A Trading Company is a business that connects buyers and sellers, either within the same country or on the international trading market. It is otherwise known as an import/export company or business. A Trading Company does not own the merchandise involved in the commercial exchange, and it only has them on a temporary basis.
Singapore is a big player in the import/export trade market - with its strategic position in Southeast Asia, many view it as connecting both the eastern and western worlds in terms of trade. This dominance is clearly reflected in Singapore's many state-of-the-art import/export services and procedures, as well as its connections to hundreds of ports all around the world.
The first step towards conducting business as a trading company in Singapore is to incorporate a company.
Before you can import/export any goods in and out of the country, you'll need to first activate your account with Singapore Customs. Your account will be activated within 1-2 business days after you submit your application. You will then be issued an approval letter from Customs, valid for as long as your company exists.
You will need to obtain a Permit through TradeNet® before you can import or export goods. Using Singapore's TradeNet®, you can submit your permit applications electronically to the relevant government bodies for processing. You'll need to apply for a permit in order to import goods, and another one for exporting goods.
Before you can import any goods (which include controlled and non-controlled goods) into Singapore, you'll have to apply for an IN Permit through TradeNet®, and you'll have to do it before the goods are imported into Singapore.
Before you can export any goods (which include controlled and non-controlled goods) into Singapore, you'll have to apply for an OUT Permit through TradeNet®, and you'll have to do it:
There are some scenarios in which the goods may be imported/exported without requiring a permit. Example: Importing/exporting trade samples of uncontrolled items which have a total value that does not exceed SGD 400 based on CIF (Costs, Insurance and Freight) value.
There are some goods that are labeled as 'controlled goods' and the import/export of these goods come under the control of the Controlling Agencies. Examples of controlled goods: cigarettes or any tobacco product, animals, food products, petrochemicals and drugs.
If you want to import/export controlled goods, you'll need a permit, which is in addition to the IN and OUT permits mentioned above. Permit applications for the import/export of controlled goods can be submitted to your freight forwarder/cargo agent or relevant Controlling Agencies (through the TradeNet® system) for processing and approval.
There are certain high-technology goods on the market which the exporting country subjects to special export control. In this case, the importer in Singapore might be asked to present an ICDV - Import Certificate and Delivery Verification - by the exporter. You can apply for an ICDV from Singapore Customs. Any item covered by this ICDV has to be imported into Singapore directly, without diverting it to any other countries.
Strategic goods include goods and technology which have, as their main use, or intended to be used as weapons of mass destruction. Such goods are regulated by the Strategic Goods (Control) Act. If you're going to be exporting, trans-shipping or bringing-in-for-transit these Strategic Goods, you must obtain a SGC (Strategic Goods Control) TradeNet® Permit.
If you're a Singaporean exporter, be aware that there are certain buyers who may require to present them with a CO - Certificate of Origin. This Certificate of Origin is proof that the goods you are exporting are made in Singapore.
Certificates of Origin can be divided into 2 types:
Application for a CO can be done through your freight forwarder/cargo agent or through TradeNet®.
If you plan to start up a Singapore trading company and get involved in the import/export business, you'll have to be aware of the various taxes and fees involved. These are:
You can make payment for all duties, GST and Custom fees to Singapore Customs via GIRO. This will grant authority to the Singapore Customs to make direct deductions from your chosen bank account.
Now, let's look at each of these taxes and fees:
Singapore Customs will charge procedural and administrative fees.
Dutiable goods are those goods, whether imported or exported, that are subjected to customs and/or excise duties. In Singapore, common dutiable goods include (but are not limited to): tobacco products, intoxicating liquors, petroleum products and motor vehicles.
The duties that are levied on these dutiable goods are based on two different basis, as defined below:
Specific Rate – As its name implies, this is a specific amount per unit weight/other quantity. For example: SGD 500 per kilogram.
Ad Valorem – this means a percentage of the total Customs value of the imported good in question. This is usually stated in the following manner: 15% ad valorem, 20% ad valorem, etc.
Duties on these goods may be suspended temporarily, up to point of consumption, under the various Customs schemes. Check with Singapore customs for other qualifying conditions required for the purpose of duty exemption. Goods and Services Tax (GST)
The Goods and Services Tax apply to goods that are imported into Singapore for the purpose of local consumption.
How much is it? – The current rate is based on an ad valorem basis: 7% of the value of the goods, whether they are dutiable or non-dutiable.
How is it calculated? – GST is calculated based on the CIF (Costs, Insurance and Freight) value PLUS all duties and chargeable costs, whether or not these costs show up on the invoice.
Who administers it? – The IRAS – Inland Revenue Authority of Singapore.
Who collects it? – Singapore Customs.
Can GST be temporarily suspended? – Yes. Under various Customs schemes, GST can be temporarily suspended, but only up to the point of consumption.
Is there any GST relief? – Yes. Certain items, if they meet certain criteria, can be subject to GST relief. Check with Singapore Customs.
Can I charge my customers GST? – Yes, you can. You'll have to register with the IRAS in order to be able to collect GST.
Can I get a GST refund? – If you've paid GST for imports that are later exported out of Singapore, you can get a GST refund. In order to do so, however, you'll have to be GST-registered with the IRAS.
Are there any ways to reduce GST? – There are some special schemes that can help alleviate the GST burden. The 'Major Exporter Scheme' can help with the cash flow of those major exporters who also have significant imports. The 'Import GST Deferment Scheme' helps you defer the GST payment for imports, at the point of importation. This is a great boon for taxable traders as it helps then ease their cash flow.
How do I handle all the Financial Risks involved in the Trading business?
Trading companies often have to juggle large amounts of goods and even larger amounts of money; there's a lot of financial risk involved.
So how can a trading company in Singapore reduce its financial risks?
There are three methods:
Now, let's look at each of these methods to help reduce financial risk:
Letters of Credit (LC) A Letter of Credit, or more commonly referred to as simply an 'LC', is where the buyer's bank guarantees payment to the exporter. Exporters prefer this because they have secured payment even before the goods are shipped. Buyers prefer this because they do not have to make any payments whatsoever until they receive the goods.
With the LC in hand, you can also avail yourself of some other financing options, like:
Back to Back LC – To be used when the exporter buys his goods from a third party in order to meet the buyer's order. The exporter can open an LC, based on the Original LC of his buyer.
Packing Credit – This is a loan/overdraft privilege based on the LC. It acts as a form of pre-shipment financing, where repayment is made when the goods are finally shipped. It also acts as post-shipment financing, where the repayment is made after the buyer has already paid for the goods.
Trust Receipt – An importer may head over to their bank to get a loan based on the LC and the goods that said LC promises the importer will be getting.
Loans - Singaporean banks often offer financing options that can make life easier for a trading company.
Here are just some of the options you can take advantage of:
Overdraft – allows you to overdraw your current account, up to a maximum amount that has been agreed with the bank beforehand. You pay interest only on the amount that is overdrawn.
Inventory Financing – allows you to get financing against your unsold inventories.
Revolving line of credit – makes available to you an agreed-upon amount of funds (for a fee). You are then able to top-up or withdraw the funds regularly.
Factoring Loans - allows you to get instant payments from your outstanding invoices. The collection will be done by the factoring agent in question, usually banks or financial institutions. You will have to pay a fee, of course, to the factoring agents, for collecting the payments. This fee can go up as high as 15%.
Term Loans – taking out a loan which has a collateral subject, one that's approved by the bank.
Transaction Loans – allows you finance a confirmed order, but it would depend on the creditworthiness of the company that has placed the order.
Sometimes, buyers are unable to make payment due to commercial and non-commercial risks. Trade Credit insurance will protect you against the risk non-payment by buyers due to such risks. If the buyer does indeed default on payment after the due date and grace period, the insurance company will make payment to the claimant, provided that the claim has been verified and checked.
Where can I deposit and store the goods temporarily?
You can deposit and store your goods through either FTZs (Free Trade Zones) or Licenses and Zero-GST Warehouses.
What are FTZs? – Free Trade Zones are special designated areas in Singapore's sea and airports where GST and duties are temporarily suspended for imported goods.
I don't have to pay GST and duties? – You will only have to pay duties and taxes if the goods leave the FTZs and enter into customs territory to be consumed. With the exception of liquors and cigarettes, all dutiable goods can be stored in FTZs.
So who benefits from FTZ? – You will benefit from FTZ if you import goods for the purpose of exporting them (otherwise known as re-exporting). The FTZ allows you to avoid paying duties and taxes, and thus alleviates your business' cashflow.
Are all goods deposited into FTZs? – No. Only goods that arrive by air and sea are deposited into FTZs. Those that arrive by rail and road are not; they're subject to duties and taxes.
Licensed Warehouses is an option for storing dutiable goods. The GST and duties payable for said goods would be suspended until you remove the goods from the premises to bring them into the local market for consumption.
Zero-GST Warehouses is an option for storing non-dutiable goods. The GST payable for said goods would be suspended until you remove the goods from the premises to bring them into the local market for consumption.
With all this trading going on, there will be vehicles, people and cargo entering into Singapore. The ICA - Immigration and Checkpoint Authority - officers conduct checks on the above when they enter the country. Trade and Customs matters are referred to Singapore Customs for any necessary follow-up.
The clearance procedures depend on the goods in question as well as the method used to transport them.
If the goods are dutiable and controlled, you'll have to obtain a Customs OUT Permit before export. This Permit can be obtained from either the Controlling Authority, or Customs, as appropriate. You will have to present the Customs OUT Permit to the ICA officers at the exit checkpoints during clearance. Also, at these exit checkpoints, any Customs seal that is placed on the cargo will be verified by ICA officers before release of the cargo.
If the goods are non-dutiable and non-controlled, and you want to export them via air or sea, you can clear the cargo through the exit checkpoint first, and then only declare the Customs OUT Permit within 3 days of export. If these goods are exported via road, you'll need to produce the Customs OUT permit then and there, at the same time that you're doing the export clearance.
To clear import for conventional cargo at the entry checkpoint, you'll have to present the following to ICA officers: Customs IN Permit (or an import authorization) along with any supporting documents (bill of lading, invoice, etc). For those goods that are imported for Singaporean consumption, you'll have to pay the duties and/or GST before the goods can be released.
If your imports come in containerized cargo, the import clearance will depend on what sort of containerized cargo it is. You'll have to obtain the relevant Customs Permits before you can remove these containers out of an FTZ (Free Trade Zone, mentioned above.)
The norm is that FCL containers are not emptied in the FTZ. FCL containers that require Customs to examine it will be sealed at the respective FTZ outgates. Once the sealed FCL containers have left the FTZ, consignees or their transport agents should arrange with Singapore Customs to have them supervised the unpacking of the FCL containers.
You should not break any Custom seals placed on the containers at the time of import, not without supervision or written permission from Singapore Customs. FCL containers that don't need to go through any Customs examination will be given the SNR - Sealing Not Required - facilitation. ICA officers will release it without sealing it. These FCL containers can then be unpacked at any time, without the need for any supervision from Singapore Customs.
We have a team of Accountants,Bankers and compliance experts who can advice on Singapore's Tax Regime(IRAS) & various regulatory frameworks such as ACRA to offer you a customized advisory services that include: