UK's lower corporate tax unlikely to affect Singapore

Singapore's biggest rivals in business activities are in Asia, such as Hong Kong and Malaysia, and the Republic has always played on its advantages such as its central location in Asia and its robust financial and legal infrastructure, say tax expert
Singapore's biggest rivals in business activities are in Asia, such as Hong Kong and Malaysia, and the Republic has always played on its advantages such as its central location in Asia and its robust financial and legal infrastructure, say tax experts.ST FILE PHOTO

Experts say nations are not direct competitors, tax-cut plan aimed at keeping businesses in UK

Singapore is unlikely to see any major impact even if Britain does slash corporate tax rates below the level here, say experts.

British Chancellor George Osborne is reportedly planning to cut corporation tax to less than 15 per cent from 20 per cent now in an attempt to woo investments to a post-Brexit Britain. Singapore's corporate tax rate stands at 17 per cent, just above great rival Hong Kong's 16.5 per cent.

Mr Osborne did not provide a specific time frame for the rate cut, but said Britain should "get on with it" to reassure investors that the country is still "open for business", according to The Financial Times.

The move is part of a new five- point plan to spur the economy following Britain's shock vote on June 23 to leave the European Union (EU), added the report.

Mr Steve Towers, leader of Deloitte's Asia-Pacific international tax practice, believes that a corporate tax cut in the UK will not have a significant impact on Singapore.

"The UK and Singapore are not direct competitors with regard to business activities," he told The Straits Times, noting that Singapore's biggest rivals are in Asia, such as Hong Kong and Malaysia. "This suggestion - and that's all it is - must be seen in the context of Brexit.

"The UK is exposed to a significant exodus of business activities to other members of the EU, and Osborne's suggestion can be seen as a desperate move to try to stem the tide. Whether it will be successful or not remains to be seen."

In the same vein, PwC Singapore tax leader Chris Woo said that the proposed rate cut is likely targeted more at retaining or attracting companies with headquarters in the EU.

He noted that while lower corporate tax rates in the UK could spell more competition for Singapore, the impact will be limited given that Singapore has always played on its strategic and commercial advantages, such as its central location in Asia and its robust financial and legal infrastructure.

At 17 per cent, Singapore's tax rate continues to be competitive as "one of the lowest in the world", said Mr Chester Wee, partner, international tax service, at Ernst & Young Solutions. A company's effective tax rate may be even lower, after taking into account the various tax rebates and incentives available, he noted.

Lower tax rates in Britain will be a plus for Singapore firms with operations in the UK or Europe or those looking at expanding into the region, he said, adding: "That said, Singapore companies will need to monitor how Brexit may affect their businesses in the UK and Europe."

Tax is but one facet of business strategy, said Mr Woo.

"What is going to be more relevant is what the UK manages to negotiate with the EU after Brexit, such as where the UK will land in terms of access to the EU market and what EU preferential treatments it will retain," he said.

"If the UK does not successfully achieve this, it may lose attractiveness as an investment location."

Mr Towers added: "There are now plenty of negative factors, all due to Brexit. Do you want to invest in a country which will probably not have access to the European single market? I doubt that a reduction in the UK corporate income tax rate... would adequately compensate for the negative Brexit issues."

A version of this article appeared in the print edition of The Straits Times on July 07, 2016, with the headline 'UK's lower corporate tax unlikely to affect S'pore'. Print Edition | Subscribe