SINGAPORE is still the best place in Asia to do business.

But it has slipped two spots in the global ranking to third, pulled down by slower trade growth and limited market size.

Out of 82 countries, Denmark was rated the best place to invest in over the next five years by the Economist Intelligence Unit (EIU). Finland ranked second.

'Singapore's economy is undergoing a necessary transition towards more services and domestic demand,' said EIU associate director Sudhir Vadaketh.

'This involves the slowing of export and import growth (of goods and non-factor services),' he said.

The shift will prove beneficial as it will wean the Singapore economy off heavy dependence on exports, he said.

'However, because of that slowing in trade growth, Singapore falls a bit on the market opportunities measurement in our ranking.'

Singapore's rising cost of living and higher prices for commercial space were also taken into account.

Nonetheless, Singapore remains the most attractive business environment in the Asia-Pacific - four spots above Hong Kong and 15 places above Taiwan.

Singapore was commended for its flexible labour market, favourable tax regime, openness to trade and strong infrastructure.

The corporate tax rate, for instance, has been cut progressively over the years from 40 per cent in 1985 to 18 per cent from this year, in a bid to reduce business costs and attract new corporate investment.

'Overseas investors are attracted by Singapore's pro-business approach and favourable economic prospects, as well as incentives available to encourage investment in high-technology industries,' EIU said in its rankings report.

Singapore's labour market and high-quality workforce scored well, but EIU said the island faces increasing competition from the rest of Asia with regard to costs.

Denmark did well in all the 10 categories studied by EIU, but its pro-business policies, labour flexibility and fiscal policy pushed it ahead.

Countries were ranked according to criteria such as political environment, market opportunities, policy towards foreign investment and taxes.