FCPA Jim McFie, a Fellow of ICPAK
When I consulted Chat GPT as to which countries in the world is it easiest to do business, it listed the US, Canada and Germany as its number one, two and three choices. But last week I consulted ChatGPT on a tax matter and it gave me the wrong answer. So, I looked further afield to see if different authorities gave different answers to my question. And of course, different experts gave different countries.
Singapore features close to the top among all the experts. ChatGPT ranks Singapore at number four and states: “Known for its ease of doing business, low corruption, and strategic location in Asia, Singapore is highly conducive for startups. Its efficient regulatory environment and strong financial sector are major pluses”. Heather Cameron ranks Singapore top, calling it “A Hub for International Entrepreneurs”. Her reasoning is much more elaborate than ChatGPT’s and therefore more worthwhile. She states that Singapore’s location, laws, and business-friendly environment make it the top choice for foreign companies and entrepreneurs who want to start a business and grow their business and trade. Singapore’s diverse economy allows entrepreneurs to identify and target any lucrative market niche effectively. The country has a 17% flat corporate tax rate (the rate in Ireland is 12½%), one of the lowest in the world, coupled with low personal income tax, making it highly attractive for both businesses and individuals. In addition to that, there are various tax incentives and exemptions, and it is a great place for businesses and foreign investors to set up and grow.
The government’s business-friendly tax policies reduce the financial burden on companies and promote growth and innovation for those who want to start a business. Another source, an expert on Singapore tax, points out that the island’s reputation as a leading financial hub is supported by its well-structured tax and accounting systems. For businesses, this means access to competitive tax rates and extensive international agreements. A Singapore-based company is taxed on income accrued in or derived from Singapore, including gains from any trade or business, income from investments, e.g. interest and rental income, royalties, premiums, and any other profits from property. Foreign sourced income received in Singapore is taxable unless it is exempted under specific scenarios. Since 1 January 2003, Singapore has adopted a single-tier corporate income tax system: tax paid by the company on chargeable income is considered the final tax: dividends distributed to shareholders are exempt from further taxation. As I mentioned above, Singapore’s current corporate tax rate is 17%. Singapore understands that if it wishes to maintain the status of an attractive business hub and stay competitive, its corporate tax rate must remain at 17%.
Depending on the tax exemptions the business is eligible for, the effective tax rate may be lower than 17%. There are various industry-specific tax incentives and concessionary tax rates available. There is no tax on capital gains in Singapore. In the Singapore Budget of 2024, to help companies manage rising costs, a Corporate Income Tax (CIT) Rebate of 50% of the corporate tax payable will be granted to all taxpaying companies, whether tax resident or not, for 2024. In addition, companies that have employed at least one local employee in 2023 (referred to as “local employee condition”) will receive Kes 200,000 in cash payout (referred to as “CIT Rebate Cash Grant”)
Individual tax residents in Singapore are taxed on a progressive rate from 0% to 24%. Filing of personal income tax returns is mandatory if the person’s annual income is Kes 2 million or more. Tax residents do not need to pay tax if their annual income is less than Kes 2 million. After that, the next Kes 1 million is taxed at 2%, the next Kes 1 million at 3.5%: on steps of an additional Kes 4 million the rates are 7%, 11.5%, 15%, 18%, 19%, 19.5% and 20%; hence on income of Kes 32 million the top rate of tax is 20% and the total tax payable is Kes 4.5 million; after that, the next Kes 18 million is taxed at 22%, the next Kes 50 million at 23% and any income in excess of Kes 100 million at 24%. Non-residents are taxed at a flat rate of 15% on their employment income or at resident rates, whichever results in a higher tax amount.Other types of income, such as directors’ fees, are taxed at 24%. Value Added Tax (VAT) is called goods and services tax (GST) and is levied on the supply of goods and services, as well as the import of goods into Singapore. In the 2022 Budget, the Minister for Finance announced that the GST rate will be increased from 7% to 8% with effect from 1 Jan 2023 and from 8% to 9% with effect from 1 Jan 2024. The revenue from the increase in GST will go towards supporting Singapore’s healthcare expenditure, and to take care of Singapore’s seniors. Withholding tax is also levied at rates very similar to those in Kenya.
Another plus for any highly placed country is its workforce. Singapore has a highly skilled and diverse workforce across various industries, including finance, technology, healthcare, and logistics. The country’s focus on education and professional development ensures a constant supply of talented professionals. The stable government and business-friendly policies create an environment where businesses can grow and expand smoothly. In addition, Singapore has a large network of established trade agreements that open up the world to its businesses. These agreements, including Free Trade Agreements (FTAs) with major economies, help to facilitate international trade. They reduce trade barriers, simplify export and import processes and give businesses an edge in the global market. The incorporation of companies is done with ease.
Another “country” highly placed by experts is Hong Kong. Hong Kong’s economy and location make it a great place for foreign companies. As a Special Administrative Region of China, Hong Kong benefits from unique economic and administrative advantages that support growth. It has business-friendly regulations, and fast business setup (I know a Kenyan who set up a company there in half an hour). It has one of the lowest tax rates in the world, with minimal personal and corporate tax. The simplicity and transparency of the tax system mean big tax breaks for business growth, which is a very attractive place for entrepreneurs and investors to start a business and make profits while minimising tax. It is located near Mainland China, other countries, and major cities in the Asian market, and it is the hub for business in the region. Close to manufacturing centres and easy travel options, it is the perfect base to manage the supply chain and access the huge Asian market. Geographical advantage means easy logistics and seamless integration into the regional economy. Hong Kong’s common law system provides a stable and transparent environment for business, with robust intellectual property protections. Strong IP protection means a safe haven for local and foreign companies. The established legal system means fairness and reliability so you can start a business and retain peace of mind.
The latest rankings for countries in Africa that I could find were compiled at the end of 2023. The “expert” in this case clarified what he meant by the “ease of doing business” by stating that it encapsulates a nation’s friendliness towards entrepreneurial ventures and investments. The grading of the top 10 African countries is a metric that assesses how effortlessly businesses can establish, operate, and flourish within a country. It involves factors like simplified regulations, efficient government services, and a supportive atmosphere for innovation. A favorable business environment significantly impacts economic growth. Countries prioritizing the ease of doing business witness accelerated development, attracting local entrepreneurs and global investors. Streamlined regulatory processes reduce bureaucracy, fueling a vibrant business ecosystem that spurs job creation, innovation, and overall economic advancement. He claims that the business climate in Africa is experiencing a transformative surge, positioning the continent as a burgeoning destination for entrepreneurs and investors. In arriving at the top African countries for the ease of doing business, there are a number of criteria that contribute to this: the criteria include the ease of starting a business, obtaining a construction permit, getting an electricity connection and having a reliable supply, registering property, getting credit, trading across borders, public-private partnership and taxes.
On the basis of these criteria, Mauritius ranks first in Africa. On the world stage, in the latest Ease of Doing Business Report, Mauritius moved up 7 places to be ranked 13th out of 190 countries in the world: in 2016 it was 49th: Singapore was the top country in the world from 2007 to 2017 but New Zealand has taken over the top spot since 2016. The Government of Mauritius actively works to make the country an investor-friendly, low tax jurisdiction with no capital gains tax or withholding tax on dividends. VAT is charged at 15% largely in line with how VAT operates in Kenya.
The second place in Africa is taken by Rwanda. Rwanda is globally ranked 38th out of 190 countries.
Three key reforms in construction permits, starting a business, and electricity access has maintained Rwanda in second place. The country supports newly formed small and medium-sized enterprises by exempting them from trading license tax for their first two years. Efforts to streamline permit acquisition, improve building quality control, and upgrade the power grid infrastructure contribute to Rwanda’s attractive business environment, fostering foreign investment.
Morocco comes third in Africa and 53rd globally. It easily beats other North African nations with its exceptional business climate. The government’s commitment is evident, especially in simplifying construction permits. Through an online platform, Morocco ensures businesses can easily apply for and obtain certificates of conformity. Noteworthy efforts include tax reduction policies, promoting electronic payments at ports for efficient customs clearance, and extended work hours at ports. Morocco’s commitment to investment facilitation, supported by legal and economic guarantees initiated by the monarch, establishes a conducive environment for business operations and startup ventures.
Kenya secures the 4th position in Africa and a global rank of 56th. Prior to the very latest developments in Kenya, the country benefited from consumer demand expansion, integration into the East African Community, structural reforms, and infrastructural investments, contributing to its appeal for business operations. Kenya has a welcoming business environment, but many companies find it difficult to continue to operate when the national and counties fail to pay their bills. Some business owners in Kenya say these outstanding amounts receivable will never be paid. I was in a small hospital in Westlands two weeks ago: NHIF has not paid it Kes 12 million owed to the hospital; the hospitals run by the Catholic Missions have unpaid amounts of Kes 13 billion. With the arrival of the Social Health Insurance Fund (SHIF), will the amounts owed by NHIF simply be forgotten? Kenya ranks third in Sub-Saharan Africa for innovation due to its Gen Z expertise in IT. But again, have recent changes made it more difficult for young person to start and operate a business? If government officials lived within their means, cut down on their travelling especially abroad and stopped stealing wananchi’s money, could our tax rates move towards those in Singapore? P. Bryce points out that in the long run, being honest is the only policy. Being honest has many advantages. When you are honest, people are more likely to trust you. They are also more likely to do business with you, because they know that you are not going to try to cheat them. Trying to cover up the truth will only make things worse in the long run. Sooner or later, the truth will come out, and when it does, you will look bad. It is better to just be honest from the start. Being honest with your customers, your employees, and your partners is the only way to create a successful and sustainable business.
Let us heed Bryce’s words. Kenya needs to become the top country in Africa, and in the world, for ease of doing business. Why? A favorable business environment significantly impacts economic growth which will provide the much-needed jobs for Kenya’s youth and help reduce crime.
