Singapore is the 5th wealthiest country in the world in terms of GDP (PPP) per capita. Total GDP (PPP) as of 2007 accounts for $228.303 billion or $49,754 per capita. The state has foreign exchange reserves of more than US$177 billion. Singapore has always been an important strategic and economic center facilitating the world trade and providing its port for US military forces. Within just several years the city-state also became a financial center of Asia that competes with Hong Kong. The impetus that caused Singapore to arise as a banking haven took place in 2004.
In the course of its development Singapore had its economy heavily dependent on exports, particularly in electronics and manufacturing. At the beginning of the 21st century the country was hard hit by the slump in the technology sector as well as by the outbreak of Severe Acute Respiratory Syndrome in 2003 as it prevented tourism and consumer spending. An incredible recovery took place starting 2004 when the government of Singapore announced significant changes to its laws of taxation. Real GDP rose by 8% which was the economy’s best performance since 2000. In 2005, GDP growth was 6.4%. Now Singapore was trying to grow financial services so as to loosen its dependence on manufacturing.
In 2004 the amount of assets held offshore in Singapore jumped by 40% and in 2005 the amount rose by 25%.
Singapore is in fact a financial haven and heaven both for outside investors and living residents. The tax regime for the resident individuals is rather mild. Capital gains taxes are only levied in very limited circumstances, there are no gift taxes and estate duty stands at 5% for estates up to US$5.7 million and 10% above that level. Personal income tax rates in Singapore are also relatively light- resident individuals are taxed at progressive rates up to 22% on income accruing in or derived from Singapore.
Beginning from January 1, 2004 resident individuals were not charged a tax on the foreign income received or deemed received in Singapore except if received through a partnership in Singapore. Besides, any gains one generates from investments made in Singapore itself remain tax exempt.
Regulatory changes implemented in the city-state facilitated the real estate and funds market. In Singapore, REIT dividends are tax-free provided more than 90% of the firm’s income is distributed to investors. The new regulation also allowed international fund managers to make their funds available via private banks while being no longer required to maintain a physical presence in the territory.
In 2005 Singapore greatly benefited from the introduction of the European Savings Tax Directive across the EU, its dependencies and various other locations. The strict regulation of the directive caused a huge flow of funds and business from the European Union into the city-state. Singapore had a strong reputation in the international business and finance sector and at the same time low taxation level and severe legislation on the privacy protection.
Later the US, UK and the likes of Germany became increasingly concerned by the tax evasion that might take place due to the bank secrecy policies accepted in such countries as Switzerland and Lichtenstein. Their pressure on these offshore centers led to that the privacy laws were softened there. Thus a great number of people were seeking a safe haven for their assets. Singapore was an ideal place for these purposes.
Though being a member of the British Commonwealth of Nations Singapore is one of the few remaining grade A offshore centers that has not signed up to the EU’s Savings Tax Directive.
Many of the major international offshore and financial players such as Credit Suisse, Citigroup, UBS and Societe Generale are increasing staffing numbers in Singapore to manage the influx of private funds, and the Republic is definitely making a name for itself as one of the most secure, private and well regulated offshore banking centers unaffected by the EU Savings Tax Directive in the world.
However, the client base of Singapore offshore services does not only include Europeans. With India and China rapidly expanding economically and more wealth than ever being generated there many rich people in China and India are looking for an offshore financial haven in Asia. Within the offshore financial industry Singapore is referred to as the Switzerland of Asia, and while the Republic trails the European offshore centre by five places in terms of its size as an offshore private banking centre, it is rapidly gaining on Switzerland in terms of the assets it has under management.
In one article there was such a statement: “The story of Singapore is a story of how a place grows rich in the 21st century. One way, Singapore’s way, is to master the arts of international trade. Be friendly to wealth and it will beat a path to your door. For investors, too, there is a surprising opportunity in the Straits of Malacca…”