An important question that is generally asked when incorporating a company outside your usual country of residence is ‘In which country should I incorporate?’. In this article, we look to outline several of the popular countries to incorporate a company in addition to the key benefits and considerations for incorporation in each country.
What you will learn from this article:
Hong Kong has a global reputation for being an international financial hub and an entrepreneur’s paradise. Entrepreneurs looking to incorporate their company in Hong Kong can expect to enjoy multiple benefits that many neighboring cities do not provide.
Firstly, Hong Kong maintains relatively lax incorporation requirements where a company can be incorporated within 1-2 business days, even without an applicant having a physical presence in Hong Kong! Per Hong Kong’s Company Ordinance, which governs how companies in Hong Kong must operate, there is no minimum requirement for incorporation in relation to the number of directors and shareholders required and no limitations on nationality for these positions.
Hong Kong’s tax system is favourable to businesses of all sizes. The city utilizes a territorial system of taxation where only income which is considered to be derived from or earned in Hong Kong is subjectable to taxation. Apart from a competitive Profits Tax rate of 16.5%, the Hong Kong Government has introduced a two-tiered profits tax regime to assist start-ups and SME’s whereby the first HK$2m of assessable profits for a corporation will be assessed at a rate of 8.25%.
In addition, Hong Kong does not tax capital gains or dividends and enjoys double taxation treaties with many countries around the world. Foreign companies looking to expand into Asia will be able to minimize potential tax liabilities incurred during the repatriation of profits.
1.2. Other Considerations
Although Hong Kong is a fantastic place to do business, it is not without its faults. Compared to the other countries mentioned in this article, Hong Kong companies must adhere to greater statutory compliance requirements. Unlike other countries on this list such as the British Virgin Islands (“BVI”) and the Cayman Islands, Hong Kong companies must comply with annual accounts filing deadlines. Luckily, there exist plenty of professional service firms who can assist in this matter to ensure compliance.
To incorporate a company, a company must have a resident Hong Kong company secretary. For foreign businesses looking to incorporate in Hong Kong, this requirement may provide hindrances. However, companies may elect to engage a professional services firm to act as their company secretary.
The World Bank has frequently ranked Singapore among the top 5 countries in the world for its ease of doing business. The incorporation process is simple and efficient with clear and defined corporate compliance rules regulating business activities. There is minimal confusion surrounding the regulations dictating the acceptable behavior of businesses.
Singapore’s company incorporation laws are simple and efficient (a company can be incorporated within 1-3 days) with clear and defined corporate compliance rules regulating business activities. There is minimal confusion surrounding the regulations dictating the acceptable behavior of businesses.
Similar to Hong Kong, Singapore also has a tax system that is favourable to businesses, especially start-ups and SME’s. Various tax breaks may be utilized by start-ups and SME’s which may effectively reduce a company’s effective tax rate to 0% for the first three years of their operations. The city also does not tax many different forms of revenue. Corporate dividends are tax-exempt in the hands of shareholders, like Hong Kong, capital gains are not taxable.
Singapore companies must adhere to annual corporate maintenance requirements which include the auditing of financial statements. However, companies may be exempted from such requirements if they meet the various criteria for exemption!
2.2. Other Considerations
Singapore companies are required to have at least one resident individual who may act as a resident director. That individual must “ordinarily” reside in Singapore and be either a Singaporean citizen, a Singaporean permanent resident, or a person who holds an Employment Pass / EntrePass or a Dependent’s Pass. Although this requirement may hinder foreign businesses looking to expand, professional services firms may be engaged to act in this position to assist those without a physical presence in Singapore.
Companies looking to incorporate an entity in China can expect to enjoy many benefits from their operations in China. The country has business friendly practices for non-residents. Chinese partners are not necessary for the formation of a wholly owned foreign enterprise (“WOFE”). WOFE’s is the designation for non-Chinese enterprises to establish their limited liability company in China and is the most favored investment vehicle for non-Chinese enterprises
There are many benefits to utilizing a WOFE. Perhaps the most important benefit is that WOFE’s have the ability to carry out business formally in China. They have the ability to issue invoices to customers in RMB in China and receive revenue in the same manner. Profit repatriation is also simplified under a WOFE as they have the capability to convert profits from RMB to US dollars and to repatriate to foreign parent companies.
WOFE’s are also entitled to protection under Chinese intellectual property laws. In addition, to the extent that a WOFE engages in the import/export of manufactured products, they are exempt from having to obtain the relevant import/export licenses.
3.2. Other Considerations
The application process to incorporate a company in China can be considered lengthy and confusing. Each step in the application process specific guidelines must be adhered to which is not always clear and concise. Furthermore, once a company has been incorporated in China, they will be subjected to both monthly and annual reporting requirements.
Unlike Hong Kong and Singapore who enjoy business-friendly tax regimes, companies operating in China will multiple forms of revenue is taxable. Companies operating in China will be susceptible to all applicable Chinese business taxes such as corporate, dividend, capital gains, and VAT.
Given the abundance of start-ups and SME’s choosing to utilize the Cayman Islands and the BVI for their offshore holdings, it is clear there are many benefiting factors which promote incorporation. The incorporation process in both countries only takes approximately 1-4 days, with no regulations dictating the minimum capital requirement necessary for incorporation.
Furthermore, both countries only need one shareholder and one director to meet the incorporation requirements. This requirement is easy to fulfill as these roles can be carried out through residing in a foreign jurisdiction and either a corporate entity or individual can meet these requirements. Shareholders and directors can expect to enjoy high levels of confidentiality with their positions. Details of directors, secretary and shareholders are kept entirely confidential and are not released.
Separately, each BVI company must maintain the positions of President, Secretary, and Treasurer. Luckily, one sole individual or company may be appointed for all three roles!
Upon incorporation, companies in both countries do not have many annual regulatory obligations to adhere to. There are no requirements for annual reporting, accounting or auditing and the country’s tax regimes are among the most favorable in the world. Corporations are not taxed on their income, capital gains, payroll, property or withholding.
4.2. Other Considerations
Both the Cayman Islands and the BVI introduced an Economic Substance Law, effective from 1 January 2019. This law stipulates that companies who are carrying out “relevant activities” will be required to maintain an increased level of the substance in their incorporated jurisdiction. Such activities are broadly defined to include a wide range of business activities, including fund management, distribution and service center businesses, holding company businesses, finance and many more. In the past, most companies do not maintain much substance in their jurisdiction. Companies who wish to incorporate must now take this new law under consideration.