Hong Kong and Singapore Holding Companies

From Dezan Shira & Associates

Issue 124 • May 2012

Hong Kong and Singapore Holding

Companies

INCLUDING• The Benefits of Holding Companies for FDI• Establishing and Maintaining Hong Kong and Singapore Companies• A Look at Double Tax Agreements

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Welcome to the May issue of China Briefing

While a variety of exotic locations are excellent for holding company establishment in terms of tax and administrative efficiency, due to geographical proximity, a majority of SMEs choose Hong Kong holding companies for their China investments.

But for foreign investors looking to invest in China “and beyond,” Singapore is looking increasingly appealing as a holding company destination.

In this issue of China Briefing, we take a closer look at the benefits of both Hong Kong and Singapore holding companies, how to establish

and maintain a company in each of these jurisdictions, and the relevant double tax agreements.

Warm regards,

Samantha L. Jones, Senior Editor, Asia [email protected]

All materials and contents © 2012 Asia Briefing Ltd.No reproduction, copying or translation of materials without prior permission of the publisher.

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3China Briefing | May 2012

Today, Hong Kong and Singapore each stand with one foot planted solidly in Asia and one foot in the West. Historical entrepôt

trading centers that today still bear the legacies of British colonial rule, these two jurisdictions exude an undeniable level of “comfort” for Western businesses – a strength that enables them to draw foreign investment in quantities hugely disproportional to their jurisdiction size.

Investment EnvironmentBeyond this “comfort” level, these two jurisdictions hold a number of concrete advantages that keep them at the head of the pack in international commerce and investment.

Hong Kong and Singapore are both seen as Asia’s future international banking and trading centers. These two jurisdictions continue to sit in the top two places of the World Bank’s Ease of Doing Business rankings, both with particular strengths in “protecting investors” and “trading across borders.” The transparency of the business environment (which far surpasses that in other jurisdictions, such as mainland China) in Hong Kong and Singapore provides a familiarity that reassures foreign investors embarking into the Asian markets for the first time.

In recent years, Hong Kong and Singapore’s ports have two-stepped with Shanghai for the top three global spots in total container throughput – just one example of their immense logistics and transportation capacities. Furthermore, the skilled workforce and use of English documentation in government and business settings in both jurisdictions enables a communication efficiency that far surpasses that of Asia as a whole.

With these advantages in hand, Hong Kong and Singapore are seen as jurisdictions of

choice for regional headquarters, branch offices and holding companies. In this issue, we focus on the benefits that these two jurisdictions offer for the last of these options: a holding company structure (or “special purpose vehicle”), a corporate setup in which a holding company is inserted between a parent company and its subsidiary.

Financial and Tax BenefitsThe benefits that holding companies bring to a foreign investment generally far outweigh their costs; holding companies are very quick and inexpensive to set up, maintain and can even be established as virtual companies, i.e. a company that does not need a real office (only a legal address).

First, holding companies allow for an additional layer of distance between the Chinese subsidiary and parent company, and can in certain ways “ring-fence” the investment, protecting it from the potential risks and liabilities of the Chinese subsidiary. In the case that an investor wishes to sell its Chinese

business, or introduce a third party partner / shareholder into the structure, the administrative changes can also be done at the holding company level, rather than at the China level where the regulatory environment is tougher and procedures more time-consuming.

Given that the banking and legal systems in both Hong Kong and Singapore are relatively stable and sophisticated, a holding company can provide a good solution for foreign companies wishing to hold their China-earned profits offshore. In this way, the profits can be used to re-invest into China if the need arises, or to further expand operations in Asia. Subject to the parent country’s anti-avoidance tax rules, this method is often used as a tax deferral mechanism for foreign companies who do not want to remit their China profits back to the home country immediately.

In addition, Hong Kong and Singapore holding companies present a number of tax advantages, including:

The Benefits of Holding Companies for FDI

[ By Samantha L. Jones and Cory Lam, Asia Briefing/Dezan Shira & Associates ]

4 China Briefing | May 2012


Hong Kong

• Proximity to China• Easier access to RMB• Closer Economic Partnership

(CEPA) agreement in place allowing access to some restricted industries

Singapore

• Access to ASEAN countries• SME exemptions/cash

incentives, annual compliance exemptions available

• Greater number of DTAs

• Ease of Doing Business

Advantages for Holding Companies

Headline Corporate Tax Rates

0123456789

10111213

Hong Kong Singapore

OverallStarting a Business

Protecting Investors

Paying Taxes

Trading Across

BordersEnforcing Contracts

Ease of Doing Business 2012 Rankings

“Beyond “comfort” level, Hong Kong and Singapore hold a number of concrete advantages that keep them at the head of the pack in international commerce and investment.”

16.5%

0%

0%

0% 10% 20% 30%

Corporate income tax

Value-added tax

Standard tax on dividends(Non-resident co.)

17%

0% 10% 20% 30%

7%

10% 20%

Hong Kong Singapore



1. Reduced withholding tax rates on the repatriation of profitsMany preferred holding company jurisdictions have double taxation agreements (DTAs) in place, which limit or eliminate the level of withholding taxes payable on dividends coming from subsidiary countries and going to parent companies. Both Hong Kong and Singapore, for example, have DTAs with China that lower this dividend withholding tax to 5 percent (for many other countries, this is usually 10 percent).

Furthermore, the taxation systems in both Hong Kong and Singapore work on a territorial basis; dividend income is exempt from Corporate Income Tax (or Profits Tax, as it is called in Hong Kong) if participation exemption applies, which means these amounts received by holding companies in Hong Kong and Singapore would not be deemed as taxable income. If the amounts are eventually to be remitted from the Hong Kong/Singapore holding company to the parent company, there is no further dividend withholding tax to be paid on sending these amounts out of these jurisdictions, thereby resulting in a lower level of withholding taxes overall.

2. Limiting tax exposure on capital gainsCapital gains (i.e., profits from selling a capital asset) are taxable in many jurisdictions, but for Hong Kong and

Singapore, capital gains taxes are not payable on the transfer of capital assets. It should however be noted that, an indirect transfer of a Chinese entity via the sale of its holding company may still be subject to capital gains tax in China.

The Question of Genuine BusinessIn the establishment of holding companies, care should be taken to comply with anti-avoidance tax rules from both the subsidiary and parent jurisdiction governments, demonstrating clearly that a holding company is a genuine business which has sufficient commercial substance in order to enjoy the available beneficial tax treatments under DTAs.

Pressure to demonstrate this qualification comes from tax authorities across the globe – including those in the countries of subsidiaries (like China) and in the countries of parent companies. A holding company failing to show justifiable commercial reasons in establishment could ultimately be deemed as a “look-through company” for taxation purposes and may not qualify for such beneficial tax treatments.

“Businesses are inherently income-earners and thus demonstrating a genuine business often boils down to demonstrating income,” explains Richard Cant, director at Dezan Shira & Associates.

“This can be done in a variety of ways. For example; license agreements. If you first register your intellectual property in Hong Kong, then license your Chinese subsidiary to use your intellectual property, you’ve just created a cash flow. Another big one; management services. Hong Kong-employed staff can provide management services, however you’d like to define them, to the Chinese subsidiary.”

In the event that the Chinese subsidiary’s products will be sold directly to customers outside of the parent company’s country, it is also worth considering whether invoicing can be done from the offshore holding company rather than the parent company’s country. In addition, depending on the circumstances, it may be possible to ensure that the income from the sales of these products is sourced in the jurisdiction of the holding company, which have much lower tax rates than China or (in many cases) the parent company’s country. Normally such arrangements would involve the Chinese subsidiary selling the product to its holding company on a cost plus basis and then for this holding company to sell to the ultimate customer.

Under other arrangements, it is also possible for the Chinese subsidiary to sell directly to the ultimate customer, with the holding company acting as an invoicing agent, on behalf of the Chinese subsidiary to ensure that there is commercial income for the holding company.

FDI Source Jurisdictions by Destination

70%

60%

50%

40%

30%

20%

10%

0%

Hong Kong

Taiw

an

Singap

ore

Japan U.S.

South Kore

aU.K.

France

Netherla

nds

German

y

70%

60%

50%

40%

30%

20%

10%

0%

Mau

ritius

Singap

oreJa

pan

Netherla

ndsU.S.

Cypru

sU.K.

France

U.A.E.

German

y

Sources: China Ministry of Commerce and India Department of Industrial Policy and Promotion, data for the year 2010 (calendar or financial year)

China India



Singapore Holding Co.

China Subsidiary

India Subsidiary

Vietnam Subsidiary

Singapore Holding Co.

Parent Co.

Tax Sourcing and Residency Rules by JurisdictionHong Kong Singapore

SourcingHong Kong’s “territorial source” tax system means that only income sourced in Hong Kong is taxed.

Tax is imposed on income sourced in Singapore, as well as foreign sourced income received in Singapore, unless specified exemptions apply. Noteably, a variety of tax incentive schemes are available.

ResidencyThere is no distinction made between resident and non-residents for profits tax purposes in Hong Kong, but Hong Kong regulations allow companies to claim offshore status, enabling them total tax exemption on profits sourced outside of Hong Kong.

Tax treatment of resident and non-resident companies is generally the same, but resident companies are entitled to certain benefits that are not available to nonresident companies, such as tax exemption on foreign-sourced dividends and service income as well as tax exemption on foreign branch profits upon meeting certain stipulated conditions.

A company is deemed to be a tax resident in Singapore if the control and management of its business is exercised in Singapore. As such, a foreign company’s branch in Singapore is generally not treated as a tax resident in Singapore since the control and management is vested with an overseas parent company.

Direct Investment vs. HK Holding Co.Total Dividend Tax

Direct Investment HK Holding Co.

China Subsidiary

HK Holding Co.

Parent Co.

5%

0%

10%

Total 5%10%

Direct Investment vs. Singapore Holding Co.Total Dividend Tax

Direct Investment

China Subsidiary

India Subsidiary

Vietnam Subsidiary

Parent Co.

10% 0% 0%

Total 10% 0% 0%

5% 0% 0%

0%

5% 0% 0%

“Hong Kong and Singapore have DTAs with China that lower withholding tax to 5%.

These jurisdictions do not impose withholding tax on d iv idends leaving the country, making the total withholding tax remitted with a holding company structure half of that if the profits were remitted directly from China.”


One of the key advantages that Hong Kong holds over other holding company jurisdictions is the Closer Economic Partnership

Agreement (CEPA) with the Mainland.

Set up in 2002 after China’s accession to the WTO, CEPA is essentially a free trade agreement. The most recent supplement, Supplement VIII (CEPA VIII), signed in December 2011 and implemented from April 2012, deepened liberalization of trade in services. A list of the goods entitled to zero tariff preference1 and services included under the agreement2 can be on the Hong Kong Trade and Industry Department website.

The most commonly used company structure for foreign companies doing business in Hong Kong is a private limited company.

Requirements for IncorporationAccording to the Hong Kong Companies Ordinance, a “private company” is a company which, by its articles of association:

(1) Restricts the right of members to transfer shares;

(2) Limits the number of its members to 50 (excluding employees and former employees who become members while they are employed by the company); and

(3) Prohibits any invitation to the public to subscribe for any shares or debentures of the company.

For a company to be a “limited company” its memorandum should limit the liability of its members to either the amount

1 http://www.tid.gov.hk/english/cepa/tradegoods/rules_origin.html

2 http://www.tid.gov.hk/english/cepa/tradeservices/trade_services_requirement.html

unpaid on company shares they hold (for a company limited by shares) or the amount they undertake to contribute to the assets of the company in the event of the company being liquidated (for a company limited by guarantee).

Requirements for establishment of a Hong Kong private limited company include:

At least one director and one secretary• If the company has one director

only, the sole director cannot be the secretary of the company at the same time.

• The director can be a non-Hong Kong resident.

• The secretary can be an individual or a body corporate. If an individual, he/she should ordinarily reside in Hong Kong. If the secretary is a body corporate, its registered office or place of business should be in Hong Kong.

At least one registered shareholder• The shareholders of the company do

not have to be Hong Kong residents. • The sole shareholder can be a

director of the company. If limited by shares, at least one founder

member should hold one share Registered office situated in Hong

Kong

There is no requirement on the minimum amount of a company’s paid-up capital or nominal share capital under the Companies Ordinance.

Incorporation ProcessHong Kong limited company set up process is the same for foreign and local-owned companies. The relevant government authority for approval is the Companies Registry.

1. Choose Company Name The first step of the incorporation of a private limited company is to choose a name for the company.

Generally speaking, the name will be accepted for registration as long as it is not the same as a name appearing in the index of company names kept by the Registrar of Companies. A company name search can be conducted free of charge at the Registrar of Companies’ Cyber Search Centre.3

A company name can be in English or Chinese. A company can also adopt both an English and a Chinese name. A company name with a combination of English letters and Chinese characters is not acceptable. A Chinese company name should use traditional Chinese characters.

An English company name must end with the word “Limited.” Company names containing words or expressions such as “Trust,” “Chamber of Commerce” etc. will require prior approval from the Registrar of Companies.

The Registrar of Companies does not pre-approve company names. The Registrar of Companies is also empowered to order a company to change its name in situations where, for example, the name gives so misleading an indication of the nature of the company’s activities in Hong Kong as to be likely to cause harm to the public, or it is too like another name of an organization established in Hong Kong under any ordinance at the time of registration.

3 http://www.icris.cr.gov.hk/

Hong Kong Company Set Up and Annual Compliance

[ By Eunice Ku, Dezan Shira & Associates ]

1. Choose Company Name

2. Complete Company Incorporation and

Business Registration

3. Receive Certificates


Hong Kong Company Set Up and Annual Compliance

A company name that infringes on the intellectual property rights of a third party could result in criminal or civil sanctions in Hong Kong or elsewhere. To prevent this from happening, a search in the Trademark Register4 maintained by the Intellectual Property Department should be conducted.

2. Complete Company Incorporation/Business RegistrationThe Companies Registry and the Inland Revenue Department jointly implemented the “One-stop Company and Business Registration Service” on February 21, 2011. Under this service, any person who applies for incorporation of a local company is deemed to be making a simultaneous application for business registration. Upon approval of an application for incorporation, the Registrar of Companies will issue the Certificate of Incorporation and the Business Registration Certificate.

There are two types of business registration certificate, namely a one-year certificate and a three-year certificate. If business specifics as specified on the registration certificate change, the business operator has to notify the Inland Revenue Department in writing within 1 month of the change.

Only certain types of business (e.g. restaurants, banks, travel agencies) need additional forms of license. More information can be found on the homepage of Business License Information Service.5

The incorporation documents include:a) Incorporation Form – Form NC1 (for

company limited by shares) or Form NC1G (for company not limited by shares);

b) A copy each of the company’s memorandum and a r t i c l e s o f association; and

c) A Notice to Business Registration Office (IRBR1).

Memorandum and Articles of AssociationThe original memorandum and articles

4 http://ipsearch.ipd.gov.hk5 https://www.success.tid.gov.hk/tid/eng/blics/

index.jsp

of association must be signed by each founder member of the company. The copy delivered to the Companies Registry for registration, however, need not contain the signature(s) of the founder member(s).

The memorandum of a company limited by shares or by guarantee must state that the liability of its members is limited. Companies are generally not required to state their objectives in their memorandum, with certain exceptions such as companies incorporated to promote charitable objects and which have been authorized to dispense with the use of the word “limited” in their name.

The articles of association are the regulations of the company. Companies can adopt all or any of the regulations contained in Table A of the first schedule of the Companies Ordinance, or adopt more detailed articles. The Articles should be printed in English or Chinese, be divided into paragraphs, numbered consecutively, and signed by each founder member of the company.

3. Receive CertificatesRegistration certificates are issued by the Registrar of Companies in hard copy form for paper submission and in electronic form for online submission (both having the same legal effect).

For those companies limited by shares that submit hard copy applications, certificates are normally issued in 4 working days, with an email notification that certificates are available for download.

For companies limited by shares that adopt the standard memorandum and articles of association provided at the e-Registry, electronic certificates will normally be issued within 24 hours, with an email notification. For hard copy application, there is a fax notification that certificates are ready for collection, after which the certificates have to be collected in person at the Companies Registrar.

Annual ComplianceAnnual compliance requirements in Hong Kong include an:

Annual general meeting, at which: • a profit and loss account, balance sheet,

and director’s reports are presented,

• dividends (if any) are declared,• directors are elected to replace those

retiring (if any), and auditors are appointed; as well as

Annual return filed.

Annual General Meeting An annual general meeting should be held within 18 months of incorporation and then at least once in every calendar year. No more than 15 months should elapse between two annual general meetings unless written approval is obtained from the Companies Registrar.

At the annual general meeting, the directors of every company should present a profit and loss account and a balance sheet for the financial year. A directors’ report should be attached to every balance sheet presented at the annual general meeting. The Companies Ordinance stipulates the items that this report should contain, including significant changes in the fixed assets of the company and details of contracts with the company which are significant in relation to the company’s business and in which any director has a material interest.

Annual Return An annual return must be filed with the Registrar of Companies once a year.

It must be:

Signed by a director or the secretary of the company

Filed within 42 days of the most recent anniversary of the incorporation date of the company (within 42 days of the company’s anniversary of incorporation) for private companies having share capital. Other companies must file their annual return within 42 days after the company’s annual general meeting for the year.

For more information on establishing and maintaining Hong Kong companies, please email [email protected] or visitwww.dezshira.com.


Singapore’s s tatus as an ASEAN (Association of South East Asian Nations) member is a significant pull for companies considering

investment beyond China.

Singapore has a close relationship with ASEAN countries (Indonesia, Malaysia, the Philippines, Thailand, Brunei, Burma, Cambodia, Laos and Vietnam) in all aspects of business, beyond the free trade access provided under the ASEAN Free Trade Agreement itself. While China (including Hong Kong) has a separate free trade agreement with ASEAN, this agreement is not as far reaching as the tax treatments that ASEAN members enjoy.

Singapore is in a favorable position for trading with non-ASEAN countries as well. For example, ASEAN has a tax treaty with India, whereas China currently only has an agreement on double taxation with India.

Tax incentive programs offered by the Singapore government, such as the Global Trader Program and HQ Program, are also draws, as well as tax incentives are available under the Productivity and Innovation Credit (PIC) Scheme, which encourages businesses, especially SMEs, to invest in productivity and innovation.

Under the PIC Scheme, businesses can get cash payout or a 400 percent tax deduction/allowances on expenditure of up to S$400,000 on each of the following six activities:

1. Purchase / lease of prescribed automation equipment

2. Training expenditure3. Acquisition of intellectual property4. Registration of intellectual property5. R&D6. Design expenditure

Similar to Hong Kong, most Singapore

companies are registered as private limited liability companies.

Requirements for IncorporationA professional service firm must be engaged to register on the behalf of companies with non-Singapore National Registration Identity Card (NRIC) holders, non-Employment Pass holders and/or non-Dependant Pass holders in the role(s) of director, company secretary and/or shareholder.

Key points of Singapore company setup include the requirement that the company secretary and at least one director are Singapore residents and the approvals required according to the Accounting and Corporate Regulatory Authority (ACRA) Singapore Industry Classification Code (“SSIC Code”).

At least one shareholder • A Singapore private l imited

company should have at least one shareholder, but no more than 50.

• The shareholder can be a person or another legal entity and 100% foreign shareholding is allowed.

• New shares can be issued or existing shares can be transferred to another person anytime after the Singapore company has been incorporated.

At least one director that is a Singapore resident • A resident is defined as a Singapore

Citizen, a Singaporean Permanent Resident, an Approval-in-Principle Employment Pass holder, or a person who has been issued an Entrepass, Employment Pass, or Dependent Pass.

• There is no limit on the number of additional local or foreign directors a Singapore private limited company can appoint. Most companies will have at least two directors, as banks and other financial institutions

usually require two signatories. • The sole shareholder and sole

director can be the same person, but non-shareholders can also be appointed as directors.

Company secretary who is a Singapore resident• A company secretary must be

appointed within six months of its incorporation.

• In the case of a sole director/shareholder, the same person cannot act as the company secretary.

Paid-up Capital • The minimum paid-up capital

(also known as share capital) for registration of a Singapore company is S$1.

• The paid-up capital can be increased anytime after the company’s incorporation.

Registered Address • A p h y s i c a l ( r e s i d e n t i a l o r

commercial) local Singapore address must be provided as the registered address of the company.

• The premises of this address must be approved for business use by the Urban Redevelopment Authority (URA) and residential flats or properties can only be used under the Home Office Scheme. (P.O. Boxes cannot be used.)

Incorporation ProcessGenerally, a private limited liability company can be incorporated in 1-2 days. Company registration is completed online with the Accounting & Corporate Regulatory Authority (ACRA).

Singapore Company Set Up and Annual Compliance

[ By Eunice Ku, Dezan Shira & Associates ]

1. Company Name Approval

2. Company Registration


Singapore Company Set Up and Annual Compliance

1. Company Name ApprovalThe information required for a company name application is as follows:

Proposed company name Principal activities (SSIC Code)* Approvals from other government

authorities (where required) Particulars of directors/shareholders/

members:• Name• ID number• Nationality• Residential address• Contact number/email address• Position held

*The Singapore Industry Classification Code (“SSIC Code”) is the ACRA’s way of categorizing businesses by business scope. The relevant SSIC code can be found using the ACRA’s online search engine.1

Specifications for company names include:

A company name cannot be identical to that of another entity on the register. The availability of business names can be checked by searching the ACRA’s online directory of businesses on BizFile.2

A private limited company should have the word “Private” (or “Pte.”) or “Sendirian” (or “Sdn.,” the Malay word) as part of its name, inserted immediately before the word “Limited” (or “Ltd.”) or “Berhad” (or “Bhd.,” the Malay word).

Certain words (such as bank, finance, law, media, etc.) in a proposed name may require the review and approval of the relevant government authority, which may delay the name approval.

An approved name will be reserved for 60 days from the date of application, and this period can be extended for another 60 days by filing an extension request just before the expiry date.

1 http://www.acra.gov.sg/SSIC+Code+for+Business+Activity+Search.htm

2 h t t p s : / / w w w. p s i . g o v. s g / N A S A p p / t m f /TMFServlet?app=MYBIZFILE-DIR-ENTITY

2. Company RegistrationFollowing the approval of company name, an application to incorporate a company should be submitted. The application for incorporation is similar for all types of businesses. A company is usually incorporated within 15 minutes after the registration fee is paid. Incorporation will only take between 14 days and 2 months if the application needs to be referred to other authorities for approval or review. For activities that will be referred to other authorities for approval, please refer to the Referral Authorities Table.3

The following information is required when submitting the application for incorporation:

SingPass Name application number or approved

company name Company type Particulars of additional directors/

shareholders/members Registered office address

• Name • ID number• Nationality• Residential address• Contact number/email address

Share capital details• Share capital• Allotment of shares• Group shares information• Class of shares

PDF copy of Memorandum and Articles of Association

Memorandum and Articles of AssociationA sample of the standard format of memorandum and articles of association is available on the ACRA’s website.4

Official Certificate of IncorporationFollowing successful incorporation, the Company Registrar will send an official email notification, which is treated as the official certificate of incorporation.

A business profile containing the

3 h t t p : / / w w w . a c r a . g o v . s g /Referral+Authorities+Table.htm

4 h t t p : / / w w w . a c r a . g o v . s g / N R /r d o n l y r e s / 5 A B B 7 C 9 E - 5 1 8 2 - 4 B 1 8 -9 7 D 7 - B B E B 6 7 6 6 5 3 1 6 / 1 7 6 1 9 /SAMPLEOFSTANDARDMAA.pdf

particulars of the company can be obtained online with a small application fee. These two documents are sufficient in Singapore for all legal and contractual purposes including opening of corporate bank accounts, signing office lease, subscribing to telephone/internet services, etc.

Once the company has been successfully incorporated and issued a Unique Entity Number (UEN), the company may begin operations.

Certain types of businesses (e.g. private school, spa, telecommunications) require licenses and permits, which can be obtained post-incorporation.

Annual ComplianceAnnual General MeetingEach Singapore company must hold the first annual general meeting within 18 months of its incorporation, and no more than 15 months may elapse between subsequent annual general meetings (unless approval of the Registrar is obtained).

Private companies can dispense with annual general meetings if a resolution to that effect is passed by all members with voting rights at a general meeting of the company.

At the annual general meeting, directors should present a true and fair view of the company’s profit and loss accounts to their shareholders. Accounts presented at the annual general meeting should be made up to a date not more than 6 months before the annual general meeting.

Filing of Annual ReturnSingapore companies must file an annual return with the ACRA within 1 month of the company’s annual general meeting. Particulars of the company officers, registered address, and auditors (if applicable) must be included in the annual return.

A company can engage the services of a professional firm or a service bureau to file the annual return on its behalf.

For more information on establishing and maintaining Singapore companies, please email [email protected] or visit www.dezshira.com.


While Hong Kong has been on a double taxation agreement (DTA) signing spree in the past two years,

Singapore is the Asian queen DTAs, boasting 69 comprehensive DTAs, roughly triple that of Hong Kong.

“ In 2011 alone, Hong Kong’s DTAs with Austria, Ireland, Hungary, Liechtenstein, Japan, the Netherlands, New Zealand and France came into force, followed by DTAs with the Czech Republic, Indonesia and Spain in 2012.”In the same year, Singapore had five DTAs come into force, including a new DTA with Ireland and a revised DTA with Switzerland. Singapore’s 69th comprehensive DTA (with Spain) came into force in February 2012, the same month Singapore and the U.K. signed a second protocol amending their DTA, lowering withholding tax rates.

To date, there are approximately 3,000 DTAs across the globe, with 100 added each year. DTAs aim to prevent the same income from being taxed by two or more states, thereby encouraging cross-border investment. Studies have suggested that foreign direct investment in developing countries with whom a “tax sparing” agreement exists is 1.4 to 2.4 times higher than what it would have been otherwise.

While about 75 percent of the actual words of any given DTA are identical with the words of any other DTA, the applicability and specific provisions of each treaty can vary substantially.

The United Nations Conference on Trade and Development divides tax treaties into categories based on their applicability, primarily:

• Income;• Income and capital (“Comprehensive”);• Transport (air, water, or both, also

known as “Limited Treaties”); and• Protocol.

In many cases, two countries will have several DTA agreements with different scopes signed at separate times.

Beyond the scope of the agreement, it is also key to differentiate between signed agreements and those that have been ratified. Singapore, for example, has signed but not ratified agreements with Belgium, Canada, Switzerland, Italy, Turkey, South Korea, and the U.K., among others.

Hong Kong and Singapore’s Double Taxation Agreements

[ By Dezan Shira & Associates ]

AustriaBelgiumBruneiChina (Mainland) Czech RepublicFrance HungaryIndonesiaIrelandJapanLiechtensteinLuxembourg Netherlands New ZealandSpainThailandUnited Kingdom Vietnam

Hong Kong

Albania Australia AustriaBahrain Bangladesh BelgiumBruneiBulgaria Canada China (Mainland & HK)Cyprus Czech Republic Denmark Egypt Estonia Fiji Finland FranceGeorgia Germany HungaryIndia Indonesia IrelandIsrael Italy JapanKazakhstan Kuwait Latvia Libya LithuaniaLuxembourg Malaysia MaltaMauritius Mexico Mongolia Myanmar Netherlands New ZealandNorway Oman Pakistan Panama Papua New GuineaPhilippines Poland PortugalQatar Romania Russian Federation Saudi Arabia Slovak Republic Slovenia South Africa South Korea Spain Sri Lanka Sweden Switzerland Taiwan Thailand Turkey Ukraine United Arab Emirates United Kingdom Uzbekistan Vietnam

Singapore

Comprehensive DTAs69

18

Bangladesh CanadaCroatiaDenmarkEthiopia FinlandGermanyIcelandIsraelJordanKenya KoreaKuwaitMacao SARMauritiusMexicoNetherlandsNew Zealand NorwayRussian FederationSingaporeSri Lanka SwedenSwitzerlandU.K.USA

Hong Kong

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