A review of the tax regimes in Singapore and Hong Kong

Through this series of articles, we have considered the UK 'Non-Dom' regime, it's future and how it compares to similar regimes across Europe and, most recently, the United States. Here, we look east to focus on the regimes found in two of Asia's financial centers – Singapore and Hong Kong. Both are business friendly destinations with relatively simple and attractive personal tax regimes. Both have also implemented specific regimes to encourage the establishment of family offices. While these regimes differ in important ways from the traditional 'Non-Dom' regime, when considered in tandem with the standard personal tax regimes available in each jurisdiction, they form a compelling prospect for ultra-high net worth individuals and their families.

Singapore

Recent net migration figures show a significant influx of people to Singapore in the past few years, and it is not hard to see why: Consistently rated one of the most prosperous countries in the world, and with many stunning parts of South East Asia just a short flight from 'the best airport in the world' ¹,  it is no surprise that Singapore has seen a huge influx of highly skilled and high earning immigrants.

This is particularly true when one considers the tax landscape in Singapore at a time when many countries are raising taxes to pay for the costs of dealing with the Covid-19 pandemic. Even without a special tax regime that might act as an equivalent to the 'Non Dom' regime for foreign individuals moving to Singapore, the basic personal tax position in Singapore is highly attractive:

1. Singapore resident individuals are generally not subject to tax on foreign sourced income, so dividends from foreign companies, rent from overseas properties and non-Singapore source interest can all be received tax free in Singapore. This is the case even where the foreign sourced income is remitted to Singapore (unlike the 'Non Dom' regime).
2. To the extent an individual receives Singapore source income, tax is applied at graduated rates up to a current top rate of 22% (rising to 24% from 2024) – significantly lower than the top rate of UK income tax.
3. There is no capital gains tax in Singapore and no estate tax, inheritance tax or gift tax.

This friendly tax environment for individuals also extends to corporations in Singapore: The headline corporate income tax rate is 17% and the vast majority of profits from foreign investments can be received by a Singapore company tax free. Plus, a huge network of double taxation treaties operates to reduce or eliminate withholding tax in many cases.

The position can be improved even further for those who wish to manage their investments from Singapore. Where a company's investments are managed in Singapore (either through a licensed fund manager or by setting up a local family office to manage those funds), they can benefit from a comprehensive tax exemption which provides admirable clarity as to what tax exposure (if any) should be expected. Parallel regimes exist for foreign and Singapore incorporated companies but, provided the structure meets certain requirements, some of which were tightened last year (as explained here), the 'Specified Income' from an exhaustive list of 'Designated Investments' (which includes all major equity and fund investments) can be received tax free by a Singapore company. 

It is no wonder, then, that the Singapore authorities are currently inundated with applications for these tax exemptions, even with the tighter requirements introduced last year. Another factor driving this may be how the immigration, economic and monetary authorities of Singapore (Ministry of Manpower, Economic Development Board and Monetary Authority of Singapore, respectively) have worked hand in hand to provide a holistic offering for ultra-high net worth individuals and their families. Often, such individuals investing in Singapore will also seek to avail themselves of the 'Global Investor Programme' to obtain residency rights in Singapore. This programme has also recently been updated (as discussed in detail here) but, in essence it provides a fast track to Singapore Permanent Residence Status for eligible global investors who intend to drive their business and investment growth from Singapore. 

The combination of residency rights and tax efficient investing, alongside the more general lifestyle benefits in Singapore, such as impressively low crime rates, excellent education options and first-class medical facilities, is a potent offering for globally mobile ultra-high net worth individuals. Given the influx of people and burgeoning family office scene in Singapore, obtaining a foothold in the 'little red dot' is already proving to be an attractive option for those who can afford to do so. 

Hong Kong

Hong Kong's popularity as a destination for ultra-high net worth individuals has perhaps endured a more difficult period, during which continued Covid-19 restrictions made travel to and from the Special Administrative Region almost impossible until earlier this year. However, many of the factors that have traditionally enticed people remain pertinent, including the access to capital markets offered in Hong Kong, and, with the recent introduction of its own regime for 'family-owned investment holding vehicles', Hong Kong now offers additional benefits for wealthy individuals and their families who wish to establish a base in Asia.

Hong Kong's basic tax regime is somewhat unusual in that residence, domicile and citizenship are not relevant in determining tax liability and there is no general income tax. Instead, individuals are subject to Salaries Tax on:

1. Hong Kong-sourced employment income, 
2. income from an office held in Hong Kong, and 
3. income from a Hong Kong pension. 

Personal income of these types is chargeable to tax at progressive rates ranging from 2% to 17%. Profits Tax can apply to individuals receiving income from carrying on any trade or business in Hong Kong  (generally 15%) and property tax applies where property is rented out (again, generally 15% on the net assessable value of such property). 

Crucially, Hong Kong sourced dividends and most Hong Kong sourced interest are not subject to tax in Hong Kong at all. Furthermore, capital gains derived by an individual are not taxable in Hong Kong and there is no estate tax, inheritance tax or gift tax.

The basic position then, is a highly attractive one for ultra-high net worth individuals who make Hong Kong their home given that much of their income will not take the form of employment income, remuneration for holding an office or pension payments. Instead, the dividends from, and any gains on sales of their personally held investments can be received tax free, even when remitted into Hong Kong (again, unlike the UK 'Non-Dom' regime).  There is a potential for their Hong Kong sourced investment income which is trading in nature to be subject to Profits Tax if they are deemed to be carrying on a trade or business in Hong Kong, though this is rare. 

As with Singapore, the basic position for corporates is also relatively benign: Currently, Profits Tax is charged at 16.5% for corporations (with the first HK$2 million of assessable profits being taxed at 8.25%, subject to certain conditions being met). Dividends from local companies chargeable to tax are exempt, and dividends from overseas companies are also generally not subject to tax in Hong Kong. However, there are circumstances where offshore dividends, interest and gains from the sale of equities could be taxable under the refined foreign-sourced income exemption (the 'FSIE'). This essentially operates to deem those types of offshore income to be sourced from Hong Kong and therefore chargeable to Profits Tax if it is received by a multinational enterprise entity in Hong Kong (albeit there are certain exceptions).

The application of the FSIE regime is fact specific and not always clear cut, creating an element of uncertainty for entities making global investments from Hong Kong. However, this issue has not gone unnoticed and, as first explained here the Hong Kong Financial Service and Treasury Bureau announced a draft Bill introducing a tax concession for single 'family offices' operating in Hong Kong. The concession is designed to work in a similar way to the Singapore equivalent, with the result being that family investment holding vehicles holding investments which are managed by an eligible Hong Kong-family office can benefit from a concessionary 0% Profits Tax rate on profits earned from qualifying transactions and incidental transactions, provided certain conditions are satisfied.

As discussed in detail here the Hong Kong legislators responsible for this Bill were receptive to feedback on the proposed regime from industry experts and implemented amendments earlier this year which clarify the regime and enable more flexible structuring of entities that could benefit from the concession. The regime became law on 19 May 2023 and takes effect retrospectively from 1 April 2022 (as discussed here).

Something many see as an advantage over the Singapore regime, is that there is no requirement to submit a formal application in order to benefit from the concessionary regime. Corporations which consider they fall within the relevant criteria can simply take a position that they qualify for the concession when filing their annual tax return. This avoids the sometimes-lengthy application process that is required in Singapore (albeit when approval is granted in Singapore it is generally retrospective). Moreover, any uncertainty in the absence of a formal application process can nonetheless be dispelled by families who wish to seek an advance ruling from the Hong Kong Commissioner of Inland Revenue to ensure their structure and profits are eligible for the concession.

While this addition to the Hong Kong tax landscape may not yet be as well-known as the Singapore equivalent, it is clearly an attractive option for ultra-high net worth individuals, particularly for those who may have closer ties to mainland China. And although Hong Kong does not offer residency rights to complement its tax concession, obtaining an appropriate visa to relocate to Hong Kong is relatively straightforward (whereas this has become significantly more difficult in Singapore over recent years) and permanent residence status is usually obtained after 7 years of residence.

Hong Kong's basic tax regime is an already attractive option for ultra-high net worth investors who may be looking to relocate. Even looking past the relatively benign rates, the simplicity of its tax regime is particularly attractive when individuals start to learn more about the comparatively complex 'Non-Dom' regime. And with the addition of the tax concession for family-owned investment holding vehicles, Hong Kong has added a further improvement to its already enticing tax regime for ultra-high net worth individuals and their families.

If you have any questions in regards to this article, please get in touch with Tom McElligott or your usual Withers contact.