Foreign ownership of new entities up in 2022, with rebound in owners from China

SINGAPORE recorded a resurgence in foreign ownership of new companies last year, with China continuing to lead the way. The proportion of new foreign owners may be maintained in 2023 as China reopens, but whether it rises further will depend on market conditions, say observers.

In the past year, “more and more Chinese entrepreneurs” in industries ranging from tech to education to import and export trading showed interest in setting up companies here, said Xu Le, a lecturer at the National University of Singapore (NUS) Business School’s Department of Strategy and Policy.

According to data from analytics platform Handshakes, out of 63,801 new corporate entities formed here last year, 29 per cent were foreign-owned – that is, foreigners held stakes of more than 50 per cent in them.

This is up from 23.7 per cent in 2021 – when 64,912 entities were created – and 25.1 per cent in 2020, with 63,249 entities created.

In particular, there was a spike in foreign ownership towards the end of 2022: from 29.2 per cent in October to 35.5 per cent in November and 33.9 per cent in December.

This might be a specific rather than seasonal trend. Edmund Leow, head of tax practice at Dentons Rodyk & Davidson, said he has not seen seasonal trends in his practice.

In the last year or two, his experience was “fairly consistent with the data”, he said. More clients were setting up Singapore companies, with most of them being from China and India.

For each of the past three years, China, India and the United States were the top three countries of origin of foreign owners.

There was a particular rebound in new firms with owners from China, after a slump in 2021. In 2022, there were 7,312 such firms, up from 4,951 in 2021 and 7,048 in 2020.

Angie Han, Pictet Wealth Management’s head of wealth planning for South Asia, expects this momentum to continue into 2023, assuming that global economic growth is boosted by China’s reopening.

From the start of 2023 up till Feb 6, there were 610 new corporate entities with owners from China, out of 4,952 created during the same period.

TSMP Law Corporation corporate partner Jennifer Chia said: “With China reopening itself fully to the world this year, anticipation is rife that more Chinese investments will flow into Singapore – which has traditionally been viewed as a safe haven for investments by the Chinese, especially for the growing of their family’s wealth.”

Industry observers say that China’s ongoing crackdown on the private sector has prompted its businesses to look elsewhere, with more of them expected to do so this year.

Tommy Wu, senior China economist at Commerzbank, said that regulatory tightening has prompted Chinese tech companies to look for opportunities and move functionalities abroad.

But tech companies aside, companies in gaming and education are doing so too, said NUS’ Dr Xu: “For some Chinese entrepreneurs, relocating their businesses to a more stable and predictable business environment is more important.”

Ongoing US-China tensions are another factor. Dr Xu noted that Singapore maintains good relations with both economies, with “stable and friendly political and economic environments” despite rising political tensions.

Similarly, CIMB economist Song Seng Wun sees Singapore as a “neutral space” from which China’s business owners can operate and expand into the region.

“Geopolitical dynamics have shifted so significantly, the trend will follow. For Chinese businesses, it just makes business sense to consider operating or have businesses outside of China,” he said.

Separately, foreigners are taking advantage of Singapore’s business-friendly taxation system to re-domicile their companies, Leow said, as traditional tax havens such as the British Virgin Islands and the Cayman Islands lose favour on concerns of tax evasion and money laundering.

Pictet’s Han, who has observed similar trends, added: “This is part of the onshoring trend as a result of several global initiatives to counter tax planning strategies using offshore tax havens.”

Family offices are heading here too. Last year, Pictet Wealth Management received more enquiries from foreigners – mainly from mainland China, Taiwan and India – looking to set up family offices; there was also interest from European families.

Family offices that moved to Singapore last year would have been looking to diversify their risk exposure, said Dr Wu, adding: “There is no reason not to expect these trends to continue into this year.”

Separately, TSMP’s Chia has noted a recent trend of ethnic Chinese entrepreneurs – whether from China or the US – being keen on investing in cryptocurrencies in Singapore.

While the proportion of new foreign-owned entities is unlikely to shrink, whether it actually rises this year depends on growth and inflation, said observers.

Ernst & Young’s Asean private tax leader Desmond Teo expects a short-term rise in new companies created by foreigners. Further developments “will likely depend on market performance” and how disinflationary measures – that is, tightened monetary policy – affect economic growth and the cost of funding.

Dr Xu expects that both the number and share of new foreign-owned companies could rise. But this assumes that Singapore successfully tackles inflation, and that growth both in the Republic and South-east Asia remains strong, she added.

Noting that business activity in China has resumed after a pause during January’s Chinese New Year celebrations, she said: “I expect more Chinese entrepreneurs (to) register companies in Singapore in the near future.”

This story is part of a series by The Business Times (BT) and Handshakes, called the BT-Handshakes Data Series. It is a regular project collaboration to give insights on various business sectors of Singapore, using data from Accounting and Corporate Regulatory Authority. SPH Media which publishes BT, is a shareholder in DC Frontiers, Handshakes’ parent company.