Launching a startup in Singapore vs Malaysia

While deciding where to launch your startup, it is important to evaluate a variety of factors to arrive at the right decision. In this article, we will review the key differences between Singapore and Malaysia from the perspective of launching a startup.
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Launching a startup in Singapore or in Malaysia

Country Snapshot

Singapore

Malaysia

Population: 5.7 million

Territory: 724.2 sq km

GDP: 340 billion

Unemployment rate: 2.1%

FDI inflow: US$74.75 billion

GDP per capita: US$59.797

Population: 32.4 million

Territory: 330.3k sq km

GDP: 336.7 billion

Unemployment rate: 3.7%

FDI inflow: US$4.06 billion

GDP per capita: US$10.401

Malaysia-Singapore Relations

Thanks to their deep historical and cultural links, as well as close geographic proximity, Malaysia and Singapore have a very special relationship. These countries have always shared strong economic, political, and people-to-people ties. Since Singapore became independent in 1965, the relationship between the two countries could be described as both close and interdependent, which has also caused some tensions and complications.
“Singapore’s relationship with Malaysia is one of its most important and complex foreign relations.”

Singapore First Deputy Prime Minister Lee Hsien Loong

Currently, the countries have robust economic and financial links and good political relations that promote bilateral trade, flow of investment, increasing exchange of visits, and strengthened cooperation in various areas. Singapore and Malaysia understand the importance of these close bilateral relations and are constantly looking for ways to improve them.

Legal Regulations

With a common history of British colonization, the two countries share similar legal systems based on English Common Law. Given this, there are many similarities in regulations, which promote smooth cross-border business interactions. However, Singapore has moved well ahead of Malaysia in modernizing its corporate regulations and business laws. For example, in Singapore, the process of incorporating a business can be completed within a day, while in Malaysia this may take up to several days. Singapore’s intellectual property protection system is one of the best in the world and has become a chief attraction for many tech and innovation startups.

The Singapore government’s main objective is to design laws that help businesses prosper. Legislators monitor business trends very carefully and continue to upgrade laws and administrative processes to meet the arising needs of business and create an environment where operating a business is efficient and easy. For example, Singapore made dealing with construction permits easier by enhancing its approach to inspections, improving public access to land-related information, and streamlining the process to obtain a construction permit.

The process of starting a business in Singapore is also straightforward and fast. It may be completed in one day.

Taxation

Singapore is known around the world for its efficient and competitive single-tier tax system, which allows businesses to benefit from low tax rates. However, in Malaysia foreign companies are usually treated less favorably, having to pay higher taxes. In addition, compared to Singapore, Malaysia has a double tier tax system where the taxes should be paid both to the main tax government body and regional tax authorities. Singapore has the only one government body responsible for tax computation — the Inland Revenue Authority of Singapore.

Key Advantages of Singapore Tax system

Singapore’s headline corporate tax rate is 17%

Singapore has an extensive network of tax treaties, which help Singapore companies that conduct international business avoid double taxation.

Singapore has no tax on capital gains.

Singapore avoids taxation on the distribution of dividends.

In Singapore, the value-added tax is fixed at 7%. Moreover, some goods are exempted from tax.

Singapore offers more than 80 specific, easy-to-apply-for government incentive programs, for startups as well as well-established companies.
Thus, many Malaysians consider Singapore as the best place for their businesses. You are welcome to find out ​​even more reasons why Malaysians prefer to Singapore.

Tax Residency

Singapore corporate tax residency is not defined by the place of registration but rather depends on where the company is controlled and managed. Individuals are considered Singapore tax residents if they are Singapore citizens, Singapore permanent residents, or foreigners who were present in Singapore for 183 days or more during the tax year. Malaysia follows the same approach for defining the tax residency status of a company and individuals. However, Malaysia imposes taxes on foreign income, whereas Singapore follows a single-tier approach and does not impose tax on overseas income.

Tax Rates

Type of taxes

Singapore

Malaysia

Corporate income tax
17%
17-33%
Personal income tax
0-22%
0-30%
GST
7%
6%
Capital gains tax
0%
0-30
Dividend tax
0%
0%
Interest tax
15%
15%
Royalty tax
10%
10%

Government Incentives

Singapore and Malaysia have both implemented various programs to support business development. Malaysia's main areas of focus are the manufacturing, agriculture, hotel, and tourism industries. In comparison, finance, high tech, and commerce are the most incentivized industries in Singapore.

The most popular incentives programs in Malaysia are the Pioneer status and investment tax allowance program, which exempts 70% of statutory income for five years; incentives for relocating to Malaysia with a 0% tax rate for 10 years for manufacturing businesses; an international trading incentive that provides exemption on an income equivalent to 20% of increased export value for a period of five years, etc.

Singapore provides various benefits for foreign and Singapore-incorporated companies, from a grant of up to S$6 million to a tax deduction of up to S$10 million. Also, Singapore offers non-financial incentives meant to encourage development of the business through training and development programs. Below are the examples:

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Tax Exemption Scheme for New Start-Up Companies

Eligible applicants are able to exempt 75% on the first S$100,000 of chargeable income and take a tax exemption of 50% on the next S$100,000 of chargeable income, for the first three years.

Startup SG Tech

Eligible companies will receive funding of up to S$500,000 for projects that are designed to test the technical and scientific viability of new technology or designed to test the commercial viability of a lab-proven technology.
Launching a startup in Singapore vs Malaysia

Enterprise Financing Scheme

This program helps companies secure loans for various business needs. Eligible borrowers may receive up to S$50 million, depending on the type of the loan.

Startup SG Equity Program

Startups that are improving existing technologies will be provided 70% of the funding for an initial investment of S$250,000. Thereafter, the Singapore government will invest S$1 for every S$1 invested by private investors, up to a cap of S$2 million. For startups classified as deep tech, the Singapore government will provide 70% of the funding for the initial S$500K investment.
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Infrastructure and Resources

Both countries have an advantageous location favorable for any startup that wants to be at the doorstep of Southeast Asia. Singapore has good connectivity with main emerging economies and great infrastructure, which is crucial for trading business.

Due to rising demand and rapid growth, Singapore continues to improve its transport infrastructure. Singapore plans to invest over US$2.7 billion in sustainable infrastructure projects in further years, showing its growing concern for sustainability. Malaysia has also increased its infrastructure network over the past years by financing various infrastructure programs. However, compared to Singapore's carbon footprint–reducing approach, which promotes railway expansion and imposes restrictions on car usage, Malaysia’s main focus is to increase its road network.

Compared with Singapore, Malaysia is a big country with a lot of natural resources that are used effectively to boost the country’s economy. Singapore cannot compete with Malaysia in this respect, as the country is totally reliant on imports. However, the lack of natural resources and rural territory hasn’t stopped Singapore from developing some of the world’s most advanced urban solutions and becoming a model contemporary city.

Workforce

Malaysia has a population seven times that of Singapore and offers a larger pool of human talent. Due to their similar histories, the workforce in both countries is bilingual, with a good knowledge of English. However, in Singapore, English is the main language, whereas most Malaysians have just a basic knowledge of English and use Malay as their main language of communication. Some investors may benefit from Malaysia's larger talent pool; however, this depends on the business sector. Singapore’s workforce is more adaptive and has more experience in the financial and technology sectors. In Malaysia, the main employment sectors are services, construction, and manufacturing.

Both countries showed an improvement in unemployment statistics during Q2 2022. Singapore's unemployment rate was 2.1%, while Malaysia's was 3.7%.

Singapore's position

Ease of Doing Business

#2

Index of Economic Freedom

#1

Foreign Investment Friendliness

#1

Safe Cities Index

#3

Corruption Perceptions Index

#4

Comparison of global ranking positions between two countries

Malaysia position

Ease of Doing Business

#12

Index of Economic Freedom

#42

Foreign Investment Friendliness

#49

Safe Cities Index

#32

Corruption Perceptions Index

#42

Thousands of global businesses have decided to incorporate and operate in Singapore
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Launching a startup in Singapore vs Malaysia

Next Steps

Singapore and Malaysia are culturally and economically close countries that share a common history and heritage. Both have a strategic location in Southeast Asia and are drawn by business and foreign investments in their development.

Despite being a smaller country, Singapore outperforms Malaysia in various international rankings that measure the country's attractiveness and competitiveness worldwide. A government support programs, lack of corruption, and advanced infrastructure attract world-class international companies to its shores and position it as a leading global innovation ecosystem.

If you are considering entering the Singapore market or if you have an existing business in Malaysia and would like to discuss how you might benefit by transferring to Singapore, contact our team and we will be glad to provide the support pertinent to your needs.

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