In this comparative report, we look at the differences between doing business in Singapore and Hong Kong.
This report refers to data from World Bank’s 2014 ‘Ease of Doing Business’ report and World Economic Forum’s Global Competitiveness 2013 – 2014 as well as 2014 Global Enabling Trade reports. It measures five indicators, namely company incorporation, corporate tax rate, foreign investment friendliness, intellectual property protection and workforce.
Hong Kong or Singapore?
Hong Kong has always been a close competitor of Singapore in terms of attracting businesses from across the globe. Hong Kong has many strengths, some of which supercede Singapore. These include dealing with construction permits, getting electricity, paying taxes, and enforcing contracts.
However, Singapore has other strengths which trump Hong Kong’s too. Singapore has excellent infrastructure, lower traffic congestion and air pollution, a highly educated workforce and easy property registration procedures. The GCR also cited the insufficient capacity to innovate, inefficient government bureaucracy, inflation, and policy instability as impediments to doing business in Hong Kong.
Let’s explore them below.
|World Bank’s Doing Business (DB) 2014
Singapore vs. Hong Kong
|Starting a business||3||5|
|Dealing with construction permits||3||1|
|Trading across borders||1||2|
Company incorporation procedures in both Singapore and Hong Kong are on par with each other. It takes 3 procedures and 1-2 days to set up a business in both economies. In terms of costs, it takes approximately S$385 to complete this process in either cities. However, Singapore was ranked 3rd and Hong Kong was ranked 5th in the Doing Business report, under the category of starting a business.
In terms of dealing with construction permits, Hong Kong trumps Singapore. It takes 6 procedures over a course of 71 days to get the permits to build a warehouse in Hong Kong. In Singapore, 11 procedures are required over 26 days to do the same. As such, the Doing Business report ranked Hong Kong first and Singapore 3rd in the world in the category of dealing with construction permits.
Registration of property is easier in Singapore compared to Hong Kong though. According to the Doing Business survey, Singapore was ranked 28th for this parameter, whereas Hong Kong ranked 89th. According to the survey, property registration requires five procedures in both cities. However, in Singapore, this takes 5.5 days and costs 2.9% of the property value. On the other hand, property registration in Hong Kong requires 35.5 days and costs 7.7% of the property value.
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The headline tax rate in Singapore is slightly higher than that in Hong Kong. The headline corporate tax rate in Hong Kong is capped at 16.5%, where as in Singapore it is capped at 17%. However, the headline tax rate does not reflect the full picture.
The effective tax rate in Singapore is lower than that in Hong Kong, if one considers the tax exemptions and tax incentives that Singapore government offers. Application of these tax exemptions/incentives reduce the effective tax rate to a considerable extent and small and mid-sized companies end up enjoying more tax incentives than their counterparts in Hong Kong.
Singapore government also has introduced many industry-specific tax incentives in a bid to attract foreign businesses in various sectors. For more details on tax rates in Singapore, please visit our page on Singapore taxation.
Foreign investment friendliness
In order to encourage investors to inject capital into businesses, countries must have regulations to protect them. In the Doing Business report, the Strength of Investor Protection Index measures the transparency of transactions, the shareholders’ ability to sue officers and directors for misconduct and liability for self-dealing. Singapore scored 9.3 out of 10 while Hong Kong came in close with a score of 9.0. This placed Singapore in the 2nd position and Hong Kong third worldwide in the category of protecting investors.
In addition, cross-border investments are supported by sound trade policies and inter-regional trade agreements. According to the 2014 Global Enabling Trade report ranked Singapore at the top position and Hong Kong in the second due to their trade friendly regulations and business ecosystems.
Furthermore, Singapore is placing greater focus on compliance with the Singapore financial reporting standards (SFRS) as well as regulations like FATCA and BASEL III. These will continue to safeguard the interests of genuine investors.
Intellectual property protection
Other than foreign investment friendliness, protection of Intellectual Property (IP) rights helps boost investor confidence. According to the Global Competitiveness Report (GCR), Singapore stands second in the world and first in Asia for having the best IP protection. Hong Kong was ranked at 10th position.
In Singapore, the costs related to the acquisition and in-licensing of IP rights are eligible for tax incentives under the PIC (Productivity and Innovation Credit) scheme. Eligible private limited companies can get either a 400% corporate tax rebate or a cash payout worth 60% of the costs when they do so in Singapore.
|WEF’s Global Competitiveness Index 2013 – 2014
Singapore vs. Hong Kong
|Basic Requirements (60%)||1||2|
|Health and primary education||2||31|
|Efficiency Enhancers (35%)||2||3|
|Higher education and training||2||22|
|Goods market efficiency||1||2|
|Labor market efficiency||1||3|
|Financial market development||2||1|
|Innovation and sophistication factors (5%)||13||19|
The GCR ranked both Singapore and Hong Kong well for labour market efficiency. GCI ranked Singapore first while Hong Kong was ranked third. Singapore scored very well in 9 out of 10 indicators while Hong Kong scored well in 7 indicators. However, in terms of redundancy costs, reliance on professional management and women’s participation in the labour force, Hong Kong did not score as well.
According to the GCR, both Singapore and Hong Kong have labour related challenges which were cited as problematic factors for doing business. In Hong Kong, it was an inadequately educated workforce. In Singapore, it was restrictive labour regulations. Both cities are nonetheless popular destinations for professionals.
In a Nutshell
The above analysis confirms that while Hong Kong has always been a strong competitor to Singapore in attracting foreign investors, Singapore has marched ahead in the last decade. With no capital gains tax, and one of the lowest corporate tax rates in the world, Singapore has topped the World Bank’s Ease of Doing Business index year after year. Moreover, with 75 comprehensive double taxation agreements and 8 limited treaties dealing with income from shipping and air transport enterprises, as well as no controlled foreign company rules, the city-state surpasses Hong Kong as the most preferred destination for company incorporation in Asia.
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