Operating a company: Singapore versus Hong Kong
or the past several decades, Singapore and Hong Kong have attracted global entrepreneurs with their pro-business policies, world-class infrastructure, and easy company incorporation process. Both jurisdictions have offered world-class banking, strong English common law-based legal systems, and low tax rates. Singapore and Hong Kong are small; as a result, the foreign investment has made a significant difference in the economy of both regions. It has enabled the creation of prosperous, well-functioning, market-based systems that provide strong welfare benefits and social safeguards for their citizens by judiciously using their tax revenues. But since 2019, things have changed significantly.
Singapore and Hong Kong companies: A comparison
Starting in June 2019, Hong Kong has faced a severe recession that was caused by widespread protests in response to the government's plans to permit extradition to mainland China. This was China’s most recent attempt to undermine the "one country, two systems" arrangement, under which Hong Kong is granted some autonomy and the several personal freedoms of its residents are protected. Critics feared the extradition law could undermine judicial independence and it could be used to stifle dissent. The bill was withdrawn in September 2019, but protests have continued, with the people demanding full democracy and an inquiry into police brutality. Another wave of turmoil started in May 2020, when China authorised a national security law for Hong Kong, radically expanding the powers of Chinese special services in the city and limiting the personal freedoms of its residents. If these measures succeed, Hong Kong will cease to be autonomous and will then gradually lose its status as a global financial center.
The country likely to benefit the most from Hong Kong’s troubles is Singapore. Singapore is now grabbing the largest-ever share of Southeast Asian foreign direct investments: in 2019, this amounted to US$110 billion, a 42 percent increase compared with 2018. Given the uncertainty, many Hong Kong business leaders are exploring Singapore as a place to relocate their companies to a secure and safe jurisdiction.
To assist in this exploration, the table below provides a comparison of the company incorporation and compliance requirements in Singapore and Hong Kong.
Company registration requirements
A company must have a minimum of 1 and a maximum of 50 shareholders, who can be local or foreign persons; 100% local or foreign shareholding is allowed. Shareholders can be individuals or corporate entities. A director and shareholder can be the same or different persons. Shareholders must be at least 18 years of age.
The minimum issued capital must be at least S$1.
There is no minimum share capital requirement.
A company can increase its share capital at any time by injection of additional capital.
A minimum of one director and unlimited maximum number of directors allowed. Both resident and foreign-resident persons can be directors. Individual directors must be at least 18 years of age and must not be bankrupt or convicted for any malpractices. There is no requirement for the directors to also be shareholders.
A company must have at least one Singapore-resident director.
‘Singapore resident’ refers to a Singapore citizen, a Singapore permanent resident or an Employment Pass holder.
Corporate directors are not permitted.
There is no resident director requirement.
Nominee corporate directors can also be appointed in addition to the individual directors. At least one director must be a natural person.
A company must appoint a qualified company secretary. The secretary must be a natural person and a resident of Singapore.
Appointing a qualified company secretary is also mandatory.
The secretary may be an individual or a corporate entity. If an individual, the secretary must ordinarily reside in Hong Kong; or if a body corporate, must have its registered office or a place of business in Hong Kong.
It’s important to note that if a company has only one director, that sole director may also be the sole shareholder of the company. But the same person cannot also serve as the company secretary.
To register a company, you must provide a local address as the registered address of the company.
The registered address must be a physical address and cannot be a PO Box.
The company name must be approved by the Companies Registry in Hong Kong or by the Accounting and Regulatory Authority in Singapore (ACRA) before you can proceed with the incorporation.
When incorporating a company you must pay two government fees:
When incorporating a company you should pay the following government fees:
Territorial tax system + tax on certain foreign-source income that is subject to tax upon remittance to Singapore.
Territorial tax system.
Number of double tax treaties
Corporate income tax
17%. But the effective tax rate is usually lower due to various tax incentives and tax exemptions available to Singapore-resident companies. For example, under the startup company scheme, new companies that meet the qualifying criteria receive the following tax exemption for the first three consecutive YAs:
Goods and services tax
7% (only businesses that exceed S$1 million in annual taxable turnover are required to register).
Capital gains tax
Dividends — none.
Interest — 10% on gross interest paid to non-resident with no business operation in Singapore.
Royalties — 10% on gross royalty paid to non-resident with no business operation in Singapore.
Dividends — none.
Interest — none.
Royalties — 16,5% on either 30% or 100% of gross royalty depending on qualifying conditions.
Foreign-sourced income tax
Formally, Singapore resident companies are taxed on profits derived abroad which are then remitted to Singapore. However, in most cases if such profits were taxed abroad, they are not taxable in Singapore under the Foreign tax credit scheme or tax treaty.
Register of controllers
Singapore obliges all companies to maintain an internal register of controllers that is a private company document, and periodically submit the relevant info to the central, non-public register of company controllers.
A controller is defined as an individual or entity that has “significant interest” or “significant control” in a company. In most cases it means a person who holds more than 25% of the issued shares.
Please find more details on who belongs to the category of “controller” and what data should be submitted to the register in our article.
Each company incorporated in Hong Kong must keep an internal significant controllers register.
Controllers in most cases are also persons who hold more than 25% of the issued shares.
The data to be kept in the register is similar to what is required in Singapore both for individual and corporate controllers. Please find more details here.
Annual compliance requirements
Singapore and Hong Kong companies have similar rules regarding general meetings. They are required to hold yearly Annual General Meetings (AGMs) of their shareholders unless they have chosen not to hold such a meeting by passing a shareholders’ resolution. In such a case, all matters ordinarily dealt with at the AGM can be settled through the passing of written resolutions.
In both jurisdictions, the company has to conduct the first AGM within 18 months from the incorporation date. Subsequently, it has to hold the AGM every calendar year, but the period between two annual general meetings must not exceed 15 months.
One of the main purposes of the AGM is to consider the company’s financial statements.
Please find more details on company AGMs in Singapore here.
All companies must prepare and present yearly to the AGM financial statements that comply with the Singapore Financial Reporting Standards (SFRS), which are similar to the International Financial Reporting Standards (IFRS).
By general rule, statements should be audited. Small and dormant companies that meet certain criteria can prepare unaudited financial statements.
The financial statements include the following documents:
A company registered in Hong Kong must as well keep a full record of its accounting transactions. All financial transactions must be entered in the accounting records in accordance with the Hong Kong Financial Reporting Standards. The statements should be approved yearly by the AGM.
The financial statements should be audited by a Certified Public Accountant in Hong Kong. The exemptions affect small firms that meet certain criteria.
The audited financial statements must include:
Filing of annual return with Companies Registry
Singapore laws require all companies to file an Annual Return with ACRA within 30 days of holding an AGM.
A Hong Kong company must annually file its Annual Return to the Companies Registry within 42 days of the incorporation date anniversary.
An Annual Return is a set of documents containing the following basic details of the company, similar in both jurisdictions:
Find more details on the Annual Return in Singapore here.
Filing of annual tax return
An annual tax return is a document you file with the Inland Revenue Authority of Singapore, which is the government agency responsible for collecting taxes. The document is reporting your income, profits and losses of your business, and other deductions as well as details about your tax refund or tax liability.
Annual tax returns in Singapore include two filings:
Find more info on the annual tax return in Singapore here.
Every Hong Kong company must also complete and lodge the Profits Tax Return (PTR) with the relevant state agency — the Inland Revenue Department. The basic information contained in the PTR is the same as in Singapore.
For newly formed companies, the PTR must be filed within a maximum 18 months from the incorporation date, then every 12 months after the first tax return is filed.
Relocating business from Hong Kong to Singapore
Singapore offers many advantages to a business owner, such as political stability and safety for your business, a lower effective corporate tax rate, extensive network of cross-border tax treaties, and a number of business-friendly schemes and incentives. If you are attracted to Singapore by these advantages but currently have a company in Hong Kong, you may consider relocating your Hong Kong entity to Singapore.
After the new corporate structure is established, you will be able to transfer your business activities such as customer contracts, supplier relationships, assets, etc. from a Hong Kong company to a Singapore one. For more detailed information, see relocating your Hong Kong business to Singapore.
It is very likely that the political and economic situation in Hong Kong will continue to deteriorate. China’s leadership has made a decision to abandon the “one country, two systems” model and it has proposed initiatives such as the Extradition Law and newly authorized National Security law in order to undermine the city’s autonomy, deprive locals of their traditional common-law freedoms, and move the city-state closer to China’s central communist regime. These changes have provoked a backlash; and this turmoil has affected the economy. The continued instability is making an increasing number of local firms and individuals consider moving to more stable jurisdictions. Singapore has emerged as the most viable alternative — a business hub that has close cultural resonance with Hong Kong, yet it offers a very friendly regulatory environment for entrepreneurs.
Both jurisdictions have British pedigree, common-law regulations, a multi-cultural ethos, and are overseen by an ethnic Chinese elite. Singapore offers additional advantages such as government incentives that assist business, a larger number of international tax treaties, and a lower effective corporate income tax rate.
If you are considering a relocation to Singapore for yourself, your family, or your business, please contact the CorporateServices.com team and we will be happy to tailor a plan to suit your specific needs.
Eddy and Hannah
Your Customer Service Team
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