Starting a Company in Singapore Risks and Challenges You Must Watch Out For!

The Risks and Challenges You Must Be Wary of When Setting Up a Company in Singapore

In recent years, with the acceleration of globalization and the continuous economic growth in Southeast Asia, Singapore has become a popular destination for international investors seeking to establish businesses. Thanks to its strategic geographical location, political stability, robust legal system, and favorable tax policies, the city-state is often referred to as Asia’s financial hub. Especially under China's Going Global strategy, an increasing number of entrepreneurs are turning their attention to this island nation.

However, beneath the attractive exterior of Singapore’s investment environment lie several risks and challenges that should not be overlooked. For first-time investors entering the market, the following five areas require particular attention

1. High Compliance Costs and Strict Legal Regulations

Singapore is known for its strong rule of law and comprehensive regulatory framework. The country imposes strict compliance requirements on all aspects of business operations, from company registration and tax reporting to human resources management. According to the Accounting and Corporate Regulatory Authority ACRA, all registered companies must submit audited annual financial statements on time-unless they qualify for exemption. Similarly, the Inland Revenue Authority of Singapore IRAS maintains high standards for tax accuracy and transparency. Violations can lead to hefty fines or even criminal liability.

A recent case reported by local media involved a Chinese tech company setting up a subsidiary in Singapore. Due to failure in meeting annual filing obligations, it was fined heavily and blacklisted, significantly affecting its local operations. This illustrates that while Singapore offers a convenient business environment, its open entry, strict regulation approach demands that companies invest early in professional legal advice or local agency support to ensure full compliance throughout operations.

2. Rising Labor Costs and Intense Talent Competition

Although Singapore boasts a highly skilled workforce, the cost of hiring local talent is also significantly high. According to the 2025 Salary Report, the average monthly salary for local employees has exceeded SGD 5,000 approximately RMB 26,000. For specialized roles such as AI engineers and data analysts, salaries are even higher. With a limited domestic population and a growing influx of multinational corporations, competition for top-tier talent has intensified.

One entrepreneur who moved from Shenzhen to Singapore shared We thought hiring would be easier here than back home, but found out that not only were salaries much higher, but many top talents were already locked in by global giants like Google, Microsoft, and Amazon. Companies planning to enter the Singapore market must carefully evaluate labor cost structures and develop effective talent acquisition and retention strategies.

3. Significant Cultural Differences and Challenges in Localization

Despite being a multicultural society where English is widely spoken, foreign companies may still struggle with localization. Consumer preferences, communication styles, and business etiquette in Singapore differ markedly from those in China. Without a deep understanding of local culture, marketing and service delivery can easily fall flat.

For example, a well-known Chinese e-commerce platform launched a social group-buying app in Singapore, but failed to consider that local consumers prefer individual shopping over group interactions. As a result, user growth was slow, forcing the company to pivot its strategy. This highlights the importance of tailoring products and branding to meet local demand-not just relying on product quality alone.

4. Fierce Market Competition and High Survival Pressure

As a mature commercial hub, Singapore hosts numerous multinational corporations and regional headquarters. Competition is particularly intense in sectors like finance, technology, and logistics, where established players dominate the market. New entrants without a clear business model or differentiated competitive advantage will find it difficult to gain traction quickly.

Take the fintech sector, for instance. Encouraged by the Monetary Authority of Singapore MAS, digital finance has attracted major players such as Ant Group, DBS Bank, and JPMorgan Chase. In such a saturated environment, startups and SMEs lacking core technology or unique resources risk being pushed to the margins.

5. Currency Fluctuations and Macroeconomic Uncertainty

While Singapore’s economy remains fundamentally stable, as an open economy, it is sensitive to global economic shifts. Recent years have seen frequent fluctuations in the Singapore dollar against the US dollar and other major currencies due to weak global recovery and escalating geopolitical tensions. These movements pose significant foreign exchange risks for companies engaged in import/export or cross-border transactions.

Although Singapore maintains sound fiscal health, it cannot fully insulate itself from external shocks. At the beginning of 2025, the Ministry of Trade and Industry lowered its annual GDP growth forecast, reflecting weakening external demand. In such an uncertain climate, companies without effective hedging mechanisms and agile financial management could face serious operational volatility.

Conclusion

While Singapore continues to offer a compelling investment proposition, businesses must conduct thorough risk assessments before setting up operations. Key considerations include legal compliance, labor costs, cultural adaptation, market competition, and macroeconomic conditions. Only through comprehensive preparation and long-term planning can companies truly achieve sustainable growth in this vibrant yet challenging market.