Starting a Trading Company in Singapore
Trade continues to be the key pillar of Singapore economy, which is presently diversified into various sectors ranging from manufacturing to financial services. Trading remains a dominant activity and the very foundation for Singapore’s modern history was laid when it blossomed into an Entrepot for the regional and eventually the global trade. Singapore’s economic stature has magnified over the years while its geographic size and resources are incredibly disproportionate. Ranked by World Trade Organization as the 16th largest trading nation in the world, Singapore’s trade is 2.7 times its GDP.
Some of the factors that promote the attractiveness of Singapore as an international trading hub are:
- Singapore has one of the most open trading policies in the world and most goods and services are allowed to be imported into the country duty free and export is also hassle free. Driven by environmental, health & public safety concerns there are some restrictions in place on imports and exports.
- Customs and trade documentation procedures are streamlined for smooth flow of goods in and out of Singapore. A paperless electronic trade management platform ensures a quick and seamless exchange of information at all levels within the trading community. Its infrastructural excellence and lack of red tape ensures movement of goods efficiently and quickly.
- Singapore is strategically located along the corridor connecting east and west thus enabling easy access to supply sources and markets.
- Singapore has one of the world’s busiest ports and an award-winning international airport. Some 84 international airlines connect Singapore to more than 180 cities in 57 countries worldwide. Its sea port, with an annual average of 140,000 vessel calls, has some 200 shipping lines with links to more than 600 ports in over 120 countries worldwide. Singapore is also home to most of the international logistics service providers.
- The ever expanding network of Free Trade Agreements (FTAs) help eliminate barriers to trade allowing a smoother flow of goods and services and movement of people into and out of the country.
- Socio-political and economic conditions in Singapore has largely remained stable.
- As a financial nerve center of the region it boasts of a comprehensive network of financial institutions that provide a diverse range of services such as trade insurance, trade financing, etc.,
Singapore has a simple and straightforward regulatory framework to govern the trading activities in Singapore. Some of the key facets of starting and conducting a trading business in Singapore are discussed below.
Registering with ACRA
In order to engage in import and export activities in Singapore, the company or business should first be registered with the Accounting and Corporate Regulatory Authority (ACRA). Entities of any type can be registered with ACRA. On successful registration with ACRA, the business or company will be given a Business Registration Number which is also its Unique Entity Number (UEN). UEN is a prerequisite to interact with any government agencies. An entity must mention its UEN in every application made by it for a permit, license, certificate or other document under the Regulation of Imports and Exports Act (Chapter 272A).
Registering with Singapore Customs
All importers, exporters and declaring agents are required to activate their UEN with Singapore Customs. All entities with a valid Unique Entity Number (UEN) can activate their Customs Account. Generally the activation is done within the same working day. The activation is free and the Customs Account is valid for as long as the entity remains registered with ACRA. The registration of an entity with the Director-General of Customs (the Director-General) under regulation 37 of the Regulation of Imports and Exports Regulations (RIER) is subject to certain conditions and non-compliance may result in suspension or removal of the name of the entity from the register.
Apply for License
Goods are classified as controlled and non-controlled goods. Trading of non-controlled goods does not require licenses. For trading controlled goods such as drugs, chemicals, animals, food products, etc., a license must be obtained from the Competent Authority (CA), government agencies that regulate the controlled goods. Trading in certain items is strictly prohibited in Singapore. So before goods are imported or exported, the classification of goods must be rightly identified, in case of doubt, a Classification Certificate may be obtained from the Singapore Customs by submitting an application online with relevant supporting documents. Then the importer may apply for the license to import from the relevant authority.
In general, for import of all goods (controlled or non controlled items), an Import Permit – IN permit is required. It must be secured before the goods are imported into Singapore and it can be obtained online via TradeNet®. An IN Permit is required for each shipment of goods that enters Singapore.
When importing controlled goods, the Import Permit must be routed to the Competent Authorities (CAs), government agencies that regulate controlled goods, for approval.
Additional Requirements for Importing High-Tech Products
When importing high-tech products, the importer may need to apply for an Import Certificate and Delivery Verification (ICDV) from Singapore Customs. The high-tech products may be subjected to restriction in the countries from where they are imported. In such cases generally, the exporter in the exporting country will ask the Singapore importer for an ICDV from Singapore. Items covered by an ICDV must be imported into Singapore directly, and are not to be diverted to other countries.
- For export of goods out of Singapore, you are required to:
- Obtain an OUT Permit through TradeNet® within 3 days of export if your goods are non-controlled or are exported by sea or air; or
- Obtain an OUT Permit through TradeNet® before goods are exported out of Singapore if your goods are controlled or are exported by road and rail, or
Additional Requirements for Exporting Locally Made Goods
When exporting to treaty partners, such as FTA partner countries, a Certificate of Origin (CO) may be required for the buyers in the FTA partner countries to avail the treaty privileges. A CO is a proof of nationality for the goods. The Rules of Origin (ROO) will be applied to determine if the locally manufactured products qualify as Singapore-made.
CO is of two types – Ordinary and Preferential. Goods with 25% local content will be given an Ordinary CO and this is merely to prove that the goods were made in Singapore. If the local content makes up between 30%-50% of the product then a Preferential CO will be issued and this will entitle the buyers to claim preferential tariffs given under Schemes of Preferences and Free Trade Agreements (FTAs).
Exporting, Re-Exporting, Transshipping Strategic Goods
A special permit called JNTDEC3 must be obtained before exporting, re-exporting, transshipping and transporting of goods that are governed by Strategic Goods (Control) Act. The Act covers all goods and technology that are intended or likely to be used for weapons of mass destruction.
Duties, Taxes and Fees Payable
Goods that are subject to customs & excise duties are known as dutiable goods. Duty is payable if such goods are manufactured in Singapore or imported into Singapore. Dutiable goods in Singapore are intoxicating liquors, tobacco products, motor vehicles and petroleum products. Duties are levied on an ad valorem basis or specific rate basis. Duties payable are temporarily suspended when goods are:
- in Free Trade Zones (FTZs)
- in Licensed Warehouses
- under the Industrial Factory Exemption Scheme ( a tax break scheme for manufacturers using dutiable raw materials in the manufacturing of non-dutiable goods)
All Goods that are imported into Singapore are subject to a GST of 7%, if the goods are meant for local consumption. The GST taxable is calculated based on the CIF (Costs, Insurance and Freight) value plus all duties and other chargeable costs, whether or not shown on the invoice. GST payable are temporarily suspended when the goods are:
- in Free Trade Zones (FTZs)
- in Zero-GST Warehouses
- in Licensed Warehouses
- Under the Major Exporter Scheme (MES) (a scheme for deferring Goods and Services Tax (GST) on goods imported mainly for re-export)
In addition to the duties and GST, Singapore Customs charge Procedural and Administrative fees.
Making payments through GIRO is the most efficient and it authorizes Singapore Customs to make direct deductions from your bank account. Application for GIRO deductions can be signed at the time of registration with Singapore Customs.
Clearance of Goods
Immigration and Checkpoint Authority (ICA) officers conduct checks on vehicles, cargoes and persons entering the country, and refer trade and customs matters to Singapore Customs for follow-up. Clearance procedure depends on the type of cargo and the mode of transport. Some documents that need to be produced at the point of clearance are as follows.
For export of non-dutiable and non-controlled goods by air or sea, the trader can clear the cargo through the checkpoint without a Customs Permit.
For air consignment, submission of Outward declaration for approval can be made within three days of the export of the cargo, whereas for sea consignment, it can be made before the departure of the vessel.
For exports of Dutiable and controlled conventional cargo and for all exports via rail or road Customs Permit must be produced at the exit checkpoints, before the exports.
For import, traders should produce the Customs IN Permit with the supporting documents such as, invoice, packing list, bill of lading etc to the ICA officers at the entry checkpoint for the clearance of the goods. Also for imports meant for local consumption GST has to be paid before clearance. For a consignment which requires partial clearance, the trader should produce the same permit each time for customs endorsement until the whole consignment is completely cleared.
There are two types of containers viz. full container load (FCL) and less than full container load (LCL). A LCL container is a container with goods for more than one consignee or with goods from more than one consignor, whereas an FCL is a container with goods for one consignee or with goods from one consignor.
LCL containers are unstuffed in the FTZ and cleared through the FTZ Out-Gates as conventional cargoes. No Customs supervision is required for the unstuffing of such containers in the FTZ.
FCL containers are sealed by the ICA officers at the FTZ Out-Gates or examined/released without being sealed. Sealed containers should only be unstuffed under Singapore Customs’ supervision. Customs seals placed on containers at the time of import should not be broken without the supervision or written permission of Singapore Customs. After the sealed containers have been trucked out of the FTZ, consignees or their transport agents should make arrangements with Singapore Customs for supervision of unstuffing of the containers.
Containers not requiring Customs examination will be given SNR (i.e. Sealing Not Required) facilitation and released by ICA officers without being sealed. Unsealed containers may be unstuffed at any time without Singapore Customs supervision.
Storage of Goods
Free Trade Zones (FTZs): These are specially designated areas in Singapore where the payment of duties and taxes are suspended when goods imported into Singapore are stored here. Duties and taxes are payable when the goods leave the FTZ and enter into customs territory for local consumption. There are 3 FTZ authorities and there are several locations of the FTZs under each control. Non-dutiable goods can be deposited in FTZs provided they are being transshipped or re-exported. Dutiable goods can be stored in FTZs, except for intoxicating liquors and tobacco products, which must be stored in Licensed Warehouses. Repacking, sorting and re-conditioning can be done in the FTZ, but you need to obtain prior permission from Singapore Customs.
Licensed Warehouses: These are for imported dutiable goods. Intoxicating liquors and tobacco products must be stored in Licensed Warehouses. They cannot be stored in Free Trade Zones or Zero-GST Warehouses. Duty and taxes (GST) are suspended in Licensed Warehouses until they are removed from the premises and enter the local market for consumption. Such warehouse facilities may be provided by manufacturers, wholesalers, distributors or private warehouse operators. By paying a license fee to Singapore Customs a trader can convert whole or part of his warehouse into a Licensed Warehouse through the License Warehouse Scheme (LWS).
Zero GST Warehouses: These are for storage of non-dutiable goods and approved non-dutiable commodities such as coffee, pepper, rubber, base metal, crude oil and petroleum products. Goods & Services Tax (GST) is suspended in ZG Warehouses until the goods are removed from the premises and enter the local market for consumption. The movement of goods between ZG Warehouses also does not attract GST. By paying a license fee to Singapore Customs a trader can convert whole or part of his warehouse into ZG Warehouse through the Zero GST Warehouse Scheme (ZGS).
In Singapore almost all traders resort to Letter of Credit (LC) which eliminates the risk of non –payment against delivery for the seller and risk of non-delivery against payment for the buyer. It is a letter of undertaking from the buyer’s bank to pay an exporter, through the exporter’s bank, for goods on behalf of the buyer. A valid LC opens up other financing options such as the following.
Back-to-Back Letter Of Credit is opened on the same terms and conditions as the original L/C and this enables a trader to procure goods from a third party for export to the buyer in the original LC.
Trust Receipts are loan from bank to procure the Goods for which the LC was opened.
Packing Credit is an overdraft or loan for a particular shipment of goods. It can either be pre-shipment financing, where repayment is made when goods are shipped or be post-shipment finance, where repayment is made when the buyer has paid for the goods.
Aside from LC Short term finance from banks are available in the form of:
- Overdraft – a trader can overdraw up to preset amount as agreed with the bank. Interest is charged on overdrawn amount.
- Transaction Loan – loan against confirmed order to buy materials in order to fulfill the order. It largely depend on the credibility of the ordering party.
- Term Loan – loan against collateral. Credibility, business outlook & track record and cash flow play a key role for this.
- Factoring Loans – instant payment against outstanding invoices of the trader. A fee of up to 15% is charged for collecting the payment from the clients.
- Revolving Credit Arrangement – Trader can draw from the funds made available by the bank for a fee and top it up regularly.
Export Credit Insurance: It insures the goods against damage, theft and loss and also protects the exporter against non-payment by the buyer. It also mitigates the risk when dealing with new riskier markets. This also makes it easier to get loans from banks. The policy can be used as collateral and banks may be willing to charge lower rates for loans as the risks are reduced. Such Insurance provides cover from commercial risks such as insolvency of the buyer, and non-commercial risks like non-payment or frustration of the contract due to war or revolution. However, insurance does not cover risks like those inherent in the nature of the goods, for instance with perishable goods, or failure by the exporter to obtain necessary licenses needed for import or foreign transfers.
To give the local traders a leg up in the international market International Enterprise (IE) Singapore launched a Trade Credit Insurance Programme or TCI under which the underwriters provide insurance coverage for traders at attractive premium rates.
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