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Singapore has undergone a remarkable transformation in the past two decades, emerging as a vibrant center for SMEs within the ASEAN region. Despite its comparatively small size, Singapore stands out in fostering the growth of SMEs and attracting global investors, benefiting from its strong educational system, advanced infrastructure, and favorable environment.
The global interest in establishing SMEs in Singapore is increasingly evident. This guide aims to serve as a concise and user-friendly resource, offering essential insights for those interested in setting up a small or medium-sized company in Singapore.
What is a SME?
SME stands for Small and Medium Enterprises. SPRING (Standards, Productivity, and Innovation Board) part of statutory board from MTI Singapore defines SMEs as:
- Companies with less than $100 million in annual turnover
- Companies with less than 200 employees
Singapore's government supports SME development, empowering local businesses to thrive in a fiercely competitive global landscape. According to the Singapore Department of Statistic's SME Report, as updated in September 2022 :
- There were little over 288,000 SMEs in Singapore.
- SMEs made up 99% of all enterprises in the country.
- The combined SME workforce employed 71% of the total workforce in Singapore.
- Almost 20% of SMEs are foreign-owned entities.
The Role of Singapore SMEs
It's astounding to consider that local SMEs contribute nearly 48% of Singapore's GDP while employing 3 out of every 10 individuals in the country. Their impact extends beyond economic growth, driving innovation, job creation, and providing high-quality goods and services at low prices in Singapore. Let's explore the crucial roles played by Singaporean SMEs in five key areas:
- Sustainable economic development: SMEs actively contribute to the long-term economic growth and stability of Singapore.
- Job opportunities for locals: SMEs offer ample employment prospects, enhancing the standard of living for residents.
- Attractiveness to foreign investment: Singaporean SMEs are highly favored by foreign investors, aiding in the expansion of the country's foreign exchange reserves.
- Catalyst for social improvement: SMEs promote social progress and foster innovation within Singapore.
- Provision of high-quality goods and services at affordable prices: SMEs play a vital role in delivering top-notch products and services to consumers in Singapore at competitive prices.
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3 Common Business Structures for Singapore SMEs
Before you embark on a business venture, selecting the appropriate business structure is a crucial step, as it aligns with specific objectives and varying needs. Drawing from our observations, we have identified three commonly adopted business structures by Singaporean SMEs.
Sole Proprietorship
Sole proprietorship is a business structure where an individual operates a small-scale business, retaining all profits but assuming personal liability for debts and losses.
If you are selling your own services, handcrafted items, or goods on a small scale as a single person, opting for sole proprietorship allows you to keep all the profits for yourself.
Plus, you will have the flexibility to set your own working hours, prices, and business strategies without having to consult with anyone else. Just remember, along with the freedom and control, you assume all the risks too.
Limited Liability Partnership
Moving up a notch, partnership is a company that has 2 to 20 partners. It offers a unique blend of flexibility and protection where multiple individuals collaborate and wish to maintain individual autonomy while sharing resources and risks.
Suppose your craft has brought you some like-minded friends to set up a firm together. Forming an LLP would provide a suitable structure for you to combine your expertise and resources while limiting personal liability. Each partner can focus on their respective projects and enjoy the benefits of shared resources and a joint reputation. If one partner makes a mistake or faces legal action, the other partners would not be held personally responsible.
Private Limited Company
A Private Limited Company (PLC) in Singapore is a company that can issue shares and is regulated by the Capital Markets Act. Under the Private Limited Company Act, a PLC can have fewer than 50 shareholders, and all the shares are privately held.
Let's say you have foreseen your potential to grow bigger in future. Establishing a private limited company offers advantages such as limited liability protection for shareholders. This means that if your company faces financial difficulties or legal issues, your personal assets will be shielded. Additionally, a private limited company structure allows you to issue shares, making it easier to attract investors and share ownership with employees as your business expands.
What Qualifies as a Singapore SME
Singapore's vibrant SME ecosystem provides abundant opportunities for entrepreneurs. However, it comes with unique challenges that require a good understanding of the country's specific SME requirements. Let's delve into the three key qualifications for SME status in Singapore:
- Local Singaporean resident must own at least 30% of the shares
- The annual turnover of an SME does not exceed $100 million.
- The SME has less than 200 employees on its payroll.
Step-by-Step Guide to Start an SME in Singapore
Starting any SME in Singapore requires mandatory registration with the Accounting and Corporate Regulatory Authority (ACRA). Here is the breakdown of the SME registration process in Singapore:
1. Reserve your business name
- Use our company name check tool to search for available names
- Once you’ve selected your desired name, you can register at BizFile+ for $15.
- ACRA reserves your business name for 120 days once it's approved.
- If you don't register your business within this period, the name will expire and become available for other companies.
2. Register your residential address
During registration, ACRA requires company officers and owners to provide their residential addresses, which can be accessed by consumers purchasing company reports. If you prefer to keep your residential address private, you have the option to use the "Alternate Address" for a fee of $40.
3/a. Register your business address (for Sole-Proprietorships)
For sole proprietorships or partnerships, it is essential to register your business address, which will serve as the location for your business activities.
If your business qualifies for the Home Office Scheme, you have the option to use your residential address instead of a commercial one. However, keep in mind that you will need approval from HDB or URA, depending on your circumstances, before choosing this option.
3/b. Register your office address (for LLPs and PLCs)
The registered office serves as the official headquarters of an LLP or company, responsible for receiving and managing all official correspondence. While it's ideal for the main place of business to coincide with the registered office, it's not always mandatory.
4. Submit your application to ACRA
Once you have all the required information, you will need to submit to ACRA along with expressed consent of all owners or authorized representatives to finish the approval process.
5. Receive your Unique Entity Number
Upon successful registration, your SME will be assigned a Unique Entity Number (UEN) by the system. The UEN is a unique identification number necessary for any SME engaging with government agencies. It serves as proof of legitimacy for your business.
6. Get your licenses and approvals
Before legally operating your business in Singapore, you might need licenses or approvals from other government agencies. To determine if you need any for your business type, check out GoBusiness Licensing. If no additional permits or licenses are necessary, you can start operating as soon as you receive your UEN.
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SMEs Government Initiatives in Singapore
Singapore stands out as one of the most SME-friendly countries in the Asia Pacific region. The government has put in place favorable tax policies to fuel entrepreneurship and foster growth. Coupled with robust economic progress leading to low unemployment and high GDP per capita, Singapore offers an ideal environment for business endeavors.
In the final section of this guide, we'll walk you through some of the significant SME grants available in Singapore, helping you kickstart your business journey with confidence.
Startup SG Founder Grant
The Startup SG Founder programme empowers first-time entrepreneurs to kickstart your own business by offering mentorship and up to SGD 50,000 financial assistance.
With SSGF, you can access a startup grant and receive guidance from Accredited Mentor Partners (AMPs). They'll provide you with pitch training to nail those investor meetings and connect you with potential investors and corporate partners. On top of that, you'll get secretarial and accounting support, along with exclusive access to special programmes.
The scheme is open for all Singapore Citizens (SC) / Permanent Residents (PR) as long as they meet certain conditions below:
At least 2 SC/PR who :
- Are first-time founders
- Are key decision makers and contribute meaningfully to the company
- Are not employed externally and able to commit to the business full time
- Have undergone entrepreneurship training academically
- Hold equity in the company, with a minimum of 30% collectively
The company must:
- Not received funding from any other government organization before (for the same idea).
- not have previously received the SSGF grant.
- Have at least 51% of issued shares are owned by SC/PR
- Be registered as a private limited entity in Singapore for less than 6 months
- Invest a co-matching amount of S$20,000 as paid-up capital on ACRA
- Have at least $10,000 as paid-up capital on ACRA at the point of application to EnterpriseSG.
- Not have a proposed business idea that falls under the list provided below:
- Cafes, restaurants, night clubs, lounges, bars, foot reflexology, massage parlours, gambling, prostitution, social escort services, employment agencies (including recruiting foreign work permit holders and workers/support staff, relocation services, and manpower services), and geomancy.
Enterprise Development Grant
If you're in the food and retail service sectors and seeking funding to innovate, improve, or expand overseas, the Enterprise Development Grant (EDG) is the first grant you should consider! The EDG provides support to businesses, helping them evolve across three crucial areas:
- Innovation and productivity
- Improvement upgrades
- International ventures
Starting from 1 April 2023, you can get up to 50% support for eligible costs through the Enterprise Development Grant (EDG). If you're working on sustainability-related projects, you may even be eligible for up to 70% support from 1 April 2023 to 31 March 2026. It's a fantastic opportunity to give your business a boost and make a positive impact.
Productivity Solutions Grant (PSG)
Launched in April 2018, the Productivity Solutions Grant (PSG) supports businesses in adopting technology to boost their operations. It provides financial aid for implementing targeted IT solutions, equipment, and consultancy services that enhance productivity. These solutions align with industry roadmaps such as the Industry Transformation Maps (ITMs) and Industry Digital Plans (IDPs).
To be eligible for PSG, businesses must meet the following criteria:
- Be registered and operating in Singapore.
- The purchase, lease, or subscription of the IT solutions, equipment, or consultancy services must be utilized within Singapore.
- For selected solutions, have a minimum of 30% local shareholding.
- For consultancy service solutions, have at least three local employees at the time of application.
Enterprise Innovation Scheme
Following the announcement from Singapore Budget 2023, the government had newly introduced the Enterprise Innovation Scheme is designed to assist businesses in the city-state to enhance their innovative capabilities and develop groundbreaking products.
But that's not all! It also offers financial support for research and development, technology adoption, and other innovation-related activities. On top of that, businesses can enjoy up to 400% tax deduction for engaging in these activities:
- Research & Development (R&D)
- Acquisition and licensing of Intellectual Property Rights
- Intellectual Property Registration
- Training & Skills Upgrading
- Innovation projects carried out with polytechnics and ITE
Wrapping Up
Singapore has an amazing economic scene with a high degree of economic freedom. It's one of the strongest economies worldwide! The government truly gets the importance of fostering entrepreneurship and is always finding ways to make it easier for new businesses to set up shop.
That's why we see so many SMEs thriving in this SME-friendly environment, holding their ground against international competitors. If you're new to the business journey and find the idea of incorporating a new SME in Singapore a bit daunting, don't worry! We are here to turn it into a seamless and hassle-free process just for you!
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