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Hong Kong and Singapore. Two small city-states with meteoric growth in recent decades… but which one is better if you want to set up a company?

Two small jurisdictions on land reclaimed from the sea where towering skyscrapers now stand. Two financial centers among the most prosperous in the world. Two comfortable metropolises that are poles of attraction for large foreign capitals.

Which one is better? Are they better than other locations in the world? How can you take advantage of them? We will try to answer some of these questions in today’s article.

What makes Hong Kong and Singapore so special?

Hong Kong and Singapore are in fierce competition with each other. Both are vying for the title of Asia’s most important international business, financial and commercial center.

Both are stable, capitalistic and financially sound. Both also have industry and two of the world’s busiest container ports. Furthermore, they often top numerous rankings.

For example, Hong Kong and Singapore often compete for the top spots in the World Bank’s Ease of Doing Business Index.

Why does not the rest of the world follow Hong Kong and Singapore’s lead? The answer could be stated in a long PhD thesis or summarized in a single sentence:

Hong Kong and Singapore understand market forces. Instead of fighting them unsuccessfully, they prefer to harness them.

What can Hong Kong and Singapore offer?

Neither Singapore nor Hong Kong can be considered true democracies. In fact, they cannot be said to defend the personal freedoms so dear to the West (at least on paper, because when we talk about personal freedom over what you do with your money or work, things change). However, they guarantee much better private property and the freedom to do business.

For example, you can benefit from the following advantages if you reside in one of these countries:

  1. Maximum tax burden of 20% even for the richest and much lower for the majority.
  2. No capital gains tax.
  3. No property taxes.
  4. No withholding tax on dividends.
  5. Duly incorporated offshore companies do not pay any tax, unless they have no local clients; in either case, the maximum tax rate of 17% (Singapore) or 16.5% (Hong Kong) would still be low.
  6. Transparent, fast and efficient business transactions.
  7. The most stable banks in the world.
  8. Private insurers and minimum insurance requirements.
  9. High security and quality of life.

Regarding the corporate income tax mentioned above (point 5).

In Singapore, companies are subject to a corporate income tax of 17% as long as such companies are destined or deemed to be destined for Singapore. In other words, if foreign income is held abroad, it is exempt from taxation.

  • Singapore offers a partial tax exemption for the first SGD 200,000 of income.
  • A partial corporate income tax exemption of 75% applies to the first SGD 10,000 of taxable income, and for the next SGD 190,000, a 50% exemption.
  • In total, SGD 102,500 of exemption, which at the date of writing this article is equivalent to €68,700.

For those start-ups that meet the eligibility requirements, there is an even greater exemption for a period of 3 years.

  • In this case, the 75% exemption applies on the first SGD 100,000 of taxable income and for the next SGD 100,000, a 50% exemption.
  • In total, 125,000 SGD of exemption, which at the date of writing this article is equivalent to €83,800.

Hong Kong has a territorial tax system. Any person or entity carrying on a trade, profession or business in Hong Kong is liable to corporation tax on profits arising in Hong Kong. Thus, profits earned abroad are exempt from taxation, even if they are transferred to Hong Kong.

Capital gains and income are tax-free. Taxable dividends from local companies are also exempt, as well as dividends from foreign companies, generally of the offshore type, which are also not subject to taxation in Hong Kong.

  • With regard to corporate income tax, Hong Kong companies pay a rate of 8.25% on the first 2 million Hong Kong dollars (HKD) of turnover, i.e. 232,500 euros.
  • Above this amount, the tax rate is 16.5%.

How nice it would be if taxes were like this all over the world, but only 1% of the world’s population lives in Hong Kong and Singapore. This 1% lives on an equal footing with the state. They are not its subjects, but its guests.

The state is more of a service provider than a coercive institution.

Singapore or Hong Kong, who wins? Are they really the best choices for setting up a company?

Which of these two cities is the better choice? It is up to you to decide. Singapore and Hong Kong have comparative advantages in several areas.

Singapore might suit you if, for example, you want to start a business and need venture capital. The official language is English, and the procedures are somewhat more affordable and transparent than in Hong Kong, where Chinese influence is increasingly predominant.

In Hong Kong, you will be better placed for finance and investment matters. The direct link with China and the presence of international banks and other institutions make Hong Kong a more competitive place in this sector. Although, of course, the political situation vis-à-vis China can also be a disadvantage.

Singapore enjoys advantages in foreign exchange, precious metals and private banking, while Hong Kong wins at foreign trade, international trade and investment banking. However, rather than pitting them against each other, it is preferable to consider them as complementary.

If you choose to diversify in both countries (as well as others), you will be very well positioned.

Hong Kong and Singapore are among the best countries in the world for doing business. Since this situation should continue in the future, you should keep an eye on these two city-states.

Thanks to their relative proximity to other emerging Asian countries such as Malaysia, the Philippines and Thailand, these cities can be hubs from which to conquer other markets.

However, it is important to keep in mind that for most cases, neither Hong Kong nor Singapore would be the best option. If you are not going to live there or you do not want to do business in the area, it probably makes more sense to set up a company in the United Arab Emirates, Malta or Romania, or create an LLC in the United States. Even so, we wanted to explain again why Singapore and Hong Kong could be interesting options to grow your business.

If you are considering incorporating a company or migrating to Singapore or Hong Kong, do not hesitate to contact us. And if you need help to better understand the most suitable options for you, you can book a consultation with us.

Because your life is yours!

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