For much of the past decade, the battle for foreign direct investment supremacy has been a tussle between the US and China. But in 2015, India outpaced them posting the world’s largest volume of announced greenfield FDI – tangible investments resulting in new or expanded facilities and jobs – at US$60 billion as strong economic growth fuelled investor enthusiasm.
However, that momentum has proved difficult to maintain. Announced greenfield FDI in 2018 was roughly half that of China as both economic growth and government reforms failed to keep pace with expectations.
There has been a significantly diminished preference among foreign investors for setting up operations in India, largely on account of the practical and ground level challenges presented by bureaucratic processes. India is yet to achieve its target of a top-50 position in the World Bank’s ‘ease of doing business’ rankings, although it jumped 14 places in the latest list to 63rd, behind rival China in 31st.
It is for this reason that so many international investors choose to route their investments through Singapore. The Lion City is the top source of foreign direct investment into India. With extremely simple criteria for starting a business, excellent access to foreign investment, low corporate tax rates and no capital gains tax, Singapore can assist with investment in a number of ways:
By creating a holding company in Singapore as part of an Indian company’s structure, that operation can have better risk management as well as tax benefits to aid growth in India and abroad;
Singapore’s double taxation agreement with India makes it an attractive option for established Indian companies to expand internationally;
Singapore’s reputation as one of the least corrupt, most business friendly countries in the world gives reassurance to investors;
Creating a Singapore company as the distributor for goods and services from an Indian company reduces bureaucracy and costs when importing and exporting out of India;
Transferring intellectual property from an Indian company to a Singapore company enables the Singaporean company to own and license back the IP under with much more favourable tax rates;
If the IP grows in value, the Indian company will not face capital gains tax on its profit from a sale.