Hong Kong or Singapore—we get this question a lot. Singapore stands out as a premier global business hub, known for its robust economy and strategic location in Southeast Asia. Similarly, Hong Kong is renowned for its dynamic business environment and strategic proximity to Mainland China, offering unique advantages for companies and entrepreneurs. The region’s robust infrastructure, coupled with a pro-business tax system, makes it an attractive hub for international business. In this comprehensive analysis, we compare Singapore and Hong Kong in terms of their appeal and functionality for businesses engaging with Mainland China, focusing on tax systems, repatriation of earnings, and ease of operating subsidiaries.

Tax Systems and Example Scenarios

Hong Kong Corporate Tax Structure

Hong Kong operates a territorial tax system where only income sourced within Hong Kong is taxable, and income derived from outside of Hong Kong is not subject to corporate taxes. The corporate tax system is designed to support small and medium enterprises (SMEs) by offering a two-tiered profits tax rate. The first $2,000,000 HKD of assessable profits for corporations is taxed at a reduced rate of 8.25%, which is half of the standard rate of 16.5%. Profits exceeding this threshold are taxed at the standard rate. This tax benefit significantly reduces the tax burden on SMEs, making Hong Kong an attractive location for emerging businesses to grow.

Example Scenario:

  • Assessable Profits: $2,000,000 HKD (approximately $255,000 USD)
  • Tax Rate for the first $2,000,000 HKD: 8.25%
  • Tax Payable on the first $2,000,000 HKD: $165,000 HKD (approximately $21,075 USD)
  • Remaining Profit: Over $2,000,000 HKD taxed at 16.5%

This tiered taxation system ensures that smaller companies with lower profits are afforded a financial advantage, boosting their competitive position in the global market.

Singapore Corporate Tax Structure

Singapore also has a territorial tax system but offers extensive double tax treaties and a lower corporate tax rate of 17%. For earnings within Singapore amounting to $100K USD, the tax would be $17,000 USD. Foreign-sourced income can be exempted from tax if it meets certain conditions set by the Inland Revenue Authority of Singapore (IRAS).

Example Scenario:

  • Earnings within Singapore: $100,000
  • Tax rate: 17%
  • Tax payable: $17,000
  • Net income: $83,000

In Singapore, foreign-sourced income is “potentially exempt” from local taxes due to specific conditions that must be met to qualify for this exemption. According to the Inland Revenue Authority of Singapore (IRAS), the following three conditions must be fulfilled:

  • The foreign income had been subjected to tax in the foreign country from which the income is received. The tax paid can be in the form of withholding tax or actual tax paid in that country.
  • The highest corporate tax rate (headline tax rate) of the foreign country from which the income is received is at least 15% at the time the foreign income is received.
  • The Comptroller is satisfied that the tax exemption would be beneficial to the person resident in Singapore.

If these conditions are met, the foreign-sourced income can be exempt from Singaporean tax, which includes dividends, branch profits, and service income. This policy aims to prevent double taxation of the same income in two different jurisdictions, thus enhancing Singapore’s attractiveness as a global business hub.

This nuanced approach to taxation helps maintain Singapore’s competitive edge by avoiding double taxation, thereby encouraging Singaporean companies to expand their operations internationally without facing prohibitive tax implications.

Chinese Subsidiary and Expatriating Earnings

Hong Kong

Establishing a subsidiary in China from Hong Kong is streamlined due to close economic relationships. Earnings can be repatriated back to Hong Kong relatively easily, benefiting from Hong Kong’s extensive network of double taxation agreements with Mainland China, minimizing withholding taxes on dividends.

Singapore

Similarly, Singaporean companies can establish subsidiaries in China and enjoy benefits under the China-Singapore Free Trade Agreement. Repatriation of earnings is efficient, with reduced withholding taxes due to comprehensive double taxation agreements.

Feature

Hong Kong

Singapore

Tax Rate on First $2M HKD*

8.25%

N/A

Tax Rate on Additional Earnings

16.5%

17%

Foreign Income Taxation*

Not taxed if sourced outside HK

Potentially exempt

Double Taxation Agreements

Extensive with China

Comprehensive coverage

Subsidiary Setup

Streamlined process

Supported by FTAs

Earnings Repatriation

Efficient, low taxation

Efficient, reduced taxes

Definitions:

  • Tax Rate on First $2M HKD: Refers to the reduced corporate tax rate applied to the first $2,000,000 HKD of profits earned by a company in Hong Kong, which is 8.25%.
  • Foreign Income Taxation: Indicates how income earned from outside the respective jurisdiction (Hong Kong or Singapore) is treated for tax purposes. In Hong Kong, such income is generally not taxed, while in Singapore, it is potentially exempt from tax under specific conditions.

JR & Firm LLC: Your Trusted Partner for Corporate Services in China

Navigating the business landscape in China can be challenging, but JR & Firm LLC is here to simplify the process for you. With over 15 years of experience in corporate consultancy, we specialize in a range of services tailored to meet your business needs. Whether you’re looking to form a company, draft contracts, structure your organization, or set up offshore accounts, we’ve got you covered.

Our Services in China Include:

  • Company Formation: From selecting the right business structure to handling all the legal formalities, we make the process of setting up a company in China seamless and hassle-free.
  • Contract Drafting: Our team of legal experts will draft contracts that are not only compliant with Chinese laws but also protect your interests.
  • Company Structuring: We help you design an efficient organizational structure that aligns with your business goals and complies with local regulations.
  • Offshore Accounts and Company Formation Globally: Looking to expand beyond China? We can assist you in setting up offshore accounts and forming companies worldwide.
  • Consultancy Services: Benefit from our in-depth market insights and strategic advice to make informed business decisions.

Contact Us:

For more information on how JR & Firm LLC can assist you in China, feel free to reach out to us at:

Trust JR & Firm LLC to be your reliable partner in China, offering comprehensive solutions for all your corporate needs.

JR & Firm LLC is also the proud owner of an international logistics company, JR International Logistics LLC. If you’re seeking a reliable logistics partner to transport your goods from any location worldwide to any desired destination, we invite you to explore our services. Please click here for more information.

1. What is the first step if I want to register a WFOE?

The first step towards registering a WFOE in China involves contacting a professional consultancy firm, such as JR & Firm, and signing a service agreement. In theory, the founders could handle the process themselves. However, since it requires an in-depth understanding of the company registration system and proficiency in Mandarin Chinese, it is generally more practical to hire a professional company to prevent potential mistakes during the process.

2. I have signed a service agreement with JR & Firm to register my WFOE, what's next?

After signing an agreement with our clients for WFOE registration in China, we issue a formal invoice. At this stage, we anticipate that our clients will make a payment for the service, allowing us to commence the process.

3. I have paid JR & Firm for the WFOE registration service, what should I do next?

Upon receiving full payment for the WFOE registration, we provide our clients with a detailed questionnaire. This document requests all the necessary information about the company, business activity, founders (shareholders), and executives (including the company director and supervisor). We request that our clients complete the questionnaire and return it to us via email.

4. What should I prepare for the WFOE registration questionnaire?

1. Company Name Choices: In China, WFOE names should follow this structure: [Place of Registration] + [Chosen Name] + [Business Direction] + Co., LTD. For example, Shanghai Silk Road International Trading Co., LTD, or for a consultancy company: Shanghai Silk Road Consulting Co., LTD. An alternative structure is: [Chosen Name] + [(Place of Registration)] + [Business Direction] + Co., LTD. For example: Silk Road (Shanghai) International Trading Co., LTD. Please note, in China, a company’s Chinese name is considered its main name. If our clients know Chinese, we ask for name choices in both Chinese and English, following the above structure. If not, English name choices will suffice, and we will select a corresponding Chinese name based on similar sounds. Avoid city, country, and historical names, as they’re typically disallowed. Also, we discourage direct translations of the English name due to high likelihood of them being taken. We recommend selecting similar-sounding Chinese characters to avoid delays. The Chinese name does not need to have a specific meaning, as meaningful characters are often taken.

2. Company’s Legal Person (Company Director): The legal person is an individual and cannot be a corporate entity. Please prepare their full name (as on the passport), a copy of their passport (not ID), along with their address, phone number, and email address.

3. Company’s Supervisor: The company supervisor is a separate individual from the company director, meaning they cannot be the same person. Please provide their full name (as on the passport), a copy of their passport (not ID), and their address, phone number, and email address.

4. Company’s Shareholder(s): Shareholders are the owners of the company and can be both individuals or corporate entities. Both the company director and supervisor can be shareholders. There can be up to 50 shareholders. Whether an individual or corporate shareholder, full information is required: full names, contact details, address, and either passport copies (for individual shareholders) or a full set of company documents (for corporate shareholders).

5. Company’s Business Activity: What products and/or services does the company plan to sell? Please prepare a detailed list.

6. Company’s Registered Capital: The registered capital is the amount the founders plan to invest in the company over a span of 30 years or more. The amount varies depending on the activity and place of registration. We recommend $300,000 for international trading companies and $100,000 for consultancy companies, as examples. The registered capital amount is usually suggested by the local government.

7. Full Contact Details for All Involved Executives and Shareholders: We need the complete contact details for all executives and shareholders. This includes addresses, emails, and phone numbers.

5. I submitted the WFOE registration questionnaire to JR & Firm via email, what's next?

Once we receive the completed WFOE registration questionnaire, we review it carefully and follow up with our clients accordingly. If there’s any missing information, or if the company requires additional permits or licenses based on its planned products or services, we will inform the client. If everything is in order, we prepare the application documents, attach our clients’ documentation, and submit the WFOE registration application. The estimated waiting period for feedback from the government on the registration application is approximately 10 business days. Please note that timeframes in China are approximate due to government bureaucracy.

6. How long does it take to get my WFOE license after the registration application is submitted?

Once the WFOE registration application is submitted, the government generally responds within 10 business days. If approved, they will issue the company’s structural documents, which the founders (shareholders) and executives (director and supervisor) are required to sign with a black gel pen and mail back to us (Note: In China, only black gel pens are acceptable for signing legal documents; other colors and ballpoint pens are not accepted). We then submit the signed documents to the company registrar and await the business license. The waiting period for the business license is roughly 10 business days unless expedited service was purchased. With expedited service, a business license can be obtained within 2-5 business days. Contact us for more details about the expedited service.

7. Great, I have obtained my WFOE business license, what is the next step?

Once we secure the WFOE business license, we will contact our clients and the bank to schedule an appointment to open a corporate bank account for the company. Please note, the company director must be present in China to open a corporate bank account and their citizenship should not be among the countries sanctioned in the bank’s system. Alongside being present, the director needs to provide a Chinese phone number linked to their passport and a second person’s passport and phone number linked to this second person’s passport. This second person can be anyone in China (provided their citizenship isn’t among the sanctioned countries) with a Chinese phone number. This requirement is due to the banks’ need to issue online banking devices that require two people’s information. Legally speaking, this second person doesn’t have any rights or obligations regarding the company’s finances or bank account. While this might seem unusual, it remains a requirement, so we advise clients to identify such an individual in China before opening a bank account. The bank account opening process takes around 5-6 hours, and we recommend our clients exercise patience during this process.

8. I have my WFOE bank account opened, what is the next step?

After your WFOE bank account is opened, we’ll proceed to contact the customs department to initiate the process for the e-port device (if you’re registering an international trading WFOE focused on import/export. Note that e-port isn’t required for consultancy or other types of companies). This process typically takes about 5 business days, and we’ll mail the e-port device to our clients once it’s secured.

9. I have obtained my e-port device, are there any other steps to be completed before I start my company’s operations?

Yes, following the acquisition of the e-port for the WFOE, we’ll register the company with the tax department. This process generally takes around 14 business days, and it requires the company director to visit the tax office in person for ID verification.

10. After the WFOE tax registration, are there any other steps involved before the company becomes active?

Indeed, the final step in the WFOE registration is the foreign currency permission application. This process typically takes around 7 business days and necessitates a visit to the relevant government department. After securing the foreign currency permission, the WFOE can commence its operations.

On the whole, the complete process for WFOE registration can span anywhere between 4 and 8 weeks. As we mentioned earlier, all timeframes are approximations due to the inherent unpredictability of government bureaucracy. Although these factors are beyond our control, we will do our absolute best to expedite the process.

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Jasur Mavlyanov, an experienced entrepreneur and legal expert, has built a notable career in international business, with a focus on China. With over 13 years of experience living and working in China, Mavlyanov has acquired valuable insights into the Chinese legal system and business environment.

As an entrepreneur, Jasur founded JR & Firm LLC, a company dedicated to providing legal services to global clients entering the Chinese market. His leadership has helped the firm become a reliable partner for businesses navigating the complexities of Chinese regulations and laws. READ MORE about Jasur.

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