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Singapore vs. Hong Kong: Where Should Foreigners Incorporate Their Offshore Companies?

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Singapore vs Hong Kong Where to incorporate ? Foreigner intending to register an offshore company?

Singapore and Hong Kong currently hold the top places in the World Bank’s Ease of Doing Business category. The two countries have been perceived as the future of international banking and trading centers in Asia. They have been also looked up to by their neighboring countries, such as India, Indonesia, Thailand, and Vietnam, for future investments. Hence, foreign business owners usually get confused where to grow their offshore companies—should it be in Singapore or in Hong Kong?

The Similarities Between Singapore and Hong Kong

  • Foreign Ownership – Singapore and Hong Kong allow 100% foreign ownership of businesses. Shareholders are also not required to give any shares to their Singaporean or Hongkonger business partners.
  • Capital Requirements – Minimum paid-up capital requirements are both very low for the two countries: it is S$1 in Singapore and none in Hong Kong.
  • Capital Gain Taxes – Singapore and Hong Kong have no capital gains taxes.
  • Capital Repatriation Limitations – Singapore and Hong Kong have no capital repatriation limitations.
  • Annual Audit and Tax Fees – Legal filing of audit and tax fees are almost the same in Singapore and Hong Kong. Rules about which companies should do audit are also similar.
  • Personal Tax Rates – Singapore and Hong Kong have low personal income tax fees for their holding company employees.
  • Quick Company Incorporation Processes – Singapore can complete a company incorporation process in only 15 minutes, while Hong Kong can complete it in an hour. Facilities in both countries are also readily available for use.
  • Efficient Legal Systems – Singapore implements strict laws on intellectual property, labor, employee wages, e-commerce, immigration, and so on. Foreigners can then benefit from its quick and efficient judicial system, especially if the case is business-related. Similar is the situation with Hongkong. Hong Kong is considered as one of the world’s primary arbitration authorities.
  • Business Environments – Singapore and Hong Kong have pro-business environments, which are evident in their quick business transactions, innovative business culture, highly skilled workforce, low tax fees, and great working atmosphere.
  • Preferred Locations of Regional Operations by Most Businesses – Singapore is recognized as a financial services center, while Hong Kong is associated with primary Asian industries.
  • Permanent Residency for Foreign Workers – Singapore foreign workers get to work in the country with an Employment Pass (EP) or Entrepreneur Pass (EntrePass) first. After a few years, they can be granted a permanent residency status. After a few more years, they can eventually apply for citizenship and get a passport. Meanwhile, Hong Kong foreign workers are granted a permanent residency status after a seven-year proper residency without the need for a visa status renewal, but they can not acquire a Hong Kong citizenship.
  • Competitiveness – Singapore’s economy is propelled by electronic, manufacturing, machinery, financial services, and tourism sectors. It also has a high GDP per capita, zero foreign debts, huge government surplus. Meanwhile, Hong Kong’s dynamic economy is propelled by its systems on free enterprise, free trade, and free markets. It also has a strong economy that contributes to its high GDP growth, no investment, foreign exchange and ownership limitations, zero public debts, enough foreign reserves, and anti-corruption policies.
  • Overall Quality of Life – Singapore and Hong Kong boast top-notch health care systems, reliable transport systems, prominent universities, well-educated population, and low crime rates.
  • Worldwide Recognitions – Singapore and Hong Kong have been recognized for numerous awards, some of which are:
    • World’s Easiest Place to Do Business (2015 World Bank Report)
    • Most Competitive Economy (2015-2016 World Economic Global Competitiveness Report)
    • Ease of Paying Taxes (2011 PWC Paying Taxes)
    • Openness to Trade (2010 World Economic Forum’s Global Enabling Trade Index)
    • World’s Freest Economy (Heritage Foundation’s Index of Economic Freedom)

The Differences Between Singapore and Hong Kong

Singapore or HongKong - Differences Between
  • The requirement to have at least one Locally resident Company Directors – Singapore requires the appointment of either a resident director for locally owned companies or nominee directors for foreign-owned companies whose foreign owners will be operating abroad. Meanwhile, Hong Kong does not have any restrictions like this. There is no such local director requirement.
  • Overall Tax System – Singapore implements a simpler direct tax system, while Hong Kong has a more territorial tax system.
    • Corporate Tax Rate – The corporate tax rate on a company net profit in Singapore is 17%, while it is only 16.5% in Hong Kong.
    • Dividend Tax – Singapore implements foreign dividend tax, while Hong Kong does not.
  • Double Taxation Agreement – Singapore has a double taxation agreement or double avoidance treaties with 80 countries all over the world, while Hong Kong has such agreement or treaties with only 30 countries.
  • 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 (0% for ships and 2% on aircrafts). Meanwhile, Hong Kong does not implement withholding tax rates, but nonresidents must process their tax returns in the country.
  • Foreign-Sourced Income – Singapore companies are taxed on financial gains acquired in the country, as well as on foreign-acquired gains that are then sent to Singapore. Meanwhile, Hong Kong only taxes taxable financial gains acquired in Hong Kong. Offshore gains and many Hong Kong bank deposit interest income are also exempted even if they are sent to the country.
  • Business Losses – Singapore enables carry backward of business losses for 1 year with S$100,000 cap, while Hong Kong does not enable carry backward of business losses. Both countries enable carry forward of business losses indeterminately; however, in Singapore, it is put through the shareholding test.
  • Compliance Fees – Unlike Hong Kong, Singapore has a bit higher compliance fees due to its GST filing prerequisites.
  • VAT/GST – Singapore implements a 7% GST, while Hong Kong has none.
  • Free Trade Agreement – Singapore has a free trade agreement with over 20 countries, while Hong Kong has that agreement with only 3 countries.
  • Currencies – Supported by the country’s foreign reserves, Singapore dollar (S$) is considerably safe. Meanwhile, Hong Kong dollars (HK$) is pegged to the US dollars (US$).
  • Opening a Bank Account – Opening a bank account in Singapore is very convenient, which only takes three weeks for businesses owned by foreign promoters. Meanwhile, Hong Kong’s lack of company local directors tends to delay this kind of transaction. In many cases banks will refuse opening of account for foreigner promoted companies in Hing Kong.
  • Political Stability – Singapore has an exceptionally stable political system, while Hong Kong is gaining negative sentiments from business communities due to its previous and current political protests.

Company Incorporation in Singapore

Singapore or HongKong - Company Incorporation Pros

Pros

  • Sufficient business incentives
  • No audit prerequisites in most instances
  • Strategically located in the heart of Asia
  • With close proximity to huge, promising markets – Like Malaysia, Indonesia, Australia
  • High-caliber financial assistance for start-ups and existing businesses—that comes with government and private sponsorship
  • Excellent banking experiences
  • English-proficient manpower
  • Strong IP protection
  • Fast internet connection
  • Traffic-free roads

Singapore or HongKong - Company Incorporation Cons

Cons

  • Remittance taxation (depending on the kinds)
  • Occasional withholding taxes
  • Need to have a local director for your company

Company Incorporation in Hong Kong

Singapore or HongKong - Company Incorporation Pros

Pros

  • The option of filing an offshore claim status for Hong Kong companies which are operating in the country but gaining profits abroad
  • Tax-free goods and services
  • More affordable company incorporation processes and operations than Singapore
  • A wide variety of coworking venues, investment programs, and support for start-ups
  • Gateway to China - Businesses dealing to and from China are generally recommended to be incorporated in Hong Kong.

Singapore or HongKong - Company Incorporation Cons

Cons

  • Political instability over the years
  • Insufficient business incentives
  • Lack of English Speaking Manpower

The Verdict

With all of the factors that a business owner has to consider when putting up a business elsewhere, the political situation of a certain country remains to be the most essential one. Aside from its comprehensive tax laws, lesser payable taxes that come with numerous incentives, and stable economic system, Singapore clearly surpasses Hong Kong as the most recommended business incorporation destination in Asia due to its pleasant political climate.

Of course, if your business dealings are primarily with China, then, in that case, you may consider registering a company in Hong Kong, otherwise, Singapore is a clear winner.

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