Which is an ideal jurisdiction for company incorporation in Asia? Singapore and Hong Kong have been dominant players in the Asian region, vying for the position of “the best place to do business.” But the crucial questions are, which of these jurisdictions have an edge over the other? Is incorporating a business easier in Singapore or in Hong Kong?
Strategic location and attractive tax benefits make Singapore the most preferred location for the overseas companies to set up their business. Various options are – opening up a Branch Office, a Representative Office or a Subsidiary in Tanjong Rhu . The country also has liberal immigration policies. If the company wants to set up their regional head quarters in Singapore they are also provided with Financial Assistance.
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A key determinant for setting up a business in Tanjong Rhu is the tax regime in force. In this regard Singapore boast of being one of the lowest tax jurisdictions in the world. Detailed below is an overview of the tax system and Audited Accounts in Singapore.
Tax jurisdiction Singapore: Taxes are levied on a territorial principle i.e. companies and individuals are taxed on Singapore sourced income. In addition, the Foreign sourced income (branch profits, dividends, service income, etc.) are taxed when it is remitted or deemed remitted into Singapore unless the income was already subjected to taxes in a jurisdiction with headline tax rates of at least 15%.
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Which is an ideal jurisdiction for company incorporation? Singapore and Hong Kong have been dominant players in the Asian region, vying for the position of "the best place to do business." But the crucial questions are, which of these jurisdictions have an edge over the other? Is incorporating a business easier in Singapore or in Hong Kong?
Minimum Statutory Requirements:
- Singapore: a local registered address (commercial or residential but no PO Box), a local resident director, a local resident and qualified company secretary, a shareholder (individual or corporate), minimum paid up capital of SGD 1.00 (no authorized capital required)
- Hong Kong: a local registered address (commercial or residential but no PO Box), a director (local or foreigner), a local resident company secretary (individual or corporate), a shareholder (individual or corporate), minimum paid up capital of HKD 1.00 + authorized share capital of HKD 10,000 represented by 10,000 ordinary shares of HKD 1.00 each
- Singapore: 1 working day
- Hong Kong: 4-7 working days
- Singapore & Hong Kong: 100% foreign ownership allowed
- Singapore: Current corporate income tax rate - 18%. However, corporate income tax rate effective 2010 - 17%. Note: The effective tax rate is much lower - below 9% for profits up to SGD 300,000 and capped at 18% for profits above SGD 300,000
- Hong Kong: Current corporate income tax rate - 16.5%
Fees for company incorporation with Companies Registrar:
- Singapore: SGD 315
- Hong Kong : HKD 1,720 + capital fee of HKD 1.00 for every or part of HKD 1,000 of the nominal share capital (capped at HKD 30,000)
Fees for company registration with tax department:
- Singapore: Nil
- Hong Kong - HKD 2,450 (1 year registration certificate) or HKD 6,550 (3 year registration certificate)
Annual Filing Requirements:
- Annual returns along with audited annual accounts must be filed with Companies Registrar within one month of the Annual General Meeting.
- Tax returns along with audited accounts must be filed with the Inland Revenue Authority of Singapore by 31 October each year.
- Note: Dormant companies (i.e no accounting transactions for the financial year) and exempt private companies (not more than 20 shareholders and shares are not held by another company) with an annual turnover of less than SGD 5 million are exempt from audit requirements for both annual returns and tax returns. These companies can file unaudited accounts.
- Annual returns must be filed with the Companies Registry once in every calendar year (except in the year of incorporation) within 42 days after the anniversary of the company's date of incorporation. Private limited companies are exempt from submitting accounts along with the annual return.
- Tax returns along with audited accounts must be filed with the Inland Revenue Department by 31 April each year. The auditor must be a member of the Hong Kong Institute of Certified Public Accountants and must hold a practicing certificate. Dormant companies (i.e no accounting transactions for the financial year) and small corporations (i.e total gross income does not exceed HKD 500,000) are exempt from audit requirements and can file unaudited accounts.
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Tax information exchange agreement (TIEA) is an agreement between parties to transfer domestic tax information. It possesses no benefit to private third party. In fact, the government is the only party getting the benefit. The existence of such an arrangement will affect financial secrecy. It is considered as an important feature for some offshore investors. Experts of offshore banking and investments would not suggest their clients to do business in a country with a TIEA attachment.
TIEA is implemented to avoid a harmful tax practice. According to Organization For The Economic Co-Operation and Development (OECD), the lack of effective exchange of information is one of the key criteria in determining harmful tax practices. It even has a working group aimed to develop a legal instrument that could be used to establish effective exchange of information. The Agreement represents the standard of effective exchange of information for the purposes of the OECD's initiative on harmful tax practices. The OECD even has developed a manual and tool-kit for automating the process of information exchange between countries. It also lists countries, which deemed to be unco-operative. Andorra, Liechtenstein, and Monaco listed by The OECD's Committee on Fiscal Affairs as unco-operative tax havens.
A recent act by the OECD was forcing tax haven characterized countries to favour for greater transparency and exchange of information. Singapore and Hong Kong was among the countries devoted to such and arrangements with OECD countries. Both of them were categorized as a tax haven country by offshore specialists.
For individuals this could means less privacy and little space to move. Tax haven is great place for an internet-based business. Own a monetized website, create an offshore account in a tax haven country, and you have a tax-free income. However, this strategy would soon be neglected, since the information and exchange agreement would be implemented and propagate rapidly. For your own convenience, offshore investment as a tax avoiding strategy should not be relied on. Contact a well-known CPA's or tax consultants for a better and legal tax minimizing strategy.