Setting Up Your Business: Singapore vs Hong Kong

It is not a secret that Singapore and Hong Kong have been vying for decades to retain the title of Asia’s best destination for entrepreneurs to establish their businesses. Both territories have remained highly attractive for businesses due to its world-class facilities and business-friendly political and taxation systems. It is thus difficult to place a clear-cut winner in the race to be a premier destination for businesses in Asia as the ultimate decision is dependent on the unique requirements of one’s business.

But what are some the advantages or challenges that entrepreneurs consider when they intend to establish their businesses in either Singapore or Hong Kong?

Location & Infrastructure
One of the pull factors that attracts entrepreneurs to establish their businesses in Singapore and Hong Kong is how the two countries are strategically located in the heart of Asia.

Located at the centre of Southeast Asia, Singapore is at the crossroads of major aviation, trade and shipping routes connecting the East and the West. Similarly, Hong Kong is a major aviation, trade and shipping hub in East Asia, placing itself to be the gateway to Mainland China and other regional countries across Asia. Both countries are served by a well-developed aviation, land and sea transportation network, allowing for the seamless delivery of people, goods and services.

The Singapore Changi Airport and Hong Kong International Airport may be considered to be among the most developed and most efficient airports in the world, bagging numerous international awards since they began their operations. Regarded as a regional aviation hub, both Singapore and Hong Kong provides convenient access to major cities across the Asia Pacific, Europe and North America. Most major Asian cities are also easily accessible within two to six hours of flight time.

Both countries also have among the most robust telecommunication infrastructure in the world. In terms of Internet and mobile connectivity, Singapore’s internet and mobile penetration rate in 2015 stood at 81 percent and 152 percent respectively, while Hong Kong’s internet and mobile penetration rate in 2015 stood at 79 percent and 175 percent respectively. Singapore and Hong Kong have also been ranked to have the fastest and second fastest average peak Internet connections in the world respectively (Akamai Technologies Report 2015).

The well-developed transportation, communication and industrial infrastructure makes Singapore and Hong Kong as desirable locations for entrepreneurs to establish their businesses. The decision may ultimately depend on the nature of the business on whether it needs to be geographically closer to the Chinese or Southeast Asian markets.

Tax Regulations
Taxes imposed on businesses may attract or deter entrepreneurs from establishing their businesses in a country. Singapore and Hong Kong may be regarded to have one of the most business-friendly tax systems in the world.

In Singapore, its corporate tax is charged at a flat rate of 17 percent. However, most companies effectively pay their corporate taxes at a much lower rate, thanks to the generous tax incentives, rebates and tax exemption schemes introduced by the government. For instance, a newly incorporated company that meets the qualifying conditions is able to enjoy a full tax exemption on the first $100,000 of taxable income and an 8.5 percent tax rate for the next $200,000 of taxable income. A 17 percent tax rate is changed for the remaining taxable income. Singapore also has existing double tax agreements (DTAs) with more than 70 countries worldwide and an extensive network of free trade agreements (FTAs) with 21 major countries across the globe. A flat 7 percent goods and services tax (GST) is charged on all local deliveries of goods and services.

Hong Kong has a slightly lower corporate tax rate as compared to Singapore. Known locally as the profits tax, assessable profits for corporations are charged at a flat rate of 16.5 percent and 15 percent for unincorporated businesses. Hong Kong also has a number of tax incentives which are targeted at specific business sectors. For instance, profits that are driven from shipping operations in Hong Kong and offshore funds, are exempted from profits tax. Hong Kong currently has double tax agreements (DTAs) with more than 30 countries worldwide. Unlike Singapore, Hong Kong does not impose a goods and services tax (also known as value added tax).

Both Singapore and Hong Kong does not impose taxes on capital gains, dividends and inheritance.

Political Stability
Singapore and Hong Kong have one of the most stable and efficient political systems in the world. The 2014 Political Stability Index by the World Bank placed Singapore and Hong Kong as the 2nd and 3rd most politically stable countries in Asia. In terms of corruption, Singapore is regarded to be the least corrupt country in Asia and the 5th least corrupt nation in the world (Transparency International Corruption Perception Index 2016). Close behind is Hong Kong, which is ranked to be the 2nd least corrupt country in Asia.

The Singapore government is well known for its pro-business approach, stringent enforcement of the law and pragmatic policy implementation, providing a sense of security for investors and businesses, and allowing business transactions to occur smoothly and effectively.

Under the “one country, two systems” principle, Hong Kong is an autonomous territory within the People’s Republic of China. where it enjoys a high degree of autonomy and civil liberties in managing its domestic affairs. The special status however is expected to expire by 2047 (50th anniversary of the transfer of sovereignty from the United Kingdom to China), and this had led to tensions between the Chinese government and the people of Hong Kong who wishes to retain their autonomous status.

Doing Business
In terms of incorporating and doing business, both Singapore and Hong Kong are reputed to be among the easiest locations to do so in the world. In Singapore, it takes just 1 to 2 days for an individual to incorporate a company and this can be done via an online form. Most day-to-day transactions with the government are also done online and can be completed within a few hours. Incorporating a business in Hong Kong takes up to 7 days, also considered to be among the quickest in the world. Both countries also have a strict and robust intellectual property (IP) protection framework. Dispute resolution channels are also readily available in both countries.

A 2015 World Bank Doing Business report ranked Singapore as the easiest place to do business in the world with Hong Kong trailing close in fifth. The pro-business policies and tax systems available in both countries ensures that Singapore and Hong Kong are placed to be the most competitive and 3rd most competitive economies in Asia respectively (GCI Global Competitiveness Index 2015).

Singapore’s workforce has been consistently ranked as among the top 10 countries with the most motivated and best-skilled workforce in Asia. As a knowledge-based economy, its workforce is highly educated due to the government’s strong emphasis on developing a robust and well-rounded education for its citizens. The bilingual education policy (English as first language, Mother Tongue as second language) also ensures that Singapore has a largely English-speaking workforce.

Singapore also attracts highly-skilled professionals from all over the world due to its friendly immigration policies and high quality of life. The local government however has been implementing measures to moderate the influx of foreign workers into Singapore since 2010. This could result in higher labour costs for businesses as the local labour market becomes increasingly tight.

Similarly, Hong Kong has a highly educated, well-trained and adaptable workforce. English is generally the language of communication in business and legal settings, although a majority of the workforce prefer to communicate in Cantonese or Mandarin. Hong Kong is known for its pool of entrepreneurial talents that are adept not just in the local business culture, but also in the business culture found in Mainland China. Its open immigration policies also attract highly-skilled talents from all over the world. Hong Kong’s statutory minimum wage policy, however, may deter entrepreneurs from setting up their businesses in the territory due to the high labour cost.

Nevertheless, the skilled, cosmopolitan and international labour force mix available in Singapore and Hong Kong is effectively a vital resource that entrepreneurs who intend to set up their businesses in the two countries can tap on.

Quality of Life
Both Singapore and Hong Kong rank highly in terms of quality of life in Asia. A 2015 Quality of Living survey by Mercer placed Singapore to have the highest quality of life in Asia with Hong Kong ranked 7th. Both countries also rank highly in terms of security and personal safety.

While individuals are able to enjoy a high quality of life, Singapore and Hong Kong are considered to be among the most expensive cities in the world. Hong Kong is currently the world’s most expensive city for expatriates, with Singapore close behind at 4th (Mercer’s 2016 Cost of Living Survey).

Air pollution is also one of the serious issues faced by Hong Kong due to a combination of pollutants from motor vehicles, industries and power plants located within Hong Kong and the greater Pearl River Delta region. Singapore generally enjoys good air quality days, although it has also faced seasonal air pollution as a result of illegal agricultural slash-and-burn practices from neighbouring countries.

Final Thoughts
It is unequivocal that both Singapore and Hong Kong are ideal destinations for entrepreneurs who intend to set up their businesses in the Asia Pacific region. Both countries are strategically located in Asia and have some of the best industrial, telecommunication and transportation infrastructure in the world. The local governments found in Singapore and Hong Kong are largely pro-business and both countries have one the best business-friendly tax systems worldwide, with Singapore having a slight competitive edge in terms of the tax exemptions, incentives and rebates provided by the government.

Singapore and Hong Kong also have a highly-educated, highly skilled workforce that businesses could leverage on. Businesses that require an English language proficiency may prefer Singapore due to its largely English-speaking workforce. Hong Kong provides an ideal gateway to the Chinese market due to its close geographical proximity and its familiarity with the business culture in China.