Hong Kong vs Singapore: Who is going to be the Swiss Tax Planning of Asia?

May 10, 20230

Hong Kong and Singapore are two of the most dynamic and affluent cities in Asia, with both striving to become the most prosperous business hub of the region. Both cities have attracted significant foreign investment in recent years, with their business-friendly policies, stable political environments, and strategic locations, making them attractive destinations for companies seeking to establish a presence in Asia. 

Despite their similarities, Hong Kong and Singapore have different approaches to taxation and financial regulation. This has led to speculation regarding which city will ultimately become the preferred destination for tax planning in Asia. In this context, the question of whether Hong Kong or Singapore will become the Swiss Tax Planning of Asia has become a subject of debate among tax professionals. 

Territorial vs worldwide tax system 

Hong Kong adopts a territorial tax system based on the principle of source, meaning that only income that is sourced in Hong Kong is subject to tax, following a capital import neutrality system. In contrast, Singapore adopts a worldwide tax system based on the principle of residence, meaning that Singaporean residents are taxed on their worldwide income, following a capital export neutrality system. 

Singapore has a network of more than 80 comprehensive double tax agreements (DTAs) with other countries, which help to reduce the tax burden on cross-border transactions. Hong Kong, on the other hand, has a network of 47 DTAs. 

Corporate Tax Rates 

Hong Kong follows a corporate tax rate of 16.5%, while Singapore has a rate of 17%. Hong Kong does not have any other indirect taxes, such as value-added tax (VAT) or goods and services tax (GST), while Singapore takes on a GST rate of 7%. In both Hong Kong and Singapore, payments to other resident companies generally do not attract withholding tax.  

Tax incentives 

Both Hong Kong and Singapore offer various tax incentives to attract foreign investment and encourage economic growth. However, the specific tax incentives offered by each state differ. For example, Singapore has tax incentive programs such as reduced tax rates, investment allowances, or special deductions, while Hong Kong has a tax exemption scheme for offshore profits. 

Tax administration 

Typically, the tax assessment year in Hong Kong commences on 1 April. However, if a business’s accounting year doesn’t conclude on 31 March, the Inland Revenue Department (IRD) may permit the evaluation of profits based on the accounting year that concludes within the year of assessment. 

In Singapore, the assessment year usually coincides with the calendar year. However, a company’s income can also be evaluated based on its financial year. 

Taxes in Singapore are calculated on a preceding-year basis, meaning that the tax owed for an assessment year is determined by the income earned, obtained, or received in Singapore during the previous financial or calendar year (known as the basis period). 

Transfer Pricing  

Regarding Transfer Pricing arrangements, both jurisdictions have adopted the OECD Transfer Pricing Guidelines and require that transactions between related parties be conducted on an arm’s length basis. Additionally, both Hong Kong and Singapore have established Advanced Pricing Agreement (APA) programs allowing taxpayers to obtain certainty on the transfer pricing of their transactions for a period of up to five years.

Overall, while Hong Kong and Singapore share many similarities in their business-friendly tax regimes, there are some notable differences in their tax systems. Considering Singapore’s geographic location and diversified pan-Asian workforce, as well as the highest scores in quality life indexes and the establishment of Arbitration and Mediation Centers, Hong Kong is not as attractive as it used to be. Therefore, it will be no surprise that Singapore becomes the preferred international business destination in Asia.  

For further consultation on the different approaches to taxation and financial regulation of each jurisdiction, please contact us.

Author: Dimitrios Garantziotis, Junior Associate, TPA Global


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