Skip to main content

Advertisement

Advertisement

US tax cuts unlikely to trigger exodus from S’pore: experts

SINGAPORE — It is unlikely that the sweeping tax cuts approved by the United States Congress — which included provisions designed to encourage US firms to move profits held overseas back to America — would spark an immediate exodus of American companies or their investments from Singapore, experts said on Thursday (Dec 21).

TODAY file photo

TODAY file photo

Follow us on Instagram and Tiktok, and join our Telegram channel for the latest updates.

SINGAPORE — It is unlikely that the sweeping tax cuts approved by the United States Congress — which included provisions designed to encourage US firms to move profits held overseas back to America — would spark an immediate exodus of American companies or their investments from Singapore, experts said on Thursday (Dec 21).

Instead of having a negative impact on the Republic, the US$1.5 trillion (S$2 trillion) tax overhaul could spur domestic consumption spending in the US which in turn could boost exports from Asia, including Singapore, they added.

Responding to TODAY’s queries, the Singapore Economic Development Board (EDB) said it was “too early to determine the impact of US tax reforms on the actions of companies, worldwide and in Singapore”.

On Wednesday, US lawmakers passed one of the most significant tax cut and reform Bills in more than three decades. Apart from slashing the corporate tax rate of 35 per cent to 21 per cent, the debt-financed legislation gives other business owners a new 20 per cent deduction on business income and reshapes how the government taxes multinational corporations along the lines that the country’s largest businesses have recommended for years.

While the measures will give US companies abroad — including those in Singapore — something to think about, the Republic remains an attractive investment destination not least given its strategic location, being in the “middle of a strong growth region”, said CIMB economist Song Seng Wun.

Singapore’s corporate tax rate is also among the world’s lowest, at 17 per cent. Other factors such as a strong transparency culture and legal structure are also valued by investors here, Mr Song added.

Last month, US President Donald Trump announced that Broadcom — a US$100 billion semiconductor company based in Singapore — legally relocate its home address to the US. The move, which will bring US$20 billion in annual revenue back to America, would allow the firm to avoid a cumbersome federal review process. While companies may relocate for specific reasons, Mr Song pointed out: “Unless there is (deceleration) in regional growth, or huge political risks or unstable environment, there is no real compelling reason to pull out (of Singapore).”

Agreeing, UOB economist Francis Tan felt that US companies still want a share of the Asean (Association of Southeast Asian Nations) growth pie, and they are likely to stay on to reap the benefits of their investments.

Nevertheless, National University of Singapore (NUS) Business School accounting associate professor Simon Poh said smaller US firms which are less established may be tempted to move back home as they are “more sensitive” to the corporate tax cuts.

There are more than 4,200 American companies operating in Singapore and their direct investment here exceeds an estimated US$258 billion, according to the American Chamber of Commerce in Singapore (AmCham).

When contacted, AmCham declined to comment on the impact of the tax cuts. Major US firms which have offices here — such as Facebook, Google, Procter & Gamble (P&G) and Hewlett-Packard — also declined to respond to queries on whether they were considering relocating their operations.

Ms Wong Hsin Yee, a partner for international tax services at Ernst & Young Solutions, reiterated that American companies here would take the time to do an overall review, assess their supply chain transaction flows and see if there is a need to tweak their business plans accordingly. Still, Singapore remains a “clear leader” for US multinational corporations to base their operations in, she said.

The US’ move to reduce its corporate tax rate comes after the United Kingdom announced last year that it would cut its rate from 19 per cent to 17 per cent by the end of the decade.

EDB director of public affairs Praveen Randhawa said the agency has been “monitoring developments around the world and engaging companies on their plans”.

“Notwithstanding these developments, companies set up in Singapore not just because of tax considerations but for many reasons,” said Ms Randhawa, citing examples of a pro-business environment with rule of law, a skilled and well-educated workforce, a strong intellectual property regime, and excellent infrastructure and connectivity.

“That is why Singapore has been consistently ranked among the most competitive economies in the world. We are also located in the middle of a rising Asia and ASEAN is set to be among the fastest growing regions in the world,” she added.

Ms Randhawa reiterated that Singapore is “the home for many US companies in Asia”, and this would enable these firms to become more competitive in the region. In turn, this could lead to the growth of their activities here.

Experts believe that Singapore will leave its corporate tax rate untouched for the time being, given that it already offers one of the most competitive rates globally, on top of the other qualities that appeal to investors.

As for the impact of the tax overhaul on the US economy, Assoc Prof Poh said that this remains to be seen. “The tax (cut) will pay for itself by generating economic growth, but again, there are also studies which show that this may not happen in a sufficient manner, and (the US) might run into a deficit,” he added.

Mr Song said the tax changes may encourage US companies to expand their operations across other parts of America. “It’s not a matter of one cake being divided more in the US, but the cake (becoming) larger (and) divided equally… The (benefits) will rub off on the rest of the world, at least for a while,” he added.

Read more of the latest in

Advertisement

Popular

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.