American Business Problems with Hong Kong Bank Accounts? Singapore as an Answer
Given the recent problems American trading companies are having in establishing bank accounts in Hong Kong, viable alternatives need to be found. These issues, which are directly related to the American IRS carrying out extensive investigations in Hong Kong concerning breaches of the new FATCA regulations, have made banks in the territory wary of setting up any new personal or even company bank accounts. Other, smaller account holders have been asked to find ‘alternative’ banking arrangements, which is hardly conducive to assisting SMEs.
In fact, Hong Kong has been coming under increasing spotlight for a number of years. The territory has been blacklisted as a tax haven by several countries, including France and Italy, while the U.S. is known to have considered such actions. However, there are sustained concerns about the quality of numerous mainland Chinese financial investments, and of the true nature concerning the stated independence of Hong Kong’s Securities and Futures Commission. An overall deterioration in audit standards has also been noticed by numerous commentators on Hong Kong’s transparency.
While the territory has long been a viable entry point for business in China, that is now being compromised by what appears to have been a decade-long, increasingly lax approach to the acceptance of dubious mainland Chinese investors at the expense of full corporate disclosure. It remains to be seen how serious an issue this will become. However, should major Hong Kong banking and financial institutions be implicated in corporate wrongdoing, and Hong Kong’s systematic approach to financial transparency found to be wanting, the damage to its international reputation will be profound.
It should also be noted that should Hong Kong’s problems eventually be endorsed by the Chinese Central Government for their own political ends; the credibility of Hong Kong as an international financial center may be damaged irreparably. President Xi Jinping is well aware that illicit Chinese money has found its way into Hong Kong, and may attempt to take down its institutions, with the cooperation of the U.S. IRS in bringing them down.
The question of whether this could be seen as a punishment for Hong Kong citizens for their calls for more democracy, or a desire to see a more easily manageable Shanghai replace the territory as China’s premier financial services hub must now be asked, although the latter city is nowhere near being able to offer international financial services to the extent Hong Kong can. This may result in the development of a gap in the provision of financial services for the international business looking to access the China market. If so, the only other jurisdiction able to compete with Hong Kong for mainland China banking and trade purposes is Singapore, and it may already be preferable.
Singapore has many benefits for international trading companies. It runs on the same time zone as Hong Kong and mainland China, and like Hong Kong, is an approved RMB trading hub – meaning RMB transactions can be fulfilled in Singapore. While Singapore is also subject to American FATCA regulations, it has not been tarred with the same brush of constant illicit Chinese money coming into its financial services in anywhere near the volumes that Hong Kong has attracted.
Singapore’s transparency demands are among the highest in the world – garnering much-needed “clean trade” approval from the United States – yet it also consistently ranks first in the World Bank’s “Ease of Business” global rankings. The message here is loud and clear – international businesses with nothing to hide and engaged in legitimate trade activities are welcome to establish and operate in Singapore. Hong Kong’s downfall is that it has become too lax in its financial due diligence, and is now suffering because of this. It is possible it seems, to be just too close to mainland China.
Singapore also possesses a number of advantages when it comes to China trade that even Hong Kong, with its direct proximity to China, surprisingly lacks. These include a comprehensive Double Tax Treaty with China which offers the immediate capability to reduce taxes through withholding mechanisms as an alternative to the higher China corporate income tax rates. Singapore is also a member of ASEAN, which has a Free Trade Agreement directly with China.
For details of how this agreement impacts China-ASEAN trade, please see our latest issue of China Briefing Magazine (complimentary download) here. This is something Hong Kong does not possess at the moment, and arguably means that Singapore is a more sophisticated tax option than Hong Kong in which to base a trading company with designs on China. From a strategic viewpoint this also makes sense – free trade throughout ASEAN now means the supply chain is moving deeper into Asia – and Singapore is right in the middle of that.
In short, Singapore’s status as an ASEAN member is a significant pull for companies considering investment into and beyond China. As such, Singapore enjoys tariff-free trade with important Asian sourcing and manufacturing markets such as Indonesia, Malaysia, the Philippines, Thailand and Vietnam as well as Brunei, Cambodia, Laos and Myanmar. Singapore is also in a favourable position for trading with non-ASEAN countries as well. For example, ASEAN has a tax treaty with India, whereas Hong Kong does not.
In terms of the FATCA issue that has impacted so badly upon Hong Kong, Singapore is ahead here too. The Singapore Government has just signed off an “Intergovernmental Agreement” (IGA) that brings them into U.S. compliance concerning FATCA regulations. Singapore is the first nation in Southeast Asia to have done this, which in its own right will be a draw for American companies mindful of financial compliance and reporting issues.
Tax incentive programs offered by the Singapore government, such as the Global Trader Program and HQ Program, are also significant draws, as well as tax incentives available to the foreign investors 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 payouts or a 400 percent tax deduction/allowance on expenditures of up to S$400,000 for each of the following six activities:
- Purchase/leasing of prescribed automation equipment
- Training expenditures
- Acquisition of intellectual property
- Registration of intellectual property
- Design expenditures
In terms of overall tax exposure, Singapore also offers a highly competitive tax regime – corporate income tax is 17 percent; and there are no taxes to be paid on profits realized externally from Singapore. Individual income tax rates are about 20 percent, and can be reduced given specific expense allowances – something that is becoming increasingly difficult to obtain in Hong Kong. Lastly, similar to Hong Kong, most Singapore companies are registered as private limited liability companies.
Requirements for Incorporation
A professional services 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 Establishment
These include the requirement that the company secretary and at least one director are Singapore residents and hold the approvals required according to the Accounting and Corporate Regulatory Authority (ACRA) and Singapore Industry Classification Code (“SSIC Code”).
- At least one shareholder. A Singapore private limited company should have at least one shareholder, but no more than 50. The shareholder can be a person or another legal entity (such as a foreign company) and 100 percent foreign shareholding is allowed. New shares can be issued or existing shares can be transferred to another person any time after the Singapore company has been incorporated.
- However, at least one director must be 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 Employment Pass. This means that a foreigner intending to be employed by the Singapore company can be the sole director of that company, providing they obtain an employment pass and pay taxes in Singapore. 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.
- Similar to procedures in Hong Kong, a company secretary must be appointed and they must be a Singapore resident.
- Paid-up Capital. The minimum paid-up capital (also known as share capital) for registration of a Singapore company is S$1 (US$0.80). The paid-up capital can be increased any time after the company’s incorporation.
- Registered Address. A local Singapore address must be provided as the registered address of the company. Business centres are commonly used in Singapore and can fulfil this obligation.
- Incorporation Process. Generally, 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 Name Approval
The information required for a company name application is as follows:
- Proposed company name
- Principal activities as identified in Singapore’s Industry Classification Code (SSIC). Details can be obtained from the ACRA online facility here
- Approvals from other government authorities (where required)
- Particulars of directors & shareholders as follows:
- ID number
- Residential address
- Contact number/email address
- Position held
Specifications for Singapore Company Names
- 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” (the Malay term, abbreviated to “Sdn.”) as part of its name, inserted immediately before the word “Limited” (or “Ltd.”) or “Berhad” or “Bhd.,” another Malay term.
- Certain words (such as bank, finance, law, media, etc.) in a proposed name may require the review and approval of the relevant government authority.
- An approved name will be reserved for 60 days from the date of application; this period can be extended for another 60 days by filing an extension request just before the expiry date.
Singapore Company Registration
Following 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 longer – typically an additional 14 – 60 days if the application needs to be referred to other authorities for approval or review.
The following information is required when submitting the applications for incorporation in Singapore:
- Name application number or approved company name
- Company type
- Registered office address
- Share capital details
- Share capital
- Allotment of shares
- Group shares information
- Class of shares
- Memorandum and Articles of Association
- Particulars of additional directors/shareholders
- ID number / passport
- Residential address
- Contact number/email address
Following 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 particulars of the new company can also 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 an office lease, subscribing to telephone/internet services and so on, and will typically be provided by your Singapore corporate establishment service providers. Once the company has been successfully incorporated and issued a Unique Entity Number (UEN), the company may begin operations.
Singapore is now home to over 7,000 foreign MNC’s who have made the country their base for Asian operations – including China. Thousands more smaller foreign companies have now chosen Singapore as their corporate home for conducting business with Asia. As the effects of an increasingly expensive China begin to exert themselves, and the supply chain moves deeper into Asia, Singapore is becoming more attractive to companies looking to spread beyond the remit of China and Hong Kong. Given Hong Kong’s current problems with FATCA compliance and the difficulties now faced there by small international traders looking to access the China market, Singapore provides both access to the Asian markets of ASEAN and India, as well as China on an increasingly viable basis.
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The Gateway to ASEAN: Doing Business in Singapore 2014 (Second Edition)
Dezan Shira & Associates’ Singapore business guide will provide readers with an overview of the fundamentals of investing and conducting business in Singapore. The 2014 edition explains the basics of company establishment, annual compliance, taxation, human resources, payroll and social insurance in the city-state, in addition to how a company established there can be used to conduct business in the wider ASEAN and Southeast Asian region.
Using China’s Free Trade & Double Tax Agreements
In this issue of China Briefing, we examine the role of Free Trade Agreements and the various regional blocs that China is either a member of or considering becoming so, as well as how these can be of significance to your China business. We also examine the role of Double Tax Treaties, provide a list of active agreements, and explain how to obtain the tax minimization benefits on offer.
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