For several decades, Asian countries have been the prefered business location for entrepreneurs worldwide. Asia has become a welcoming ground for aspiring business tycoons due to its stable government, strict yet supportive financial regulations, and numerous tax breaks for startups.
According to World Bank reports, the top five Asian countries for foreign entrepreneurs to enter are Hong Kong, Singapore, Malaysia, Thailand, and Taiwan.
Singapore and Hong Kong, among the listed countries, have always had some competition when it comes to offering business opportunities to residents and foreign businessmen.
Both countries provide numerous opportunities for businesses to expand into other countries and have cultivated their business ecosystems to be welcoming to new ventures while providing reasonable tax breaks.
Furthermore, both Singapore and Hong Kong are multicultural and have a high standard of living. Besides that, because both Singapore and Hong Kong use English as one of their official languages, many foreign entrepreneurs find it easy to expand their businesses in either countries.
In this article we will compare the incorporation systems of Singapore and Hong Kong, focusing on taxation and legal requirements in both regions. We know that deciding where you want to start your business in Asia is quite a challenge, but we hope that this article will help you to make the right choice.
The analysis of similarities and differences of incorporation of the most popular type of company - private limited company is presented below:
Similarities of Incorporation in Hong Kong and Singapore:
- Foreign ownership: Hong Kong and Singapore allow to keep 100% ownership of the business, without mandatory give of shares to its local citizens partners.
- Paid-up capital requirements: both very low for the two countries, its none for Hong Kong and $1 for Singapore.
- Online incorporation process: the incorporation process in Hong Kong and Singapore takes only few days and can be done online without of need to visit the country.
- Capital gains taxes: both countries have no capital gain taxes.
- Limitations on Capital Repatriation: Singapore and Hong Kong do not have any restrictions on capital repatriation.
- Annual Audit and Tax Fees: The audit and tax filing costs are nearly same in Singapore and Hong Kong. Similar rules apply to which businesses should conduct audits.
- Personal Tax Rates: for the company workers in Singapore and Hong Kong, there are low personal income tax rates.
- Effective Legal Systems: Singapore has strong rules in regarding things like intellectual property, e-commerce, labour. The country's effective legal system available to foreigners, particularly in cases involving business. The similar situation applies to Hong kong.
- Business settings: Singapore and Hong Kong both have supportive business environments, which are reflected in their efficient corporate processes, creative business cultures, highly trained workforces, affordable tax rates, and pleasant working surroundings.
Differences of Incorporation in Hong Kong and Singapore:
- Local resident director: Singapore requires at least one of the directors to be a local person or a holder of resident permit card, the regulations also allow to appoint nominee director. In the meanwhile, Hong Kong has no such limitations. There is no requirement to appoint a local director.
- Corporate tax rates: the corporate tax rate on a company net profit in Singapore is 17% and 16.5% in Hong Kong.
- Dividend tax: Singapore has a foreign dividend tax, but Hong Kong does not.
- Double taxation agreement: Singapore has double taxation agreements or double avoidance treaties with 80 countries worldwide, whilst Hong Kong has similar agreements or treaties with 30 countries.
- VAT/GST: Singapore implements a 7% GST, while none in Hong Kong
- Withholding tax rates: Singapore implements a 15% rate on office spaces, corporate tax rate on service charges, and 20% rate on director’s and charter charges while Hong Kong does not implement withholding tax rates.
- Foreign-Sourced Income: Singapore firms are subject to taxes on both domestically and internationally obtained financial gains that are transferred to Singapore. Hong Kong, on the other hand, only levies taxes on taxable financial gains made in Hong Kong. Offshore earnings and bank deposit interest income are likewise excluded.
- Business Losses: Hong Kong does not permit the carryback of business losses, but Singapore allows it for a year with a ceiling of S$100,000.
- Free trade agreement: Singapore has a free trade agreement with more than 20 nations, and only 3 with Hong Kong.
- Bank account opening: For companies controlled by foreign entrepreneurs, opening a bank account in Singapore is quite simple and only takes three weeks. The absence of local company directors in Hong Kong, meantime, sometimes causes this sort of transaction to be delayed. Banks frequently refuse to open accounts for businesses promoted by foreigners in Hong Kong.
Conclusion:Depending on the scale of your business, if you dealing to and from Mainland China, we will recommend you to choose Hong Kong, if you plan to work with South Asia and Australia, Singapore is more suitable choice.
Both Singapore and Hong Kong provide its citizens and entrepreneurs who develop their firms there a high standard of living. Both nations offer low tariffs on a variety of goods and services to support this and legal systems were modelled after British Common Law.
In our opinion Singapore gives more opportunities for startups and new businesses in terms of strategic location, financial assistance, great banking experience, English proficient manpower, sufficient business initiatives.