A review of the tax regimes in Singapore and Hong Kong

In the competitive landscape of global finance, Singapore and Hong Kong stand out as premier destinations for ultra-high net worth individuals seeking favorable tax regimes and robust business environments. Both cities have implemented specific measures to attract family offices, offering unique advantages that differ from traditional ‘Non-Dom’ regimes.

This article explores the distinct tax benefits and strategic incentives provided by Singapore and Hong Kong, highlighting why these jurisdictions are increasingly becoming the preferred choice for the world’s wealthiest 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',  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 24% – significantly lower than the top rate of UK income tax.
3. There is generally 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 this 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 tightening requirements. 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

The Hong Kong government is striving to boost the attractiveness of Hong Kong as a destination for ultra-high net worth individuals and their investments. One of the goals of the recent Hong Kong Chief Executive's 2024 Policy Address in October 2024 is to enhance Hong Kong's position as an international financial centre and to build Hong Kong into an international hub for high-calibre talents. From the ongoing support towards a Profits Tax concession regime for 'family-owned investment holding vehicles', to the launch of the new Capital Investment Entrant Scheme (‘CIES’) in March 2024 and the recent reformation of various talent admission schemes, 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 generally 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 an unincorporated business in Hong Kong (7.5% on assessable profits up to the first HK$2 million and 15% thereafter) 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 certain types of 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 corporations 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). For family investment holding companies (whether incorporated in Hong Kong or offshore), they may be subject to Profits Tax if they are deemed to be carry on business in Hong Kong (which is of a low threshold and undertaking any form of investment activities in Hong Kong may lead to the company being so deemed).  Once that is the case, certain forms of investment income which are deemed to be Hong Kong sourced may be subject to Profits Tax. These include trading gains from sale and purchase of Hong Kong listed shares or unlisted securities if the trading activities are effected in Hong Kong.  Further , dividends, interest and gains (whether trading or capital in nature) from the sale any type of investments which are sourced outside of Hong Kong 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' ('MNE') (which includes standalone MNE eg incorporated in the BVI but managed in Hong Kong)  in Hong Kong (albeit there are certain exceptions).

The application of the Profits Tax regime on investment holding entities, especially with the introduction of  the FSIE regime is fact specific and not always clear cut, createsing 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 government amended the Inland Revenue Ordinance (Cap. 112) on 19 May 2023 introducing a Profits Tax concession for single 'family offices' operating in Hong Kong. The concession is set out 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. The 2024 Policy Address stated that expansion on the types of transactions which qualifies for the concession would be expanded. 

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 if the ordinary of residence test is fulfilled.

The Hong Kong Chief Executive's 2024 Policy Address has particularly focused on attracting more individuals to obtain a Hong Kong visa for example by expanding the list of universities to qualify as eligible applicants under the Top Talent Pass Scheme and proactively inviting top talents to reside in Hong Kong through its Quality Migrant Admission Scheme. The new CIES launched on 1 March 2024 serves as an alternate visa option for wealthy individuals who prefer to relocate to Hong Kong by making financial investments. Such individuals must have net assets in his own name of not less than HK$30 million for the 2 years preceding the lodging of his application, which should be invested in certain permissible investment assets (including financial assets, Hong Kong real estate and CIES investment portfolio). An attractive aspect of this visa is that while other visas only grant permanent residence status after 7 years of residence, the new CIES allows an individual to stay unconditionally in Hong Kong after the 7-year period even if permanent residence status cannot be obtained.

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 combination of the tax concession for family-owned investment holding vehicles and funds, the new CIES and the reform of various talent admission schemes, Hong Kong has added a further improvement to its already enticing tax regime for ultra-high net worth individuals and their families.