AEC 2015 and the Singapore Connection

20 January 2015

Marcus Chow

By the end of 2015, the 10 member nations of ASEAN will be united in a common market where the long-formulated idea of a single regional market, otherwise known as the ASEAN Economic Community (AEC) 2015, is set to be realised. The ASEAN single market and production base creates a free flow of goods, services, investment, capital, and skilled labour among ASEAN member nations. The AEC 2015 blueprint envisions a single market and production base, a highly competitive region and equitable economic development.

ASEAN as a strong regional economy

ASEAN was founded on August 8, 1967, in a move that sought to establish regional peace and stability along with cooperation across many fields, including economic, social and cultural spheres.[1] Today, it has a population of approximately 600 million[2] and a combined nominal Gross Domestic Product (GDP) of US$2.46 trillion[3]. This success has been due in part to ASEAN's collaborative and consensual approach towards problem-solving, which coordinated economic benefits within the region and facilitated extra-regional trade and investment.

In 2013, before the AEC launch, ASEAN had already built significant trading relationships with the rest of the world, including China, Japan, the United States, the Republic of Korea, Hong Kong (SAR of China) and Australia[4].  And now the AEC aims to take this one step further: it proposes to remove economic barriers in order to create a free flow of trade and investment and a freer flow of capital within ASEAN. This would lead to ASEAN acting as a single market in trading and investment, thus promising not only internal cooperative growth but also clarity and certainty in international agreements.

Through the AEC, costs of doing business in the region can be reduced through consolidation and streamlining within the AEC, through measures like improved movement of labour and capital[5] and also a network of bilateral agreements on avoidance of double taxation for intra-regional transactions[6].

Development as a region brings both intra-ASEAN and extra-ASEAN benefits, through infrastructure such as integration of transport services, telecommunications and energy cooperation[7]. The different strengths in ASEAN can also be integrated to create a diverse market for opportunity and growth[8].

The Singapore connection

Long before ASEAN and the AEC, Singapura (as it was then known) was already a major shipping hub in the Sri Vijaya Kingdom along the ancient maritime Silk Road.  Singapore has always played the role of a hub for travellers and traders from the East and West. Singapore has come a long way since. Based on the Global Financial Centres Index for 2014, Singapore is the strongest hub for trade and investment in ASEAN. Its reputation has been helped by the strength of its finance sector with Singapore ranked among the top financial centres of the world.[9]

Use of Singapore Law and SIAC arbitration for dispute resolutions

There is an increasing use of Singapore law in cross-border transactions in ASEAN.  Singapore has also been a significant forum of choice for the resolution of international arbitration disputes[10], through the Singapore International Arbitration Centre (SIAC). In 2014, Singapore was the third most preferred seat of arbitration worldwide, and the SIAC was the fourth most preferred arbitral institution in the world.[11] Singapore offers itself as a convenient and neutral seat of arbitration that can give impartial judicial support in alternative dispute resolution; this is also helped by the fact that Singapore is also a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and has also adopted the UNCITRAL Model Law on International Commercial Arbitration.[12] The launch of the Singapore International Commercial Court as a “neutral third party” venue for commercial disputes in December is also intended to make Singapore a one-stop shop legal city to address the limitations of arbitration[13].

Use of the Singapore corporate entity for regional transactions

In 2013, it was reported that hundreds of multinational corporations used Singapore as their regional headquarters, and there were approximately 4000 companies from mainland China that did the same in order to tap into trade in Southeast Asia.[14] The Singapore corporate entity is a popular one in ASEAN and it is often used as a vehicle of choice for regional transactions and for leapfrogging into regional investments.  Often times, the Singapore corporate entity is used as the holding company for investments, a “bid co” for acquisitions and a special purpose company for the purposes of issue of bonds or notes.  There are various factors influencing and promoting the use of the Singapore corporate entity:

Set-up and Regulations

The set-up process for a Singapore company is efficient and quick. The recent reform to the Singapore Companies Act has also modernised and made the Singapore corporate entity even more flexible. Regulatory burdens such as the need for audits of companies with annual revenue or total assets of less than S$10 million have been removed. The striking off process for companies has been streamlined and provisions against financial assistance by companies of their own shares have been relaxed. 


Singapore's corporate tax is also one of the lowest worldwide at 17%[15]; there is no capital gains tax, and dividends paid to shareholders are exempt from further taxation. In addition, the effective rate can be much lower for small companies[16] that are just starting out, as they would enjoy a corporate income tax rebate of up to 30%[17].

Singapore has in place Avoidance of Double Taxation Agreements with more than 60 countries. For transfer pricing issues, the tax authorities also entertains advance pricing arrangement consultations.[18]

For companies with presence in Singapore, there are also numerous grants that are given by the government to encourage productivity and innovation. Some examples are cash payouts or tax credit for productivity and innovation[19], a grant to improve competitiveness by developing capabilities[20], and further tax incentives for companies in select industries[21]. The Workforce Development Authority (WDA) in Singapore also offers to sponsor up to 90 per cent of course fees for company employees' skill upgrading[22].

Connectivity to the “I” and the “C” in BRIC

Singapore is a party to many bilateral free trade agreements (FTAs), which provide mutual economic benefits through cross-border trade. The FTAs include agreements with China and India. Outside of China, Singapore has one of the largest offshore RMB clearing centres in the world. In 2013 it was the second most attractive destination for investments from China, second only to the US. In October 2014, the Singapore Exchange launched Chinese Renminbi futures, with a first day trading volume of RMB 1.1 billion in notional value. Singapore is also a participant in the Renminbi Qualified Domestic Institutional Investor programme and Renminbi Qualified Foreign Institutional Investor programme. It has also been a favoured destination for out-bound Chinese investments in real estate[23]. As the new maritime Silk Road deepens, larger economic footprints by Chinese investors in the AEC, including Singapore, is expected.

Singapore also has strong economic ties to India another BRIC economy, through the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) which facilitates investment, trade and movement of human capital.[24] Singapore is India's largest trade and investment partner in ASEAN and accounted for 27.82% of our overall trade with ASEAN.[25]

Venture Capital, Start-Ups and Disruptive Technology

Asian Wall Street Journal reports that Singapore aims to be Southeast Asian Silicon Valley[26]. The numbers speak for themselves: venture capital invested in Singapore totalled around US$1.71 billion in 2013, ahead of Japan, South Korea and Hong Kong.  In recent years, the Singapore government has been trying to fund local technological innovation by investing some S$100 million for early-stage startups as part of the S$16 billion it has pledged for scientific research and development. Some of these, like the ACE Startups Grant and the Technology Incubation Scheme, take the form of grants or a dollar-to-dollar matching co-investment on the investor's funds[27] respectively. Others, like the IDM Jump-start and Mentor programme, provide seed funding through government-appointed private sector incubators such as NUS Enterprise[28]. Other programmes, like Accredition@IDA[29] help start-ups with publicity and contracts with companies, and the Technology Enterprise Commercialisation Scheme funds research and development projects for start-ups[30].

There is a dedicated cluster, called LaunchPad, in the one-north district for investors, incubators, start-ups and start-up support services[31] and plans were announced recently for a sister office to be set up in San Franciso to provide incubation for Singapore tech start-ups looking to expand into the United States and for referrals of US technology firms looking to grow in Asia. The government also has an Angel Investors Tax Deduction Scheme to incentivize local individuals to invest in start-up companies and help them to grow.

To encourage funds growth, there are tax incentive schemes for both onshore and offshore funds managed in Singapore.[32]  These encourage the funds to site their funds in Singapore and use it as a launch pad for its investments in Southeast Asia.

The recent regulatory amendments to the Companies Act now permit a Singapore corporate entity to issue multiple classes of shares with different voting structures. This development aligns the Singapore corporate entity with the capital demands of technology companies.  The SGX plans to roll out initiatives to help technology companies tap the public markets. At the same time, the permissibility of dual class listings is being studied by the SGX[33].  


Last year, Singapore was ranked the 7th least-corrupt country worldwide in the 2014 Corruption Perceptions Index, which was released by graft watchdog Transparency International. Singapore's consistent performance in the top ten[34] has also given it the standing of being the least corrupt nation in the ASEAN region. Singapore is also increasingly becoming the preferred destination for regional headquarters of international organizations like the World Intellectual Property Organization.[35]

Going Forward

The AEC will take time to bear fruit. It is said that it took the Europeans half a century to construct the European Community in the remarkable European economic integration process.[36]  In the meantime, Singapore's strengths in its legal environment, infrastructure and business framework and its connections with ASEAN and the rest of the world offer much potential for international investors (be they be from Europe, China or India) seeking to profit from the AEC. After all, if it succeeds, the AEC would be a vibrant single market encompassing a GDP of $2.46 trillion and 600 million people.

This article does not constitute the provision of legal advice and for more information on any aspects of the above article, please contact

[1] for a more detailed outline of the founding of ASEAN.

[2] Sources vary, mostly due to problems in getting an accurate census from areas like Malaysia and Thailand. Deloitte had used the UNCTAD Statistics Database, which is only a projected estimate from 1950-2050. Actual census numbers from 2008-2011 gave 586m and were retrieved from In contrast another source gives 625m (2013) and was retrieved from

[5] The ASEAN Economic Community Blueprint, "Free Flows of Goods", "Free Flows of Services", "Free Flows of Investment", "Freer Flows of Capital", "Free Flows of Skilled Labour".

[6] The ASEAN Economic Community Blueprint, "Taxation" and

[7] The ASEAN Economic Community Blueprint, "Infrastructure Development"

[8] The ASEAN Economic Community Blueprint, "Towards Full Integration into the Global Economy"

[10] For illustrations, see regarding the planned establishment of the Singapore International Commercial Court, and also the increasing trend in dispute resolution cases being heard in Singapore.

[13] South China Morning Post, January 18 , 2015

[16] Small and Medium Enterprises are defined as companies that are registered and operating in Singapore, have minimum of 30% local shareholding, and either have a group annual sales turnover of not more than S$100 million, or group employment of not more than 200 employees. See for more details.



[28] (IDM Jump-start and Mentor i.JAM)


[34] on a global scale, Singapore was ranked 7th in 2014, joint 5th in 2013, 5th in 2012, 5th in 2011, and joint 1st in 2010.



Marcus Chow


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