As a rule offshore banking Singapore is operated by the Asian Currency Units. According to Article 77 paragraph 5 of the Banking Act they represent operational units whose function is to conduct business in the Asia Dollar Market. According to Article 77 paragraph 1 of the Banking Act the offshore banking units must be licensed by the central bank of Singapore which is called the Monetary Authority of Singapore.

Actually Asian Currency Units may also be operated by onshore commercial banks and merchant banks. In these cases, Asian Currency Units are distinct accounting entities but they are not distinct legal entities separately licensed by the Monetary Authority of Singapore.

Nearly all commercial banks and merchant banks in Singapore operate Asian Currency Units.

If talking about the offshore banking services delivered by the Asian Currency Units then it has to be mentioned that they accept deposits and make loans in foreign currencies and are not allowed to do business in Singapore dollars.

As any offshore banking centers in Singapore there are also convenient fiscal regimes and regulatory frameworks that apply to offshore banking Singapore activities. Transactions conducted under the auspices of the Asian Currency Units qualify for tax incentives. Also the Asian Currency Units are exempted from several prudential legal requirements. Most importantly the rule regarding the reserve requirements, the minimum liquid asset ratio, limitation in investments, limitation on acquisition of immovable property and some of the limitations on credit facilities are some of the legal rules that are applied in a flexible way to offshore banking. It is also important to mention that there is no withhold or income tax on nonresident Asian Currency Units’ depositors. The Asian Currency Units are taxed at a concessionary rate of 10 percent. The normal corporate tax rate in Singapore is 26 per cent.

Except the fact that the Monetary Authority of Singapore grants the license for the offshore banking units, the Asian Currency Units have the legal obligation to present monthly detailed financial statements to the central bank. It is the Monetary Authority of Singapore which supervises offshore banking units’ activities.

The domestic legislation does not imposer a formal insurance scheme for offshore banking units. The central bank has the power to act as lender-of last resort, but there is no such obligation.

In 1996 following an Amendment of the Banking Act the foreign regulators were allowed to inspect the Singapore banks under their oversight.

Offshore Bank Account for Singapore-Based Companies

Due to strict banking regulations set by Singapore offshore banking center authorities Singapore banks require physical presence of the authorized signatories to open banking account for Singapore-based companies. However as an exception some banks open bank accounts without actual presence in case necessary signatures are witnessed by public notary.

The minimum required balance for the account varies from one Singapore bank to another. Average initial amount is $10,000 for the major Singapore-based banks (OCBC, DBS, UOB and Standard Chartered), while foreign banks, such as HSBC and Citibank have $25,000-50,000 balance. However banks often waive this requirement for certain period of time fully or partially. For instance, OCBC bank reduced this requirement for first six months after opening an account to $500. In case minimum requirement is not met the account is subject to $15-50 charges.

Offshore Bank Account for Offshore Companies

The procedure for opening an account at Singapore banks by offshore companies is largely the same as for Singapore-based companies except that banks are required to conduct further research over the potential client before an account is opened. Typical questions asked are the following:

- type of business activity a customer plans to engage;

- source of initial funds for the business;

- forecasted annual turnover;

- forecated volume of transactions;

- list of beneficiaries and their background;

- reference letters from the banks services of which client has used;

- documents proving beneficial ownership;

Decision over approving or not approving offshore banking account is made on each case individually.

Here find largest offshore banks in Singapore (find a full list here):

- Citibank

- HSBC

- Standard Chartered Bank

- OCBC Bank

-UOB Bank

-DBS Bank

-ABN-AMRO

]]> http://www.offshorebankingtoday.com/offshore-bank-account-singapore/feed/ 0 http://www.offshorebankingtoday.com/list-of-offshore-banking-institutions-in-singapore/?utm_source=rss&utm_medium=rss&utm_campaign=list-of-offshore-banking-institutions-in-singapore http://www.offshorebankingtoday.com/list-of-offshore-banking-institutions-in-singapore/#comments Fri, 19 Dec 2008 06:03:22 +0000 Elliot Clark http://www.offshorebankingtoday.com/?p=208

List of Asian Currency Units (ACU) in Singapore Offshore Banking Center:

Monetary Authority of Singapore (MAS), which is de-facto central bank of Singapore was founded in 1971 pursuing the principles of Monetary Authority of Singapore Act. Since monetary and banking supervisory functions of the central bank are not separated in Singapore MAS is responsible for both monetary policy and supervision of offshore banking as well as domestic banking sector. In addition, Monetary Authority of Singapore also undertakes the supervision of finance corporations, insurance companies and stock exchanges.

Monetary Authority of Singapore also acts as a lender of last resort meaning that it provides credit to the illiquid banks if they are unable to raise funds from other sources. The objectives of Singapore financial supervision are different from those of supervisory authorities of other countries in the region. In Monetary Authority of Singapore thrives to ensure stability and good-standing of the financial sector and also protect right and interests of investors and depositors. An ultimate aim of MAS is reduce risks, bank failures and financial scandals that would threaten the good image of Singapore as a low tax regional offshore banking center.

The legislation on financial regulation including offshore banking is concentrated in the following acts: Banking Act, Finance Companies Act, Insurance Act, Securities Industry and Futures Act, Development Loan Act and Local Treasury Bill Act. These acts define MAS as the financial supervisory entity and also set basic rules and guidelines for effective offshore banking supervision.

Conducting monetary/exchange rate policy is one of the main goals of Monetary Authority of Singapore. Singapore dollar is pegged towards currency basket that is composed of the currencies of Singapore’s main trading partners. Currency basket is not fixed. It is subject to continuous changes based on Singapore’s trading portfolio.

Singapore sustains managed float regime that authorities consider as a first-best possible arrangement to maintain Singapore as a competitive offshore banking center. Effective exchange rate is periodically checked by evaluating economic indicators and determining whether exchange rate is in conflict with the market fundamentals or not.

Singapore authorities adopted methods that allow economy to tackle external economic shocks. During recession of 1980s government adopted new wage plan that is based on variable bonus system. Since modifying bonuses are easier than wages, when amending exchange rate is required the government makes that either through amending bonus rates or contribution rates to Central Provident Fund (Pension Fund).

Monetary Authority of Singapore considers exchange rate policy as the most effective instrument to affect inflation. MAS regards interest rate to have low effectiveness in affecting real economy. In addition wide trade relations, balanced fiscal policy and long record of low inflation. There is no need to fix Singapore dollar to US dollar or Euro, since inflation has been traditionally lower in Singapore than in these countries/zones. In addition under fixed exchange rate regime economy has difficulty to reply to external shocks and it does not align with the change in market fundamentals.

Singapore banking system consists of two types of financial institution: a commercial bank, or Domestic Banking Unit (DBU) and an offshore banking entity, or Asian Currency Unit (ACU). Domestic Banking Units are allowed to conduct its operations only in Singapore dollar, while Asian Currency Unit’s operations are allowed in any currency other than Singapore dollar. In this way offshore banking Singapore operates.

In Singapore this kind of two-tier system appeared in 1970s with the aim to separate international and domestic banking operations from each other. Singapore authorities allowed establishment of ACU in 1968 for the first time to transform Singapore into regional offshore banking center. Singapore has time zone advantage: it is open when US markets closed and European markets are not still open. Singapore has good location and serves as a place of intermediation of funds that are flowing to Asia. ACU is the main tool for offshore banking singapore operations in Singapore.

A typical Singapore bank has both ACU and DBU. Domestic Banking Unit serves domestic customers, while Asian Currency Unit provides offshore banking services. DBU and ACU are integral parts of a Singapore bank, simply their accounting books are kept separately. List of ACU in Singapore are listed here.

Domestic Banking Unit’s operations are associated with making loans, accepting deposits and conducting banking operations in Singapore dollar. ACU implies banking department within a bank that conducts operations offshore banking transactions on Asian Dollar Market pursuing the rules set by Monetary Authority of Singapore (MAS) that is responsible for the regulation/supervision of the banking sector. It is noteworthy that residents and nonresidents have no restrictions on moving funds between ACU and DBU. The expansion of DBU reflects confidence of investors in Singapore Dollar, since 99% of all deposits in DBUs are in this currency. During 1990-2001 DBU has been growing at 10.8% rate, while ACU growth rate was only 6.9%.

ACU’s operating rules are set by Banking Act. To attract multinational financial institutions to the offshore banking Singapore ACU enjoys preferential supervisory regime as opposed to DBU. ACU is subject to fewer requirements than DBU. For instance ACU is not subject to minimum reserve requirements like DBU. Through ACU banking institutions in Singapore are able to accept deposits and make loans in currencies other than Singapore Dollar creating Asian Dollar Market that is a counterpart to Eurodollar market in London. Major incentives are listed below:

1. While DBU is forbidden to invest more than 2% of its capital in any one company or project, ACU is exempted from this rule;

2. While DBU is forbidden to invest more than 20% of its capital in any one piece of real estate, ACU is exempted from this rule;

3. ACU is exempted from liquidity and minimum reserve requirements;

Singapore offshore banking proved to be extremely attractive for foreigners. During 1980s ACU assets rose at an average annual rate of 22%, while in 1990s it declined to 3.7%. In 1993 ACU assets formed 66.2% of entire banking sector assets. ACU growth rates were much higher than those of DBUs. For comparison in 1970 ACU assets were only 28% of DBUs assets, while in 1987 it was 596%. However this ratio decreased to 239% in 2001.

As compared to GDP of Singapore in 1987 ACU assets were 11 times higher than GDP, but it declines to level of 5-6 times higher in 1990s.

Singapore sustains liberal tax legislation in order to support being competitive offshore banking center in the region and in the world. It is worth discussing basic taxes briefly:

Income Tax (for residents and non-residents): 0-21%

Income generated from foreign sources is exempted from income tax effective January 1, 2004. According to the old law only those incomes generated from foreign sources were exempted from income tax that was taxed under the higher than 15% tax rate in the country, where it was earned.

Income tax is one of the most important taxes that offshore banking customers are subject to; therefore Singapore has wide range of benefits for this segment.

Since January 1, 2004 income yield in the form of interest revenue from securities is exempted from income tax. Income received in the form of discount from money market (short-term) securities is also exempted from income tax.

Since January 1, 2005 income received as interest on deposits and in form of dividends is also income-tax-exempt.

Profit Tax (Corporate Income Tax): From 2005 to 2008 – 20%, after 2008 – 18%

According to Singapore legislation 75% of first 10,000 Singapore dollar of income is exempted from profit tax, while only 50% of next 90,000 (290,000 from 2008).

In addition, a company is exempted from profit tax, if three years after the establishment of company annual profits did not exceed 100,000 Singapore dollars.

Effective from 2003 Singapore has one-tier taxation system that involves taxing corporate income only by profit tax and exempting corporate income from all other taxes.

On some high-priority industries that are referred as “Pioneer Industries” the profit tax is reduced to 15%.

Capital Gains Tax: Singapore citizens are exempted from capital gains tax that is especially important for offshore banking center.