US tax cuts: Boost for Singapore companies operating in the US

by Yasmine Yahya

SINGAPORE (The Straits Times/ANN) - However, its impact on inbound investment flows remains to be seen, according to analysts.

The corporate tax cut in the United States will be a boon for Singapore firms operating there, but its impact on inbound investment flows remains to be seen, analysts say.

The cut - from 35 per cent to 21 per cent - will make a big difference to local companies with investments there, especially as Singapore does not have a tax treaty with the US, noted Withers KhattarWong partner Eric Roose.

Singapore firms agreed with his assessment. ST Engineering spokesman Lina Poa said: "The tax cut ... will benefit ST Engineering as our US subsidiaries contribute a significant share of our total revenue."

The US business accounted for 23 per cent of ST Engineering's S$6.68 billion (US$5 billion) revenue in 2016.

"Any investments that we make are evaluated on their strategic fit and other factors, including after-tax returns. We welcome the US tax overhaul and will continue to evaluate opportunities that fit our business strategy," Ms Poa added.

Mapletree Investments said: "This is a positive development... and we are still studying the other changes in detail."

But while the tax cut could boost investment flows into the US, the question for Singapore is whether American companies might now re-evaluate their investments here.

After all, as Mr Roose noted, the difference between the US and Singapore's corporate tax rates is now just 4 percentage points.

"The general effect overall will be that US companies will do more things in the US and bring their profits back. Companies will begin to reassess their global structures and whether they really need foreign operations, or as much as they have now," he said.

"They will likely study whether the cost of operating in that country is still offset by the tax savings now."

However, he added that there is unlikely to be an exodus of US companies as Singapore is the Asian headquarters for many.

"The options for Asian headquarters today is a fight between Hong Kong and Singapore, and it comes down more and more to where people want to live, and increasingly US companies would rather have their headquarters in Singapore," noted Mr Roose noted.

"So I think Singapore will continue to be important operationally."

Mizuho Bank senior economist Vishnu Varathan added that companies will take into account more than just tax rates when deciding whether to maintain, increase or decrease investments in a particular country.

"There's speculation on how the US tax cut will impact where US companies operate, but that's not just a function of tax," he added.

"And many US firms are already well-established here, with a supply chain across Asean and the Asean market is here, so the impact will not be immediate."

DBS Group Research chief economist Taimur Baig said in a report yesterday (Dec 21) that the US tax cut is a bigger risk for Europe and Latin America than Asia.

"Multinationals that were, on the margin, considering offshoring some production may pause to take advantage of the lower domestic rates, but the factors of production that are Asia-oriented, especially those related to the electronics supply chain, are very unlikely to move back to the US," he noted.

"The labour cost advantages, economies of scale, and the component ecosystem is well-ingrained in Asia, with little risk of foreign direct investment diversion to the US."