Entity Set Up-

a Hong Kong or a Singapore

Company?

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Hong Kong and Singapore have always been seen as two fierce competitors that try to attract foreign
investments. Both are similar in many ways, and yet, individually possesses competitive advantages over
the other.

Hong Kong is a Special Administrative Region (“SAR”) of China. Under China’s “one country, two systems”
concept, Hong Kong retains its owns judicial and economic framework and sets its economic policies
under the management of its Chief Executive.

Singapore, on the other hand, gained independence from British rule, and, as a result, inherited the Brit-
ish judicial system and political framework, very similar to Hong Kong.

The guide sets out the features and advantages that each city may have as a holding company location,
in terms of tax efficiency, administrative requirements and other relevant factors.

Incorporation cost and requirements

The cost of incorporating a company in Hong Kong and Singapore are largely similar. According to the
World Bank’s 2016 “Ease of Doing Business” index, Singapore scored #2, while Hong Kong scored #4.
Score of #1 = most business-friendly regulations.

There is no minimum capital requirement for setting up a Hong Kong entity, while Singapore requires a
minimum of SGD 1.

Audit and Tax filing costs

Statutory annual audit and tax filing costs do not differ significantly between the two locations, as the
corporation laws and tax requirements are similar.

On-going accounting/compliance costs

The on-going compliance costs of the Singapore are slightly higher than that in Hong Kong, mainly
because of the quarterly GST filing requirement in Singapore (if revenue thresholds are met). Otherwise,
compliance and filing requirements are largely similar.

Director and Shareholder requirements

Currently, a Hong Kong private limited company is only required to have one shareholder and one direc-
tor (whereas a Hong Kong public listed company is required to have one shareholder and two directors
at a minimum). There is no restriction regarding the citizenship of the director and shareholder. The same
person can act as both director and shareholder of a Hong Kong company.

A Singapore Company can be incorporated with a minimum of 1 director. There must be at least one
director who is a Singapore resident, i.e., a Singapore citizen, permanent resident, or employment pass
holder. If the Singapore Company has more than 1 director, the other directors may be non-resident
foreign nationals.

A Singapore company can have only one shareholder who may be an individual or a corporate entity.
Similar to Hong Kong, the same person can act both as a director and a shareholder of the Singapore
Company. There is no restriction on foreign equity participation in a Singapore company.
 Employee payroll tax compliance
In Hong Kong, there is currently no obligation on an employer to withhold personal income tax at source.
There are employer reporting requirements, which include an annual return for each employee on remu-
nerations paid, and a return when any employee joins or leaves. The Mandatory Provident Fund (MPF)
pension scheme requirements can be administered by third party providers.

Similar to Hong Kong, there is no requirement for a Singapore employer to withholding personal income
tax. The employer needs to file an annual employer return that summarizes the total payroll amount for
each year. The employee is responsible for his/her personal income tax reporting.

Central Provident Fund (pension) is mandatory and comprises contributions made by employers and em-
ployees at periodically-adjusted rates based on the remuneration of employees who are Singaporeans or
Singapore permanent residents.

Taxation considerations
In terms of corporate tax, Hong Kong has some significant tax advantages as a holding company loca-
tion:

• Low corporate tax rate: Hong Kong’s 16.5% for year of assessment 2017, compared to Singapore’s
17%;
• Hong Kong does not impose a tax on dividend or (potentially) interest income. Comparatively, Singa-
pore levies tax on foreign dividends received in certain cases, subject to double taxation relief;
• There is no tax on any other offshore income in Hong Kong, whereas Singapore imposes tax on such
income when they are remitted into Singapore;
• There is no capital gains tax in either country;
• There are no withholding taxes (except a small withholding on certain royalties) in Hong Kong. Com-
paratively, Singapore imposes withholding tax on royalties and interest;
• There is no VAT/GST in Hong Kong, whereas Singapore imposes a 7% GST;
• For employees of the holding company, both Hong Kong and Singapore have relatively low personal
income tax rates;
• Hong Kong generally has a simple and straightforward tax system;
• Comparatively, Singapore has a more complex system with potential tax incentives and exemptions.

Other relevant commercial factors

Other factors to consider include the following:

• Both locations have market-driven, business-friendly environments, with low government interfer-
ence;
• Stable currencies: Hong Kong currency (HK$) is pegged to the US$; Singapore dollar (S$) is consid-
ered a safe haven, backed by Singapore’s deep foreign reserves;
• No foreign exchange controls are in force at either location;
• No restrictions on repatriations of capital/earnings from Hong Kong or Singapore;
• Both are already the location of choice for many regional headquarters operations:

– Hong Kong’s central location in relation to the major Asian markets;

– Singapore has established itself as a financial services hub.

In summary, given the absence of a tax on offshore income streams, no capital gains tax on disposals,
and no withholding taxes on payments out, a Hong Kong holding company may be tax neutral with no
tax cost attributable to the flow-through of funds.

While a Singapore holding company may offer a similar tax result for a single investment, it is likely to be
less attractive where multiple investments in a variety of jurisdictions are involved due to its tax rules.

The two common perceived disadvantages of Hong Kong are: (i) lack of tax incentives; and (ii) absence of
an extensive tax treaty network. Specifically:

• The lack of tax incentives is because Hong Kong has a low tax rate/exemption of offshore income –
thus it may not be necessary to provide incentives to be tax-attractive;
• The Hong Kong Government has been actively negotiating Avoidance of Double Taxation Agreement
(“DTA”) with various countries in recent years.

Hong Kong also has the advantage of having the China-Hong Kong Closer Economic Partnership Agree-
ment (“CEPA”). CEPA provides market access privileges to China including reduced financial and owner-
ship restrictions and lower entry thresholds.

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