The Kickoff of Free-Tax Era
Albert Einstein’s query that “The hardest thing in the world to understand is the income tax.” seems contrary with today’s society with multiple taxes, leading into interrogate the rationales and differences on taxation policy between pioneers in Asia-Pacific—Hong Kong and Singapore. With the title of “freest economy”, the two cities standing on the soil with lowest taxation system remain a pull for businesses around the world.
Let’s take a deeper look on the corporate income tax rate, they are 16.5% and 17% in Hong Kong and Singapore respectively, which luregreed businessmenas it is relatively a big discount of 29.41% in worldwide weighted average by GDP according to Tax Foundation.
It is seemingly that the corporate income tax rates among two cities aremore or less the same; however, since 2002, the Partial Tax Exemption (PTE) regime has introduced by the Singapore Government in order to stand alone from the cutthroat competition. As the result, most companies in Singapore pay much lower rates with the PTE regime. The effective tax rate can be as low as 4.25% for taxable income below S$ 10,000 according to the first-tier 75% tax exemption, which sharpen the edges of competitiveness for the city.
Situation reversed in 2018, the further preferential policy “Two-tiered Profits Tax regime” introduced by the Hong Kong Government acts as the counterattack towards the PTE regime in Singapore. After the announcement of new temporary rebates, the effective tax rate in Hong Kong is only around one-half of its current tax rate, i.e., 8.25%. for the first HK$2 millions of profits (around S$348 thousands) according to the regime. With the new policy unveiled by the Hong Kong Government, the heretofore leverages of Singapore have become inconspicuous.
Nevertheless, as the leaders of the APAC, both Hong Kong and Singapore are firmly standingwith their own uniqueness. As a wide array of commercial enterprises were sharing the land of Singapore,are offered for encouraging investment activities in several fields, including eCommerce industry, Innovative and Development activities, Global Trading, to name but a few. On the other hand, the taxation of foreign income in Hong Kong places the city into a superior position as offshore profits are not be taxed, in the meantime, there is no Hong Kong withholding tax on payment of interest to non-resident which is totally different from Singapore.
Undoubtedly, the bonanza of the policies of both Hong Kong and Singapore have been harvested as they are leading the commercial world; yet, how can the two cities be taken up a notch when they are already on the apex of the free trade arena? Hopefully, a breakthrough will be performed in not too distant future.
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