Starting a Business – Singapore vs Hong Kong
Where is the best place to set up your business in Asia? For entrepreneurs, it comes down to a decision between Singapore or Hong Kong.
Both cities offer foreign entrepreneurs a strategic beachhead location from where they can expand into some of the fastest growing economies including India and China.
Their pro-business policies make it easy to start a business while offering some of the lowest corporate and personal tax rates in the world. Their market-based business ecosystems are centres of innovation that attract top talent from around the globe. Both are multicultural and provide a high standard of living. And both recognize English as an official language.
At a first glance, both Singapore and Hong Kong seem to provide very similar offerings to foreign entrepreneurs. But how do they stack up, really? What can a foreign entrepreneur expect from each economy?
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Where you incorporate your business plays a major factor on the success of your business. The following article examines the key factors entrepreneurs must consider before deciding between starting a business in Singapore or in Hong Kong.
Incorporating a Company in Singapore vs. Hong Kong
Both Hong Kong and Singapore make it easy to incorporate a new company and offer entrepreneurs a variety of incorporation structures. However, for the purposes of this article, we will focus on the most popular business structure in Hong Kong and Singapore—the Private Limited Company.
In Hong Kong, to incorporate, a business must receive a certificate of incorporation from the Company Registry. Similarly, to start a business in Singapore, new companies must first register with the Accounting and Corporate Regulatory Authority (ACRA).
Below is a side-by-side comparison of the company incorporation requirements in Singapore and Hong Kong:
Both Singapore and Hong Kong offer two of the lowest corporate tax rates in the world at 17% and 16.5%, respectively. However, the headline rates do not show the whole picture. For the purposes of this article, we will look at the main distinctions in Hong Kong and Singapore’s tax schemes that affect foreign entrepreneurs: taxation of repatriated income, avoidance of double taxation agreements and government tax incentives.
Hong Kong uses a purely territorial tax system. Put simply, Hong Kong companies only pay taxes on Hong Kong sourced income and do not pay any taxes on foreign sourced income, including repatriated income. Similarly, the taxation system in Singapore is based on a modified territorial basis whereby Singapore-sourced income is subject to tax in Singapore and only certain foreign-source income is subject to tax upon receipt/remittance to Singapore.
Furthermore, in an effort to provide tax relief for businesses that source income abroad, both Hong Kong and Singapore have signed Avoidance of Double Taxation Agreements (DTA) with major economies including Mainland China, Canada, Japan the United Kingdom, and many other countries. Compared to Hong Kong’s 30 DTAs, Singapore has an extensive network of 79 DTAs.
Regarding government incentives, Hong Kong allows a partial tax exemption for the first HK$20,000 earned (approx. USD 2,560 as of July 2017). Additional government incentive schemes in Hong Kong primarily focus on the financial services industry.
In comparison, Singapore has taken major strides to provide government tax incentives that reduce effective tax rates by more than half on the first SGD300,000 of annual profits. For small to mid-size companies, this is an important factor. In addition, Singapore offers a variety of tax breaks for companies that invest in innovation, conduct charitable work and expand internationally.
Below is a summary of the key figures for corporate taxes in Hong Kong and Singapore.
|Corporate Tax Summary|
|Tax System||Territorial||Purely Territorial|
|Corporate Tax Rate||0-17%||16.5%|
|Capital gains Tax||0%||0%|
|Tax on dividends||0%||0%|
Hong Kong and Singapore both offer some of the lowest personal tax rates in the world. Also, both jurisdictions use progressive tax systems that do not levy taxes on capital gains, dividends, and inheritance (referred to as estate duty in Singapore).
Similar to corporate taxes, Hong Kong and Singapore use a territorial system for personal taxes. In general, this means individuals in both jurisdictions only pay taxes on Hong Kong or Singapore sourced income and only certain types of foreign sourced income. In the event an individual faces taxation in a foreign jurisdiction, both Hong Kong and Singapore provide double taxation relief through their network of DTAs.
Finally, both jurisdictions offer special tax exemptions for individuals who spend a majority of time working internationally.
In Hong Kong, individuals who “have spent considerable time rendering services outside HK” can claim partial or full exemption from paying taxes if they meet the following criteria:
- They can verify all services were performed outside of Hong Kong
- They did not stay in Hong Kong for more than 60 days in the taxable year
- They have already paid similar individual taxes in a jurisdiction outside of Hong Kong
- They are seeking double taxation relief for taxes already paid in Mainland China
In comparison, Singapore offers the Not Ordinarily Resident (NOR) Scheme to attract top foreign talent. Under NOR, a qualifying non-resident employee who spends more than 90 days outside of Singapore is only taxed based on the portion of the year they work in the City. In addition, any contributions made to an offshore pension fund are tax exempt.
The chart below provides a comparison of the personal tax regimes in Hong Kong and Singapore:
|Individual Tax Summary|
|Individual Tax Rate||Progressive rate 0-22%||Progressive rate 2-17%|
|Tax System||Territorial||Purely Territorial|
Inheritance (Estate Duty)
|Tax Exempt||Tax Exempt|
|Double Taxation Relief||Yes||Yes|
The competitiveness of Hong Kong and Singapore’s economies can be attributed to their pro-business policies that have created two of the best places for doing business in the world. The 2016 World Bank Doing Business project ranked Singapore as number 2 out of 190 countries surveyed while placing Hong Kong at number 4. Along with ease of doing business, Singapore and Hong Kong are internationally known for low corruption. According to the 2016 Transparency International Corruption Perception Index, Hong Kong ranked number 15 out of 176 countries and Singapore ranked number 7— making Singapore the least corrupt nation in Asia.
Although a part of China, the “one country, two systems” policy gives Hong Kong political, judicial and economic autonomy. The government of Hong Kong continues to help create one of the freest economies in the world that provides entrepreneurs a gateway into Mainland China.
Singapore’s parliamentary democracy has helped transform the Lion City into one of the strongest economies in the world. Singapore’s government is also known for its efficiency. In the World Economic Forum’s 2016-2017 Global Competitiveness Index, Singapore ranked number 1 in the world for its Public-Sector Performance.
FREE TRADE AGREEMENTS
Both governments have worked to sign bilateral and multilateral free trade agreements (FTAs) to stimulate foreign trade.
Hong Kong has established four free trade agreements with top economies around the world including New Zealand, the EFTA member states, and Chile. In addition, The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) provides Hong Kong exporters, service providers, and investors preferential access into Mainland China.
Singapore has implemented 20 bilateral and multilateral agreements. With a commitment to free trade, Singapore continues to not only provide lower tariffs on goods and services, but also ensures easier access to major economies such as Australia, India, Japan, the United States and China.
As former British colonies, the legal systems in Singapore and Hong Kong are both based on the British Common Law. According to the 2016 Doing Business rankings, Hong Kong ranked number 21 for enforcing contracts while Singapore nearly topped the list at number 2.
In addition to efficiently resolving contract disputes in court, Singapore and Hong Kong’s legal framework provides world class arbitration and mediation.
INTELLECTUAL PROPERTY LAW
According to the 2016-2017 World Economic Forum Global Competitiveness Index, Singapore and Hong Kong respectively rank number 4 and number 13 for Intellectual Property Protection. Both the Intellectual Property Department of Hong Kong and the Intellectual Property Office of Singapore enforce strict laws protecting a variety of intellectual property including trademarks, copyright, registered designs, patents, breeder’s rights and layouts of integrated circuits.
Quality of Life
Singapore and Hong Kong both provide a high standard of living for entrepreneurs that want to make a permanent move to Asia. The 2017 Mercer Quality of Life Survey ranked Hong Kong number 71 in the world while Singapore came in at number 25, making it the top city in Asia. Both are two of the safest cities in the world with world class healthcare systems and highly educated populations.
It should be noted that Singapore and Hong Kong also rank as two of the most expensive cities in the world. The price of vices such as alcohol and tobacco tend to be higher in Singapore, while housing and basic staples generally cost more in Hong Kong.
Of the over 7 million people living in Hong Kong, over 90% are of Chinese origin. The de facto language in Hong Kong is Cantonese with a growing population of Mandarin speakers. English is spoken but not as widely as in Singapore.
Although not nearly as large, Singapore’s population of over 5 million people make up a diverse mix of cultures, ethnicities, religions and languages. The multilingual city has four official languages that include, Tamil, Malay, Mandarin and English. Finally, Singapore has a vibrant expat population with 2.1 million foreign national calling the City their home.
Facilities and Infrastructure
The World Economic Forum ranks Hong Kong and Singapore number 1 and number 2 respectively for overall infrastructure including roads, electrical supply, air transportation, ports and communication networks. Below highlights three of the most critical infrastructure concerns for entrepreneurs.
As stated by the World Economic Forum’s Global Information Technology Report, “The digital revolution is changing the nature of innovation…and…as the new digital economy becomes more established, the right framework conditions will be crucial to ensuring its sustainability”.
Singapore and Hong Kong have built two of the world’s most advanced digital infrastructures. The 2016 Global Information Technology Report ranked Hong Kong number 12 (above global digital economies including South Korea, Taiwan and Israel)— while Singapore was deemed the best country in the world for network readiness.
Asia’s major economies including, Japan, India, South Korea and China are all within a 5-7 hour flight from Singapore or Hong Kong. Additionally, both Singapore and Hong Kong see high volumes of air freight going to Europe and North America.
Singapore’s Changi Airport continues as number 1 in the Skytrax World’s Best Airport rankings for convenience of travel and safety while Hong Kong’s Chek Lap Kok Airport came in at number 5 in the 2017 rankings.
The Port of Hong Kong still ranks in the top 5 busiest Ports in the world, however, it has recently been outranked by the Ports of Shanghai and the Port of Shenzhen. The Port of Singapore, as the second busiest port in the world, continues to be a crucial stopping point for goods moving through Southeast Asia.
For entrepreneurs that want to penetrate deeper into the Mainland Chinese market, Hong Kong offers a distinct advantage. The combination of the “one country, two systems” policy and The Mainland and Hong Kong Closer Economic Partnership Arrangement allow entrepreneurs to access Mainland China while still enjoying the market-based policies of one of the freest economies in the world.
For new businesses and startups that want to expand in Asia in general, Singapore is the best option. With pro-business policies and government tax incentives, Singapore makes starting a new business both easy and cost effective. Finally, Singapore’s extensive network of double taxation treaties and trade agreements offer greater access to not only Asia, but also to global markets.