Since social unrest and the implementation of the National Security regulations in 2020, Hong Kong’s status as a major financial hub in Asia has significantly declined. Many businesses are focused on the process of moving the business from Hong Kong to Singapore as a result of this, in addition to Singapore’s stringent measures to battle and contain the Covid-19 pandemic.
Singapore, the only other autonomous East Asian nation with a Chinese majority and a significant financial, commercial, and shipping hub, is ready to gain the most from Hong Kong’s problems.
Hong Kong and Singapore have a lot in common, including low-touch regulation, effective bureaucracies, legal systems based on British common law, little corruption, and high rankings for business-friendliness (Singapore is second and Hong Kong is fourth in the World Bank’s rankings of 190 nations), close economic integration, low crime rates, and the rule of law.
WHY CHOOSE SINGAPORE OVER HONG KONG?
Easy to Launch a Business
According to the Doing Business Report from the World Bank, which surveyed 189 economies around the world, Singapore consistently ranks as the greatest place to do business in the world.
Even though Singapore is considered a business hub, Singapore company registration is still reasonably simple and only takes a few days if all conditions are met at the time of filing. Both local residents and foreign business owners use the same procedures to incorporate their companies online and benefit from the same degree of transparency.
High personal safety and a strong legal system
Singapore takes pride in having one of the safest political settings in Asia and one of the safest nations in the world. No other nation in Asia can match this level of security for giving entrepreneurs and investors peace of mind.
The Singaporean government is strongly opposed to corruption and red tape. Every government transaction is carried out with the utmost competence, fairness, and transparency. One receives the same treatment regardless of whether they are a Singaporean or a foreign business owner.
It is not surprising that Singapore is considered to be the best nation to conduct business. The World Bank’s Doing Business Report, the nation’s numerous awards, and international rankings in publications like the World Economic Forum’s Global Competitiveness Report, Global Information Technology Report, and the Economist Intelligence Unit’s Country Forecasts Report are proof of this.
Singapore attracted multinational corporations (MNCs) as a result of these rankings, and the majority of them decided to make Singapore the location of their Asia Pacific headquarters.
Foreign Income Exemption
Foreign businesses with a Singapore headquarters and active economic operations are permitted to tax-free repatriate earnings or profits from their directly-held subsidiaries to Singapore. One can request a particular exemption if their business is unable to meet the requirements for this tax exemption.
The fact that Singapore uses a territorial-based taxation system is the reason it can benefit from tax-free repatriated dividends. Income from abroad is only brought back to Singapore. If dividends are received from a nation with a headline corporate tax rate of at least 15%, or if any tax was paid in that nation, no tax may be withheld from dividends that are repatriated into Singapore.
Impressive Personal Tax Framework
In addition to having a strong corporate tax system, Singapore has a progressive personal tax system. The rates range from 0% to 22%, and Singaporeans have access to a number of tax reliefs, which effectively lowers their payments.
A “Not Ordinarily Resident (NOR) Scheme” is also available in Singapore. This program provides an advantageous five-year tax treatment for anyone who works in Singapore. These qualified persons must work for an organization with Singaporean incorporation, make at least S$160,000 a year, and travel for business for at least 90 days.
Having a strategic position and a strong network of trade agreements
Singapore is conveniently situated in the center of Southeast Asia and is close to nearby developing economies. Singapore is a good starting point for travel by flight to other nations. Since Singapore signed the first Free Trade Agreement (FTA) within the ASEAN Free Trade Area (AFTA) in 1993, the network has expanded to include 41 Investment Guarantee Agreements and 21 active bilateral and regional FTAs.
The administration is continuously engaged in FTA negotiations with other nations. These agreements will enable cross-border trade and reduce the cost of foreign expansion for Singaporean businesses.
POSSIBLE COMPANY STRUCTURES IN SINGAPORE
Establish a Singapore Parent Company
With this approach, the applicant will create a new Singaporean corporation (ParentCo), which will eventually become the parent organization of the Hong Kong corporation (HKCo). After the transfer has fully happened, they will create a new Singapore company (SingCo) that will eventually serve as the operating company for your firm.
ParentCo will initially possess all of SingCo’s shares, but eventually, SingCo’s shareholding structure may resemble that of HKCo prior to the transfer. The applicant will start an orderly transfer of business operations (customer contracts, supplier connections, assets, etc.) from HKCo to SingCo once the corporate framework has been formed.
In the event that a sudden breakdown in Hong Kong prohibits HKCo from acting in an orderly corporate manner, HKCo will issue the necessary authorizations to SingCo so that it may act on behalf of HKCo. This permission will serve as a safety net in the event that catastrophic events occur in Hong Kong and will allow ParentCo and SingCo to negotiate on behalf of HKCo with third parties.
While the applicant works through the transfer concerns, this solution gives them a solid legal foundation; even if some delays occur in any step, they are covered legally.
However, it is not necessary to conduct the process of moving business operations from HKCo to SingCo in a panic-driven manner; it should be done quickly.
Any employees or business owners who intend to relocate to Singapore may apply for work visas through SingCo.
The books of HKCo can be closed after the business has been transferred to SingCo and all of its obligations in Hong Kong have been met, and a no-objection certificate will be acquired from the Commissioner of the Inland Revenue Department in Hong Kong.
HKCo will thereafter submit a de-registration application. Upon successful completion of this procedure, ParentCo can either continue to function as a holding company (a Singapore holding company that has various benefits) with SingCo as a subsidiary, or ParentCo can be shut down, and SingCo can be left as a stand-alone operating business. In the latter option, the shareholding structure of SingCo will be changed to reflect the original structure of HKCo i.e. before the transfer process was initiated.
Establish a Hong Kong Parent Company
This strategy is similar to the first one mentioned above but with the following differences:
- ParentCo has its headquarters in Hong Kong, not Singapore.
- After successfully transferring the business from HKCo to SingCo, SingCo is transformed into a stand-alone entity with an ownership structure that is symmetric to that of HKCo.
- In Hong Kong, ParentCo and HKCo are no longer registered.
The advantage of this method is that work visas for Singapore can be simpler to obtain since such visas are simpler to obtain for a subsidiary of a foreign company.
Make Current Hong Kong Company a Parent Company
A new ParentCo is not created using this approach. Instead, the current Hong Kong firm, the HKCo, becomes the new SingCo’s parent. So, ParentCo and HKCo are the same business. After that, the process continues as it did for Option 1 above. Following the transfer, SingCo’s shareholding structure was modified to match that of HKCo before the transfer.
This structure has the advantage of being easier. However, this structure will need frequent communication with your HKCo, and if things go wrong in Hong Kong, it might be difficult to implement.
Inward Re-domiciliation from Hong Kong to Singapore
A business body can alter the jurisdiction in which it is registered, just as a person can alter their nation of citizenship. Corporate re-domiciliation is the process by which a company changes its “domicile” (or location of incorporation) while retaining its legal identity.
Re-domiciliation is not permitted everywhere, but Singapore’s 2017 change to the Companies Act brought in an inward re-domiciliation framework. Singapore now permits international corporate companies to transfer their registration to Singapore thanks to the regime, which went into force on October 11, 2017. The organization must adhere to minimum standards and solvency requirements.
The Accounting and Corporate Regulatory Authority has outlined clear steps for such a transfer.
STEP-BY-STEP RELOCATION PROCESS HONG KONG COMPANY TO SINGAPORE
Here are the steps one needs to follow if they want to carry out any of the above-mentioned alternatives. Only a few minor specifics will differ in the fundamental procedures for all of these possibilities. We’ll take an option into account for this particular scenario.
All of the businesses involved in the shift must be set up as the initial step in the procedure. For instance, if the applicant is thinking of choosing the first option, they must establish their parent business, a Singapore company, and a Hong Kong company.
Then the applicant must rearrange the shareholding structures. They ought to change the parent firm to include the Hong Kong company as a subsidiary.
Once the fundamental framework required by the chosen alternative is in place, the official inter-company agreements (including transfer authorization, power of attorney, and signature authority) should be signed in order to start the actual transfer of assets.
The applicant must apply for any necessary Singapore work permits based on their circumstances.
Once the fundamental framework is in place and is in accordance with the option chosen, the applicant can proceed to the execution of previous inter-company agreements. These agreements will include Power of Attorney files, Signature Authorities, and Transfer Authorizations. The real transfer can start once all of these are in place.
Next, the applicant must start the work visa application procedure by following to your plan of action.
The applicant should start settling any potential liabilities from the HK corporation through negotiation. They can transfer them to the Singapore entity or decide to settle them. Additionally, they ought to think about moving any company assets to Singapore. These resources may consist of:
- Client or supplier contracts and relationships
- Intellectual property assets
- Financial assets such as stocks or cash
- Any equity holdings you might have
- Property, Plant, and Equipment
- Current Inventory
After that, it’s time to close the books on the Hong Kong firm after dealing with all of its assets and liabilities. Following that, the applicant should not encounter any obstacles and are in the clear. The Hong Kong corporation should thereafter submit a petition to be deleted from the Companies Registry.
If they choose to dissolve the parent company, the applicant will first need to gather the required documentation before converting their Singaporean business into a stand-alone corporation.
THINGS TO CONSIDER BEFORE MOVING HONG KONG COMPANY TO SINGAPORE
Manpower is one of the most important variables in this. One choice is to relocate the staff; another is to hire local labor. Many people think about moving since they don’t want to have to spend money on hiring and training new employees.
Additionally, they don’t want to lose their top employees. However, moving can be expensive if you have to pay for the employees’ work permits. Fortunately, business service providers such as Relin Consultants can assist you with immigration and work visa issues.
It could be challenging to conduct business with local clients when one moves to Singapore if the business in Hong Kong depends on them. When relocating to another country, it’s important to let the clientele know what the firm plans to do and how things will roll out after it’s established.
Vendors are constantly there to assist businesses with their goods and services. Moving to another nation may strain business ties for enterprises that depend on regional suppliers. The company must advise the vendors of the plans to relocate to a different country. In the worst situation, the company would have to start fresh commercial connections with Singaporean suppliers.
The applicant should evaluate and renegotiate all contracts with the Hong Kong suppliers and/or clients after they relocate to Singapore. They should make sure that every deal complies with Singaporean law.
Additionally, the applicant should assess the material and immaterial possessions to see what value they can contribute to Singapore. When transferring your business from Hong Kong to Singapore, intangible assets like Intellectual Property (IP) will also need to be taken into account.
To conduct business in Singapore, they must have a corporate bank account. Refer to Singapore corporate bank account opening for more information. The applicant should transfer all of their banking assets to Singapore concurrently to ensure uninterrupted and trouble-free banking operations during the transition.
HONG KONG GOVERNMENT PROGRAMS AND THE BUD FUND
The government has chosen to invest HKD 1 billion into the BUD Fund in order to help local companies and lessen the effects of Hong Kong’s faltering economy. The government also plans to broaden the geographic reach to include all economies with whom Hong Kong has FTAs.
The Hong Kong Legislative Council has approved the expansion of the project to include projects to be carried out in neighboring nations in the markets of ASEAN countries in order to launch the BUD “FTA Programme.” For those wishing to use this grant money to relocate their business from Hong Kong to an adjacent ASEAN member nation, the BUD fund can be quite useful.
Which Projects Are Funded?
Companies whose main initiative involves enhancing, developing, or branding sales in the FTA countries are eligible for proposal. The following are a few examples of projects that would meet the requirements of the BUD program:
- Promoting sales – (marketing strategy research, sales strategic planning)
- Branding – (brand strategy, brand building, brand equity research)
- Upgrading or reconstruction – (new product design, adapting new tech)
When a business is authorized for BUD funding, it must contribute a minimum of 50% of the project’s total approved cost in cash. The scheme uses a matching system, thus the BUD fund will match any amount invested (above 50%). The total amount of funding allowed under the FTA program is HKD 2 million for each individual firm. While the project is underway, the firm must also produce progress reports.
NEXT STEPS AFTER THE HK BUSINESS TRANSFER TO SINGAPORE
The choice of whether to keep the Hong Kong corporation or liquidate it must be made once the business has been moved to Singapore. The Hong Kong firm will continue to run with little management time, having to be committed to its operations if they have chosen to keep passive investments in it.
It probably makes sense to de-register and liquidate the company if you have transferred all of the company’s business and have left it with no assets or liabilities in order to avoid recurring expenses associated with maintaining a dormant corporation.
The de-registration procedure should be quite simple if the firm still present in Hong Kong is just a shell.
The Inland Revenue Department (IRD) and Companies Registry (CR) are both involved in the de-registration process. A qualified corporation may ask the IRD for permission to deregister by submitting an application. For tax clearance, the IRD may ask to see the final audited accounts. If not, the IRD will issue a letter of no objection within a month of the application’s submission date.
The corporation may submit a de-registration application to the CR after receiving the IRD’s letter of no objection. In most cases, CR will send an acknowledgment letter within a month. The company’s name will be published in the HKSAR Gazette along with a notice that it will be deregistered if no objections are made within three months.
CHALLENGES OF MOVING YOUR BUSINESS FROM HONG KONG TO SINGAPORE
Moving a business from Hong Kong to Singapore can be a complex and challenging process. Some of the challenges that businesses may encounter include:
- Legal and Regulatory Compliance: Singapore has its own set of legal and regulatory requirements that businesses must comply with. Moving a business from Hong Kong to Singapore requires careful attention to local laws, regulations, and compliance issues.
- Cultural Differences: Singapore and Hong Kong have distinct cultural differences, including language, customs, and business practices. Businesses must be prepared to adapt to these differences to succeed in Singapore.
- Recruitment and Retention of Talent: Singapore has a highly skilled workforce, but the competition for talent is fierce. Businesses may struggle to attract and retain talent, especially in industries where there is high demand for skilled workers.
- Cost of Living: Singapore is one of the most expensive cities in the world, and businesses must factor in the high cost of living when relocating employees or setting up operations in the city.
- Market Entry Strategy: Moving a business to Singapore requires a well-defined market entry strategy. Businesses must identify their target market, develop a marketing plan, and build relationships with local partners and stakeholders.
- Logistics and Supply Chain: Singapore’s location and infrastructure make it an excellent hub for logistics and supply chain operations. However, businesses must carefully plan their logistics and supply chain processes to ensure they can operate efficiently in the city.
- Economic and Political Risks: Like any country, Singapore faces economic and political risks that can impact businesses. Businesses must be prepared to manage these risks and adapt to changes in the business environment.
Reach out to us at Relin Consultants for further assistance.
What are the legal requirements for moving my business to Singapore?
To move your business to Singapore, you will need to register your company with the Accounting and Corporate Regulatory Authority (ACRA) and obtain the necessary licenses and permits for your business activities. You may also need to apply for work passes for your employees and comply with Singapore’s tax and regulatory requirements.
How long does it take to move my business to Singapore?
The timeline for moving your business to Singapore can vary depending on several factors, such as the size of your business, the industry you operate in, and the complexity of your operations. Typically, it can take anywhere from several weeks to several months to complete the relocation process.
What are the costs involved in moving my business to Singapore?
The costs involved in moving your business to Singapore can include company registration fees, legal and consultancy fees, office rental costs, relocation expenses, and recruitment costs. The total cost will depend on your specific business needs and the size of your operations.
Can I transfer my employees to Singapore?
Yes, you can transfer your employees to Singapore, but you will need to apply for work passes for them through the Ministry of Manpower (MOM). You will also need to comply with Singapore’s employment laws, such as minimum wage requirements and working hour limits.
How do I manage the cultural differences between Hong Kong and Singapore?
To manage cultural differences between Hong Kong and Singapore, you can consider providing cultural training to your employees or hiring local staff who are familiar with the local culture. It’s also important to be sensitive to cultural differences in business practices and communication styles.
What support is available for businesses moving to Singapore?
The Singapore government provides various support programs and incentives for businesses looking to set up operations in the country, such as tax incentives, grants, and training programs. You can also seek advice and assistance from business associations, commercial service providers, and government agencies.