Taxes affect the decision of any person in the way of setting up business in an area. Singapore has a low efficient individual and also corporate tax rates giving it an advantage since the personal income tax rate begins at 3.5% going up to 20% for higher earners. However in Hong Kong salary tax begins at 2% and goes up to 17% for higher earners even though the net tax paid in Singapore is much lower than in Hong Kong.
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Typically headline company tax rate in Singapore as is the case in many other authorities does not of necessity make available a precise suggestion of efficient corporate tax rate. This is because effective rate is more often than not lesser than the headline tax rate because of applicable tax exemptions and also tax incentives. With the application of these tax exemptions to the taxable income, the effectual tax rates for small size Singapore companies becomes considerably reduced in comparison with the corporate tax rate payable in Hong Kong. The valuable corporate tax rate for Singapore private companies goes up to 17% for companies that make profits of up to SGD 300,000. For any new corporate in Singapore will enjoy full tax exemption on the first S$100,000 in profits made for the first 3 years and thereafter 50% for the next S$200,000. Starting 2010 government up graded its fractional and full-tax exemption scheme for start-ups too while permitting start-ups to enjoy either Corporate Income Tax (CIT) rebates or SME cash grants.
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All in all the Singapore government has as well set up many industry-specific tax incentives so as to persuade foreign investment as well as increase of the targeted industries in Singapore. What this tax structure does is that it permits SMEs to thrive and promotes entrepreneurs in setting up operations. Singapore and Hong Kong only tax their residents on domestic income which goes in agreement with the territorial taxation principle as opposed to other countries whose residents have to pay tax both on their home as well as foreign income. This factor has proved to be a great attraction for corporate to come and invest in either of the two countries due to their position of taxation.
However in the two countries vary in the way that they carry out territorial taxation since in Hong Kong there is need to carry out certain transactions outside the country so as to be able to enjoy tax exemption. This is as opposed to a Singapore corporation where to be let off of tax the transactional profit has to be kept outside the country. The two countries also have more tax benefits for companies by way of exempting any dividend that is received by a company in Singapore or Hong Kong being off the hook from corporate tax.
Because of their territorial tax systems, Hong Kong and Singapore can be able to pose as perfect location for a company occupied in trading, financing or licensing activities. In the event that such actions are put to a Hong Kong or a Singapore company, then the proceeds made through such actions need not be taxed in Hong Kong or Singapore as long as the physical goings-on are carried out not within these countries. Foreign tax liability can be passed off as well if no permanent enterprise is formed by such behavior in any other country.
All in all the current international tax planning both in Hong Kong and Singapore put forward thrilling new options. On the other hand, particularly specific features of the territorial tax system of these countries, mainly the intricacy of tax regulations and also practice in relation to the determination of the basis of the income have need of comprehensive planning and tax structuring ahead of the coming up of business and corporate structures involving Hong Kong and even Singapore companies.