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Singapore vs Hong Kong for best place to do business

For over a decade, Singapore and Hong Kong have been competing for the number 1 spot for doing business in Asia. In fact, they are both included in the top jurisdictions for incorporation throughout the world.

If you are looking for a potential and favorable environment to build up and grow your business, Singapore and Hong Kong are the ones to be considered. Let’s go over this article as BBIncorp will compare the two jurisdictions regarding their crucial business-related aspects.

1. Singapore vs Hong Kong:  Ease of Doing Business

According to Doing Business 2020a reliable ranking report – by The World Bank, both Singapore and Hong Kong are included in the top 3 in regard to ease of doing business. In particular, Singapore secures its place in the second place, leaving the first place to New Zealand. Right below stands Hong Kong, in the third position.

Doing business ranking 2020

Scanning through the previous Doing Business reports, it showed that Singapore has impressively maintained its position in the top 3 over a decade. In 9 out of 10 years, it was rated first and second place for ease of doing business, only in 2015 did it fall off to the third position.

Meanwhile, within the same period, Hong Kong has witnessed some larger changes in its ranking (compared to Singapore). Starting off in the second place from 2010, Hong Kong experienced some downfalls to the fifth and fourth place a couple of times before securing its position in the third place in the Doing Business 2020 report.

The statistics may draw out an overall thought that Singapore is somehow more stable than Hong Kong when it comes to maintaining as a favorable jurisdiction to do business.

2. Singapore vs Hong Kong: Starting A Business

As of May 2019, the World Bank has rated Singapore fourth and Hong Kong the following fifth place in respect of starting a business. This is backed up by the fact that the incorporation processes in both countries are rather fast and not too complex. Indeed, you can open a company in both Singapore and Hong Kong within a few days, sometimes only within hours.

Starting a business

3. Hong Kong vs Singapore: Legal Requirements

3.1. Director

One major difference between Singapore and Hong Kong in respect of incorporation lies in the director:

If you have no eligible person to register as your company’s director in Singapore, then you have to pay more to sign up for a nominee director. This person is locally registered with the Singapore government and will take on the responsibility for being a director of your company.

On the other hand, all directors in Hong Kong can be non-residents. With those things being said, Hong Kong has an advantage in terms of finance, meaning you are likely to pay less when opening a company in Hong Kong than in Singapore.

3.2. Audit

Overall, there are 3 annual compliance requirements that limited liability companies in both Hong Kong and Singapore need to comply with:

  • Holding annual general meetings;
  • Filing related annual returns;
  • Auditing;

However, there is a difference between the two countries for the audit requirement. In Hong Kong, all companies need to do auditing, meaning the fees for auditing is quite unavoidable.

Meanwhile, if your company is deemed as a small-scale company, it can be exempted from such an audit requirement (to know how a small company is defined in Singapore, read this article). Thus, in case you aim to open an eligible small company in Singapore, you may save quite a sum of money not to do auditing in this nation.

4. Singapore vs Hong Kong: Taxation

Taxation

At a glimpse, it seems like Hong Kong has a more favorable tax regime than that of Singapore. Both nations apply the territorial tax system, meaning only income generated inside these jurisdictions is subject to income tax.

However, foreign income when being remitted to Singapore may be taxed (foreign income can still be exempt from tax if it satisfies some specific requirements). This is the main underlying disadvantage of Singapore when compared to Hong Kong.

Singapore Hong Kong
Income generated inside the jurisdiction Taxed Taxed
Income generated outside the jurisdiction Taxed if remitted to Singapore (it can be exempt under some circumstances) Not taxed
Goods and service tax 7% None
Capital gains tax None None
Dividend tax None None
Withholding tax Yes  Yes 
Number of tax treaties with other nations About 80 About 40
Corporate tax A flat rate of 17% 8.25% for the first 2 million HKD

16.5% for the rest

Tax incentives Many Fewer

Let’s dissect deeply into the corporate income tax. Just by a quick look, you will assume that the payable corporate tax in Hong Kong is pretty much lower than Singapore (8.25% and 16.5% compared to 17% tax rate). But that is not really the case. There are more factors to be considered to know that the payable corporate tax in Singapore is in fact as low as that in Hong Kong (sometimes even lower).

The reasons behind this are because of many tax beneficial schemes available in Singapore. Basically, there are 2 schemes that make the actual payable corporate tax Singapore much lower:

  • Tax exemption scheme for startups or Partial tax exemption for all companies; and
  • Yearly corporate tax rebate.

Particularly, if your company is eligible for the partial tax exemption scheme for all companies in Singapore, it will be entitled to a 4.25% effective rate for the first 10,000 SGD and 8.5% effective rate for the next 190,000 (the amount exceeds 200,000 SGD will be taxed at 17%).

Let’s compare the two jurisdictions to see where you will pay more corporate tax on the equivalent amount of income. For more information, you are suggested to review the partial tax exemption scheme in Singapore here.

Example 1:

Assume that the taxable income of your company is 800,000 HKD in Hong Kong (equivalent to 142,000 SGD in Singapore, applying the current currency exchange). Here the payable corporate tax in each jurisdiction:

Hong Kong:

You have to pay: 800,000 (HKD) x 8.25% = 66,000 HKD = 11,600 SGD (applying the current currency exchange).

Singapore:

The taxable income is 142,000 SGD (equivalent to 800,000 HKD).

The payable tax when applying for partial tax exemption scheme for all companies: [(10,000 x 4.25%] + [(132,000 x 8.5%)] = 11,645 SGD.

Your company continues to benefit from the annual corporate tax rebate (25% in 2020). So, the tax amount you need to pay = 11,645 – (11,645 x 25%) = 8,734 SGD.

Note: If you apply the tax exemption scheme for start-ups, the tax amount you need to pay in Singapore is even lower (only 5,865 SGD).

The idea to be made here is the tax amount you pay in Hong Kong is not always much lower than in Singapore. In fact, the example above illustrates that, with an equivalent amount, you pay less tax in Singapore.

Example 2:

Assume that the taxable income of your company is 2,000,000 HKD in Hong Kong (equivalent to 353,000 SGD in Singapore, applying the current currency exchange). Here the payable corporate tax in each jurisdiction:

Hong Kong:

You have to pay: 2,000,000 (HKD) x 8.25% = 165,000 HKD = 29,133 SGD (applying the current currency exchange).

Singapore:

The taxable income is 353,000 SGD (equivalent to 2,000,000 HKD).

The payable tax when applying for the partial tax exemption scheme for all companies: [(10,000 x 4.25%] + [(190,000 x 8.5%)] + [(153,000 x 17%)] = 42,585 SGD.

Your company continues to benefit from the annual corporate tax rebate (25% in 2020). So, the tax amount you need to pay = 42,585 – (42,585 x 25%) = 31,938 SGD.

Note: If you apply the tax exemption scheme for start-ups, the tax amount you need to pay in Singapore is much lower (29,070 SGD as calculated).

Example 2 again shows that the tax amount paid in Hong Kong is not always much lower than in Singapore, the difference may be quite small. There are many circumstances you pay less tax in Singapore (example 1).

In conclusion, regarding taxation, Singapore has more beneficial schemes and tax incentives. However, these schemes are only available to resident companies. Thus, if your company tends to do business mainly inside the jurisdiction, Singapore is slightly a better option since it offers you more flexible ways to minimize payable taxes.

But if your company plans to provide services outside the jurisdiction, Hong Kong is the better option to go since foreign income is exempt from being taxed.

5. Singapore vs Hong Kong:  Political Climate

In respect of political stability, Singapore certainly comes on top. Over the years, the government has done a fantastic job bringing transparency and non-corruptions to the whole region and its pro-business environment, without lowering its competitiveness (Singapore secured its first place in the Global Competitiveness Index 4.0 2019 Ranking while Hong Kong stands at the third place).

On the other hand, there are many things to say about Hong Kong. But let’s not go too deep into politics here. Although Hong Kong significantly benefits from being a gateway to China, there are considerable risks to its political stability. Recently, the world has witnessed some serious protests in the region, which caused severe recession and negative damage to the economy as well as many businesses.

Hong Kong national security law

Noticeably, the Hong Kong’s new national security law (in which Mainland China gets involved pretty much) has raised concern among foreign investors. The future of the jurisdiction becomes hard to predict.

If you plan to build up your company and do business mainly inside Hong Kong, then you should really consider such above risks.

6. Singapore vs Hong Kong: Workforce and Life Quality

Both Singapore and Hong Kong provide professional and high-qualified workforces. The majority of the workforce is well-educated and highly-trained.

As for life quality, Singapore has slightly been rated above Hong Kong. Singapore has retained its top place as the most liveable place for Asians. The mix of multiple cultures keeps the jurisdiction easy to globalize and westernized. Singapore is also rated way higher than Hong Kong for being one of the safest destinations in the world (according to Safe City Index 2019).

Top safest cities

7. Conclusion

All in all, both Singapore and Hong Kong are still ones of the best jurisdictions for incorporation. Overall, many global reports have shown that Singapore has a slightly higher ranking than Hong Kong.

You can still aim for Hong Kong to make use of the territory tax basis. As long as you can prove that your business income is generated from outside of Hong Kong, it can be exempted from being taxed. However, please keep yourself updated with the latest news relating to the jurisdiction since there have been ups and downs regarding political issues.

If you are looking for a potential yet stable economy to incorporate in, Singapore is a better option. There are many beneficial schemes and tax incentives that you can apply for minimizing taxes. With all the chaos happening around the world today, stability and transparency are something that hardly can be found. But those elements are always available in Singapore.

Should you have any further about incorporation in Hong Kong or Singapore, please contact our experts now! BBCIncorp is always willing to help!

Doing Business in Singapore 2020

The e-book will provide you with the latest information about incorporation process, annual compliance requirements, taxation system and hiring in Singapore.

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