Taxation Matters Report (Singapore & Hong Kong)
Taxes are on top of the agenda for any entrepreneur and one of the key considerations for setting up a business in a given jurisdiction. One of Singapore’s unique advantages is its low effective personal and corporate tax rates. Personal income tax follows a tiered system in both regions. You can consider moving both your companies tax residency and your personal tax residency to Singapore for cost savings on tax.
Singapore and Hong Kong Differences in Personal Income Tax
In Singapore, the personal income tax rate starts from 3.5% and goes up to 20% for income above SGD 320,000. Read more about Singapore’s tax rates here: https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/
In Hong Kong, personal income tax, or salary tax as it is known, starts at 2% and goes up to 17% for income above HKD 120,000. Read more about Hong Kong’s tax rates here: https://www.gov.hk/en/residents/taxes/taxfiling/taxrates/salariesrates.htm
Despite the differences in percentage, Singapore’s net effective personal income tax rate (the real rate) is much lower than that of Hong Kong’s due to the way the tax progression is structured (the cap limit) Hong Kong reaches the limit much faster than Singapore as it has a lower ceiling (HKD 120,000 is roughly the equivalent of 20,000 SGD).
An example: a person earning USD 65,000 in Hong Kong would end up paying close to USD 6,500 as personal income tax. Whereas in Singapore, he would only have to pay approximately USD 4,000.
Singapore and Hong Kong Differences in Corporate Income Tax
Singapore’s headline corporate tax rate is a flat 17% at present. Companies are exempt from tax up to 100,000 SGD in profit generated per year, up to the first 3 consecutive years, the next 200,000 SGD of profit generated is exempt from 50% of tax. Read more on Singapores Corporate Tax Rate Here: https://www.iras.gov.sg/irashome/Quick-Links/Tax-Rates/Corporate-Tax-Rates/
In Hong Kong, corporate tax, (or profits tax as it is known), is set at 16.5% of assessable profits for corporations and 15% for unincorporated businesses. Read more on Hong Kong’s Corporate Tax Rate here: https://www.gov.hk/en/residents/taxes/taxfiling/taxrates/profitsrates.htm
Additional Considerations In order to make Singapore an attractive investment destination, corporate tax rates in Singapore have been going down consistently. Effective YA 2011 corporate income tax rate are reduced from 18% to 17% to help maintain Singapore’s competitiveness.
Characteristically, headline company tax rate in Singapore as in many other jurisdictions does not necessarily provide an accurate indication of effective corporate tax rate. The effective rate is normally lower than the headline tax rate due to applicable tax exemptions and tax incentives, depreciation rules, etc.
Once these tax exemptions are applied to the taxable income, the effective tax rates for small-to-medium sized Singapore companies is reduced significantly when compared to the corporate tax rate payable in Hong Kong.
Example: Effective corporate tax rate for Singapore private limited companies for profits up to SGD 300,000 is capped at 17% for profits above SGD 300,000. However, newly-setup Singapore incorporated start-ups enjoy full tax exemption on the first S$100,000 in profits earned for 3 consecutive years and 50% off the next S$200,000. With effect of 2010, the government has updated its partial and full-tax exemption schemes for start-ups as well, allowing start-ups to enjoy either Corporate Income Tax (CIT) rebates or Small and Medium Enterprise (SME) cash grants.
Stability, Progression & Corruption
Singapore is ranked as the 2nd most politically stable country in the world (behind Japan) with low corruption and unrest.
Hong Kong in the recent times have had issues due to the handover to China, and the increasing Chinese governance of the country has resulted in unrest (such as the recent riots). There are uncertainties regarding the policies, laws and governance of the country after the Chinese take over.
Ease of Banking and Accounting
Most entrepreneurs value having easy accounting and banking setups that allow them the highest convenience and flexibility. As such we use Xero as a benchmark for integration with banks.
HK – Only DBS & HSCB syncs with Xero
SG – DBS, HSCB, UOB & OCBC syncs with Xero
Read more about Xero Accounting Partners here: https://www.xero.com/hk/partner-programs/banking-partners/asia-banks/
Payment Gateways – Stripe
Stripe is a global platform supported in both Singapore and Hong Kong banks. Both countries have a low rate of online payment fraud for transactions. The pricing of both Singapore and Hong Kong for Stripe transactions are similar, 3.4% of transaction + 0.5 SGD for Singapore and 3.4% + 2.35 HKD for Hong Kong.
However, with increasing Chinese influence in Hong Kong, outside payment gateways may be pushed out of the market or may be charged higher transaction rates in favour of Chinese payment gateways, such as AliPay and WeChat Pay.
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