Written by Nick Davies.
Have there been any recent changes to the Foreign Investment rules in Singapore?
No. Singapore's long-standing economic development policy is based on a strategy to attract FDI and Singapore consistently ranks as one of the largest global destinations for FDI. Much of these FDI inflows to Singapore are accompanied by FDI outflows to other Southeast Asian, South Asian and North Asian markets. Singapore could therefore be described as a regional hub for foreign investors seeking an entry point to deploy their capital across the region, a point which is demonstrated by Singapore's strong network of bilateral investment treaties.
In relation to investments into projects and businesses serving the city-state itself, the main obstacle to FDI tends to be that Singapore's laws or regulatory consents in certain key sectors and activities (e.g. financial services, professional services, media, telecommunications, real estate transactions) creates structural barriers to entry or restrictions for foreign investors. That said, these measures are also designed to encourage co-operation and commercial partnerships with local companies.
It should also be noted that the Singapore Government offers a number of incentives in the form of tax breaks and grants to encourage international companies to base their regional headquarters or other key production facilities in Singapore.
The Singapore government has not introduced any additional FDI restrictions in response to COVID-19. Economic relief measures that have been introduced to stimulate the domestic economy apply equally to all Singapore companies regardless of whether they have domestic or foreign shareholders.
If yes, please provide a brief summary of the changes
Not applicable – there have been no recent changes to foreign investment rules in Singapore per se. This note focuses on current FDI trends and possible changes to FDI rules.
What was the rationale for the changes?
Towards the end of 2019, Singapore's vulnerability to the economic fallout of a global U.S.-China trade war resulted in pronouncements from the Singapore Government that it would evaluate and refocus its long-term trading partners. COVID-19 has also accelerated some of these concerns. It is likely that Singapore will be looking to reinforce trading relationships in Asia and APAC and this may be accompanied by greater collaboration on FDI. The priority "travel bridges/bubbles" being discussed at a Governmental level to facilitate international travel during COVID-19 are expected to be with China, and potentially also with South Korea, Australia and New Zealand – which is an indicator of an increasingly east-ward focus for Singapore's bilateral relations.
Are these changes temporary and if yes, when are they likely to be reviewed again? If not, are they part of a bigger reform (ie have there been any other recent developments, and are you expecting any further changes)?
Are there any particular sectors that are affected the most?
What is the outlook for foreign investment in Singapore?
As Singapore actively looks to expand its connections with the rest of Asia and APAC and with some foreign investors questioning Hong Kong's traditional role as a focal point for investments into China, Singapore's strategic importance for investors as a staging post for Asian FDI looks set to increase.
In respect of FDI destined for Singapore, historically, a large portion of FDI into Singapore has been in the semiconductor as well as the energy and chemicals sector. As Singapore looks to future drivers of economic growth, a Governmental body – Enterprise Singapore has been formed by merging other ministries overseeing international investment and has been tasked with attracting foreign investors to participate in an innovation-led economy. Singapore's Economic Development Board also supports and sometimes is a co-investor in companies that plan to expand Singapore's presence overseas.
What it is your advice to foreign investors in Singapore?
Singapore continues to be the jurisdiction of choice and the hub through which many investments in countries in Asia are made – whether involving investors from outside of the region or from within the region itself.
Singapore's strong legal system and a well-regarded international arbitration centre (SIAC) for hearing and resolving disputes are helpful tools for international investors looking for an element of neutrality when doing deals in the surrounding region, so where possible, foreign investors should look to draw up their deals under Singapore law and with disputes subject to SIAC Arbitration.
We would also strongly advise foreign investors to consider adding Singapore holding companies and regional headquarters into their investment structures for Asian investments to help strengthen legal protections. Even if the link with Singapore is less obvious at first, access to debt and equity capital in Singapore can be greatly facilitated by deploying a Singapore holding structure.
Any potential investments destined for the Singapore market or to set up regional headquarters or other key production facilities in Singapore should be planned carefully. If these are significant investments in sectors that are strategically important for the future of Singapore's growth, such as the technology sector, then investors should consider approaching the relevant Governmental bodies charged with promoting inward investment to discuss investment incentives.
Does the Singapore Government coordinate with other government agencies, including the antitrust regulator?
Apart from being generally favourable to FDI, there is no specific inter-agency co-ordination in this area. The Competition and Consumer Commission of Singapore has become more actively engaged in recent years in assessing the competition law impact of certain transactions.
This publication is intended to provide a high level overview of FDI trends and regulation in Singapore. It is provided for general informational purposes only and should not be construed as legal advice. King & Wood Mallesons has a foreign law practice in Singapore and is not qualified to advise on Singapore law, and works closely with local lawyers to support our clients' needs in Singapore and South and Southeast Asia.