Research Summary
The report compares the cryptocurrency regulations, financial services, and tax regimes of Singapore and Hong Kong. It highlights the strengths of each region and provides insights into their suitability for different types of multinational enterprises.
Key Takeaways
Comparative Analysis of Financial Services
- Traditional vs Innovative Financial Services: Hong Kong is more suitable for traditional financial industry enterprises, while Singapore is more suitable for innovative enterprises. This is reflected in their respective rankings in the Global Financial Centres Index (GFCI) and the Global Innovation Index (GII).
- Market Size and Activity: Hong Kong’s stock market size and activity far exceed those of Singapore, with a total market value of Hong Kong-listed companies being approximately eight times that of Singapore’s stock exchange. Similarly, Hong Kong’s bond market issuance size also surpasses that of Singapore.
- Banking and Insurance Industries: Hong Kong’s banking and insurance industries are more mature than Singapore’s, with total assets and total deposits in Hong Kong’s banking industry in 2021 being 1.5 times that of Singapore, and the total premium of the insurance industry being twice that of Singapore.
Comparative Analysis of Tax Regimes
- Tax Principles: Singapore follows a territorial tax regime, taxing income derived from or received within its borders, while Hong Kong follows a single-source tax jurisdiction, taxing only income derived from Hong Kong.
- Corporate Income Tax Rates: Singapore has a unified corporate income tax rate of 17% for both resident and non-resident companies, while Hong Kong has a flat rate of 16.5% for Profits Tax. However, both regions offer incentives and exemptions to reduce effective tax rates for businesses.
- Research and Development Expenditure Deduction: Companies incurring research and development expenses in Singapore are entitled to a 250% deduction, while Hong Kong provides a 300% deduction on the first HKD 3 million of qualifying expenditure and a 200% deduction on any amount exceeding HKD 3 million.
Comparative Analysis of Cryptocurrency Regulations
- Regulatory Framework: Singapore’s Payment Services Act regulates all entities providing payment services, including virtual currency services, and establishes three different types of licenses. On the other hand, Hong Kong is proposing amendments to introduce a new mandatory licensing regime for virtual asset exchanges.
- Policy Support: Singapore has a more pronounced advantage in innovative financial services, with regulations and policy support for areas such as digital currency payment services, digital assets, and DeFi. These regulations and policies provide clear guidance and protection for innovative financial services, attracting international financial institutions and technology companies to establish branches or partnerships in Singapore.
Comparative Analysis of Tax Treaties
- Number of Tax Treaties: Singapore has entered into 107 tax treaties with about 100 countries and regions, while Hong Kong has DTAs with 47 countries and corresponding Limit DTAs and EOI Arrangements, covering a total of 67 countries and regions. This gives Singapore a slight advantage over Hong Kong in terms of the breadth of bilateral tax treaties.
Actionable Insights
- Consideration of Business Type: Multinational enterprises should consider their business type when deciding on the location for their headquarters or branch offices. Traditional financial industry enterprises may find Hong Kong more suitable, while innovative enterprises may prefer Singapore.
- Consideration of Tax Regimes: Enterprises should consider the tax regimes of both regions. While Singapore and Hong Kong have similar corporate income tax rates, their tax principles, incentives, and exemptions differ significantly.
- Consideration of Cryptocurrency Regulations: Enterprises in the cryptocurrency industry should consider the regulatory frameworks and policy support of both regions. Singapore’s regulations and policies may provide more guidance and protection for innovative financial services.
- Consideration of Tax Treaties: Enterprises should consider the number of tax treaties each region has entered into. Singapore’s broader range of bilateral tax treaties may offer more opportunities for tax reduction and simplification.
