Over the past decades, both Hong Kong and Singapore have been consistently considered as the best destinations for corporations over all the world to do business. Indeed, they have attracted millions of foreign investors every year and the number seems not to stop there.
It is advisable for any businessman or owner, with the idea of establishing a company in Hong Kong or Singapore, to have a clear understanding of the advantages both these jurisdictions have offered.
Singapore vs Hong Kong: What factors make them become outstanding from the rest?
Overall, the two jurisdictions offer businesses as well as investors a large number of benefits regarding the environment, taxation regime, business incorporation, banking facilities, labor force, immigration policy, and living standards. However, each place has different strengths in different factors. Keep reading and find out. We keep it simple but precise for you!
Economic and political environment
According to the 2020 Ease of Doing Business Rankings from The World Bank, Singapore stands at number 2, leaving first place to New Zealand, and Hong Kong follows at number 3 in the list.
The high ranks are supported by the fact that the company formation process in both these destinations is simple and time-saving. Indeed, you can launch a company within just 3 working days.
Infrastructure facilities like business premises and services are also available nearly all the time, making it much easier for people to run their businesses. One impressive example is that Hong Kong is ranked number 3 in the ranking list from The World Bank regarding “Getting Electricity”, while Singapore is at number 19.
Furthermore, both destinations have strong legal systems with strict regulatory frameworks in order to protect intellectual property rights and dispute resolutions. All of the above have proven that Hong Kong and Singapore are two of the most ideal environments with plenty of advantages to do business.
On a side note, given the rising tension of Hong Kong protests, the “one country, two systems” may raise a challenge for Hong Kong’s dependency and political stability in the future.
When it comes to setting up a company, a favorable taxation regime is a key factor that many businesses decide to incorporate in either Singapore or Hong Kong.
- Basic of taxation
As mentioned above, tax plays an important role in building a business and they are always at the top of priorities the agenda. Hong Kong and Singapore are globally well-known for their competitive, efficient, and outstanding tax systems which offer companies and entrepreneurs low tax rates, as well as advantages with different tax reliefs.
Generally, both Hong Kong and Singapore have territorial tax systems. It means that only income actually generated inside the countries is liable to tax. However, the Singapore tax system is a little bit different from the “remittance base”. To be more specific, the “remittance base” means that foreign income is tax-free until it is transferred into the country (Singapore). The government also supports business entities with the Foreign Sourced Income Exemption Scheme (FSIE), making it easy of doing business in Singapore.
Due to these dominant points, Hong Kong and Singapore have drawn a large flow of investors, specifically foreign investors, to come and put their company in through the years.
- Corporate tax
In Singapore, the standard corporate tax rate is set at a flat rate of 17%, for the Year of Assessment (YOA) 2020 onward. This is the headline rate, and it can be reduced as a result of some tax exemptions and incentives which will be discussed later in this article.
In contrast, for the YOA 2018/2019, Hong Kong has adopted the two–tiered Profits Tax Regime applied to both corporations and unincorporated businesses, under which the corporate tax rate is lowered for the first $2 million of assessable profits. To be more specific, this rate for corporations stands at 8.25% while it is at 7.5% for unincorporated businesses. The rest of the profits over $2 million will be taxed at a traditional rate, which is 16.5% for corporations or 15% for unincorporated entities.
For example, if your corporation earned $5 million of profits, then with the application of the two-tiered Profits Tax Regime, the first $2 million would be taxed at the rate of 8.25% and the rest of $3 million would be taxed at 16.5%.
- Tax incentives and benefits
There are a lot of tax incentives that both Hong Kong and Singapore offer for new investors. In Singapore, “newborn” companies will enjoy a 75% tax exemption of normal chargeable income for their first $100,000 and 50% for the next $100,000. This tax exemption scheme for new start-ups has taken effect since 2005, and it is available for the first three consecutive Years of Assessment since the company’s incorporation date.
Companies in Singapore also benefit from the partial tax exemption scheme which reduces 75% and 50% of tax liability for its first $10,000 and next $190,000 chargeable income, respectively. Due to the application of tax exemptions, the effective tax rate is normally lower than the headline tax rate. In addition, the Singapore government offers many assistance schemes regarding funding, mentorship, network, or market set-up for businesses participating in favored industries like IT or technology.
Similarly, Hong Kong also has tax incentives in the form of qualifying deductions for certain expenses to encourage businesses’ investment in R&D or high-value generating activities. Moreover, concessionary tax treatments with reduced profits tax rates are available for specific industries subject to certain conditions such as Corporate Treasury Centers, Reinsurance Businesses, Captive Insurance Businesses, Aircraft Lessors or Aircraft Leasing Managers, and Shipping Operations.
The main purpose of this is to boost transcontinental trade and commerce by making it less difficult for businesses to expand their operations into several countries without worrying about paying income tax multiple times. To be more specific, DTAs provide for the reduction or exemption of tax on a certain type of income arising from cross-border economic activities between Singapore or Hong Kong and its treaty partner.
Hong Kong followed a territorial tax regime; therefore, its local companies do not suffer from double taxation while Singapore companies do. However, local companies in Singapore can take advantage of DTA, in which it is a member, to eliminate double taxation through foreign tax credits or tax exemption. Notably, since 2009, tax-resident companies in Singapore can also claim the credit on foreign tax paid in countries that do not have DTA with Singapore.
As of December 2019, Singapore and Hong Kong have signed comprehensive DTAs with nearly 90 as well as 50 countries respectively.
Types of business
There is a wide range of business types that can be registered in both Hong Kong and Singapore. Nevertheless, it is crucial for investors to know clearly what they are and choose the most suitable options for themselves. Below are some of the most common types:
- Sole proprietorship
Small businesses or companies that are run by individuals. The sole proprietor is entitled to all the profits of the business and is personally liable, without limit, for all its debts and obligations.
Small businesses with more than one owner (maximum up to 20). The profit will be shared by all the partners. All the partners are also personally liable for the debts and obligations of the partnership.
- Limited Partnership (LP)
A good option for limited liability. It is a partnership consisting of 2 or more partners where at least 1 partner is a General Partner (GP) and 1 is a Limited Partner (LP). No limit on numbers of partners.
- Limited Liability Partnership (LLP)
Only available in Singapore: more similar to a private limited company. Despite the similarity in name of LP, this type is distinctly different, which is in legal status – considered to be a separated legal entity from its partner and can own property in the name of LLP
- Private Limited Company
The most common and ideal for every entrepreneur and investor, mostly because the tax incentives can be applied for.
Below are the conditions to set up a private limited company – the most common type of business entity in Hong Kong and Singapore
| || |
Time and cost
The procedures of company formation in both Singapore and Hong Kong are easy, fast, and equivalent to each other. It normally takes only a few hours to register a new company in both countries. However, foreigners who wish to do so must engage with the service of a licensed corporate service provider or a registered filing agent.
The cost of registering a new business in Hong Kong is relatively cheaper when compared to Singapore because of the requirement for a local resident director, not to mention a security deposit for the nominee services.
Another thing you need to take into consideration is the annual compliance cost. Annual audit is required for all companies in Hong Kong, regardless of business size. In contrast, the requirement for auditing is exempted for qualified small companies in Singapore with annual turnover and total assets less than S$10 million. This could be a major problem for new companies with small but frequent transactions like e-commerce businesses.
Overview of annual compliance
Every company in Hong Kong and Singapore must follow the annual filing requirements so that it can maintain good legal standing and avoid legal problems. In case a company cannot fulfill the requirements before specific deadlines, it will have to face a penalty or even a forced strike-off. There are 3 main points which are needed to be done in order to keep up with deadlines:
- Holding annual general meeting
- Filling of annual returns
- Filing Profit tax return (PTR) as in the case of Hong Kong companies, or Estimated Chargeable Income (ECI) and tax return as for companies in Singapore. An annual audit is required if a company is not considered a small one in Singapore. However, in Hong Kong, the annual audit is mandatory
Additionally, the records of the accounting activities, the minutes of meetings, and registers of company particulars must be maintained in case of periodic inspection by the government officers.
In Singapore, there are two government authorities responsible for the formulation and deception of most of the statutory requirements governing local companies: Accounting and Corporate Regulatory Authority (ACRA) – national companies registries where to file annual returns, and the Inland Revenue Authority of Singapore (IRAS) – national tax authority where to file ECI and annual tax return.
In Hong Kong, things go in the same direction. However, there is a bit of difference in the name of the authorities. Whereas in Singapore, there are ACRA and IRAS, in Hong Kong, the file will be sent to the Companies Registry (CR) and the Inland Revenue Department (IRD).
The banking industry plays an essential role in both Singapore’s and Hong Kong’s economies. Both countries possess a fully regulated and sound financial system with the presence of the majority of the strongest banks in the world. Overall, banking facilities and services in these two jurisdictions are well–developed for worldwide use with multi-currency and online banking.
According to the 2019 GCR (Global Competitiveness Report), Singapore was ranked first and Hong Kong was in seventh place in terms of labor market efficiency.
In connection with the quality of the workforce, Hong Kong’s employees are normally English-educated although they are more comfortable with speaking their main language – Cantonese or Mandarin – in daily life. Thus, the Hong Kong workforce is an ideal choice if you are trying to focus your market on nearby countries such as Taiwan and China.
In Singapore, there is a significant number of highly educated and well–trained employees from both local universities and foreign ones. Not only English, but Singaporeans can also communicate fairly in 3 other languages which are Chinese, Malay, and Tamil. Not to mention the fact that most of its people are bilingual fluently. Being well-known for building everything from precise knowledge, as well as being an international hub with various platforms, Singapore attracts the flow of the world’s best talents into its industry.
In terms of immigration, Hong Kong and Singapore both provide an open immigration policy with appropriate work visa provisions for foreigners who wish to set up their businesses in these jurisdictions.
Although Singapore has slightly tightened its overall immigration recently, it still continues to encourage the immigration of highly–skilled and innovative foreign investors and employees who are willing to establish their businesses or work inside its territory. Each of them who meet the qualification above can start setting up a company or be employed under different types of work pass subject to their respective criteria such as EntrePass (Entrepreneur Pass – a word pass permits entrepreneurs who want to start and operate a new business in Singapore) or Employment Pass.
Turning to Hong Kong, nationals of about 170 countries and territories are allowed visa-free visits to this destination for periods ranging from 7 to 180 days. Short-term visitors are allowed to enter Hong Kong on a visitor visa to conduct their business negotiations and sign contracts.
Besides, the government has also introduced appropriate work visa provisions, to cater to the needs of entrepreneurs who may wish to relocate to Hong Kong to run their business or who may want to hire foreign professional employees to work in their company, or those who would like to move to the country for lawful employment purpose.
Cost of living
Wise investors or entrepreneurs will always spend their time evaluating the cost of living before going to the final decisions in the incorporation process. ECA International’s rank in 2019 shows that Hong Kong is ranked as the most expensive city in Asia and fourth in the world. Thus, expatriates have recently preferred Singapore as their destination over Hong Kong.
If you are looking for housing in these jurisdictions, the rental for an apartment in Hong Kong is more expensive than in Singapore, about 47% higher, according to CBRE’s fifth annual Global Living Report released in April 2019. In regard to education costs, it can be found that tuition fees for children at international schools are lower in Singapore.
On the other hand, Hong Kong has been announced to have increased the fee. For those who are seeking domestic help, the costs related to food and health care are slightly cheaper in Singapore.
To sum up, Hong Kong and Singapore all proved themselves potential destinations for setting up new businesses. However, through many outstanding points, it can be seen that Singapore has captured more attention of companies and entrepreneurs all over the world. It has become Hong Kong’s most immediate competitor from many economic angles and will soon turn into the more preferred international business destination in the Asia Pacific.