How to Pick Between Hong Kong or Singapore for Your Asian Business Hub

Every year Hong Kong and Singapore leap over every hurdle The Economist, the Heritage Foundation, and any other think tank with a penchant for rankings can throw at them.

They compete for gold in categories like “Ease of Doing Business,” “Economic Freedom,” and “Most Likely to Make Your Accountant Swoon.”

It’s like watching the Olympics, but instead of “Faster, Higher, Stronger,” the motto is “Easier, Cheaper, More Business-Friendly.”

Hong Kong boasts proximity to mainland China and low tax rates. Singapore, not to be outdone, has more trade agreements and government incentives.

This guide will take you on a whirlwind tour of two of Asia’s most business-friendly cities and try to answer the eternal question that keeps aspiring tycoons and corporate strategists up at night: “Where should I plant my flag in Asia?”

Business Setup

When it comes to setting up a business, both Hong Kong and Singapore offer fast and straightforward processes, typically completed within less than a week. Minimum capital is minimal (1 HKD for HK and 1 SGD for SG) and 1 shareholder and 1 director are required. One specific requirement in Singapore is that at least one director must be a resident which makes it slightly more expensive.

Taxation

Hong Kong boasts one of the most attractive corporate tax environments in the world. The corporate tax rate is 8.25% on profits up to HKD 2 million, and 16.5% on profits above that threshold. Notably, there is no tax on dividends, capital gains, or other similar taxes like VAT or GST, which further enhances Hong Kong’s appeal as a low-tax jurisdiction.

In the latest 2024 budget, Hong Kong introduced tax incentives including a 100% profit tax reduction capped at HKD 3,000 and specific incentives for high-net-worth families to set up family offices. The city also offers a patent box tax incentive that reduces the tax rate to 5% for profits from qualifying intellectual property.

Singapore’s corporate tax rate is slightly higher at 17%, but the country offers numerous tax incentives and exemptions that can significantly lower the effective tax rate for qualifying companies. The Start-Up Tax Exemption (SUTE) scheme provides a 75% exemption on the first SGD 100,000 of chargeable income and a 50% exemption on the next SGD 100,000 for the first three years, designed to support newly incorporated startups. Additionally, there is a Partial Tax Exemption (PTE) that offers a 75% exemption on the first SGD 10,000 and a 50% exemption on the next SGD 190,000 of chargeable income. The 2024 budget includes further incentives such as a Corporate Income Tax (CIT) rebate of 50% of tax payable, capped at SGD 40,000, and a cash grant for eligible companies employing local staff.

Personnel

Hong Kong’s labor market is characterized by a wide availability of skilled professionals with expertise in both Chinese and Western business practices. The average monthly personnel cost ranges from HKD 25,000 to 36,000, depending on the industry and role. Managing personnel costs in Hong Kong is relatively straightforward, with simple payroll processes and a mandatory contribution to the Mandatory Provident Fund (MPF).

Singapore offers a similarly skilled workforce, with a strong emphasis on high-skilled employment and cultural proximity to Southeast Asia. The average monthly personnel cost in Singapore is around SGD 4,500. Although managing payroll and employee benefits in Singapore involves a more multifaceted process, including contributions to the Central Provident Fund (CPF) and other levies, the system is well-organized and efficient. Singapore also actively encourages the hiring of top talent through various incentive programs, making it a highly competitive market for skilled labor.

Compliance

In Hong Kong, companies are required to file an annual return, maintain a valid business registration, and have their financial statements audited by a registered Hong Kong CPA. The profits tax return must be filed annually, and there are specific requirements for maintaining company records and compliance. This robust compliance framework ensures transparency and accountability but does require ongoing administrative efforts.

Singapore’s compliance requirements are also straightforward but slightly more lenient in some respects. Companies are required to hold an Annual General Meeting (AGM) and file an annual return, but business registration does not need annual renewal. Audited financial statements are only required if a company meets two of the following three criteria: total annual revenue exceeds SGD 10 million, total assets exceed SGD 10 million, or the company has more than 50 employees. This makes compliance in Singapore more scalable, especially for smaller companies or startups.

Double Taxation Agreements and Trade Benefits

Double taxation occurs when the same income or profit is taxed by two or more jurisdictions, creating an overlap in taxing rights. To address this, Double Taxation Agreements (DTAs) provide clarity on the tax obligations of the contracting parties, helping investors better understand their potential tax liabilities from economic activities. These agreements serve as a strong incentive for foreign companies to do business in Hong Kong or Singapore, and conversely, for businesses based in these locations to expand internationally. Hong Kong and Singapore actively negotiate DTAs with their trading partners, covering various types of income, to minimize the risk of double taxation for their residents and those of their DTA partners.

As of June 2024, Hong Kong has signed Comprehensive Double Taxation Agreements (CDTAs) with 50 jurisdictions and is in negotiations with 17 jurisdictions. This extensive network provides significant tax relief and reduces the risk of double taxation for businesses operating internationally.

Singapore has signed around 100 DTAs with various countries, making it highly attractive for international businesses seeking to optimize their tax liabilities and expand globally.

In terms of trade agreements, Singapore is a member of ASEAN, benefiting from free trade agreements within Southeast Asia, including treaties with all 10 ASEAN member states, which allows for reduced tariffs and improved market access across the region. Singapore also participates in several significant trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Singapore Free Trade Agreement (EUSFTA), further enhancing its attractiveness as a global trade hub. Hong Kong also benefits from various free trade agreements, but its unique advantage lies in its Closer Economic Partnership Arrangement (CEPA) with Mainland China, providing preferential access to the Chinese market for goods and services.

How Can Monx Help You?

Choosing between Hong Kong and Singapore for your Asian business hub can be challenging, but Monx is here to help. We offer expert guidance on business setup, tax optimization, and compliance in both jurisdictions. Whether you prefer Hong Kong’s simplicity and access to China or Singapore’s robust trade networks and incentives, Monx provides tailored support to ensure a smooth and strategic setup. Contact Monx by emailing us at hello@monx.team today to get started!