified new start-up companies, the tax exemptions on normal chargeable income for the first three consecutive years of assessment (YAs) are: 75% exemption on the first $100,000 and a further 50% exemption on the next $100,000 for YA 2020 onwards.
Besides tax examption for new start-up companies, all companies in Singapore, including companies limited by guarantee, are eligible for partial tax exemption (PTE). Under the PTE, companies with an initial S$200,000 of net profit are subject to a corporate tax rate of 9-10%.
In Indonesia, small and medium enterprises (SMEs) with an annual turnover not exceeding IDR 50 billion can qualify for a 50% tax discount based on the flat rate. This discount applies proportionally to their taxable income on the portion of gross turnover up to IDR 4.8 billion. Notably, some businesses with gross turnovers under IDR 4.8 billion are subject to a final income tax rate of just 0.5% of their turnover. Additionally, public listed companies in Indonesia that satisfy a minimum listing requirement of 40% and other conditions, can benefit from a 3% tax reduction from the standard rate.
Company officers and shareholders
In Singapore, private limited company is the most common type of corporate entity. Foreigners can own 100% equity of shares in their company.The requirements for setting up a company include having at least one resident director and one shareholder.
On the other hand, the most common form of company for foreign investers, known as Perseroan Terbatas Penanaman Modal Asing (PT PMA). PT PMA allows for 100% foreign ownership and is suitable for businesses involved in trading, manufacturing, or services sectors. An Indonesian PT requires a minimum of one director, two local Indonesian shareholders and one Commissioner. The commissioner can be a non-resident individual.
The timeline for setting up a company in Singapore is generally considered simpler and more flexible compared to Indonesia. The process involves business registration, obtaining corporate bank account, drafting appointing a resident director, and fulfilling accounting and legal requirements. With the assistance of Healy Consultants, the average total engagement period for setting up a company in Singapore is approximately two months. In contrast, establishing a company in Indonesia can be more complex and time-consuming, taking around four months if engaging Healy Consultants’ services.
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