6 Benefits of Starting a Holding Company in Hong Kong & Singapore

Hong Kong and Singapore are undoubtedly one of the best countries to set up a business in. The fact that they have good tax benefits, strategic locations and good governing strategies make them leading countries for businesses that are looking to expand. This article will share what you need to know about starting a holding company in Singapore or Hong Kong. 

What is a holding company?

A holding company usually takes the form of a private company limited by shares. In most cases, it does not manufacture anything, offer any products or services, or engage in any other business activities. Holding companies usually own the majority if not  all of the stock in other corporations. 

Despite the fact that a holding company controls the assets of other companies, it usually just holds monitoring responsibilities. As a result, while it may monitor the management decisions, holding companies are usually not involved in the day-to-day operations. 

Why set up a holding company?

• Liability protection

Creating separate corporations for operational enterprises and the assets they employ gives a liability shield. Each subsidiary is responsible for its own debts. The assets of the controlling company or another subsidiary are inaccessible to a subsidiary’s creditor.

• Lower debt financing costs

When a holding company has financial strength, it may typically be able to obtain loans at a lower interest rate than its operational companies, especially if the company in need of cash is a startup or undertakes risky business ventures. The holding company may secure a loan and extend the loan to its subsidiary. 

• Centralise internal functions

Certain internal functions such as internal finance, human resource, technology, marketing and more can be centralised at a holding company to provide seamless services across the subsidiaries more efficiently and effectively.  

3  Benefits of Setting Up a Holding Company in Hong Kong

• Easy process for setting up a company 

The process of forming a holding company and registering the firm in Hong Kong is similar to that of forming a regular company. Because there is no minimum capital requirement for forming a holding company in Hong Kong, businesses of any size can use the territory as a foundation.   

The general norm for companies incorporated in Hong Kong is to have at least one shareholder with one ordinary share issued on their formation. Forming an investment holding company in Hong Kong takes between 3 to 5 days. However, one has to make sure to have all of the necessary company documentation to make the incorporation process go smoothly.

• Location advantage 

Entrepreneurs will get the best of both worlds when establishing an investment holding company in Hong Kong. Investors can do business with Mainland China easily after forming a holding company in Hong Kong. It is easier to establish a subsidiary or trade with China, and Hong Kong-based enterprises are given priority over others. Particularly if you are a foreign corporation. If you want to get into the Chinese market in the long run, building a Hong Kong investment holding company is a common approach. 

• Tax Benefits 

Hong Kong imposes no VAT, Capital Gains, Sales Tax and no withholding tax on dividends and interest. 

Hong Kong has also reached agreements on double taxation with a number of the world’s strongest trading nations. Hong Kong has double tax treaties with the United Kingdom, Vietnam, Austria, Belgium, Brunei, Czech Republic, France, Hungary, Indonesia, Ireland, Japan, Liechtenstein, Luxembourg, Malaysia, Malta, Netherlands, New Zealand, Portugal, Switzerland, Spain, Thailand, and Mainland China, etc. The primary goal is to alleviate concerns of double taxation caused by overlapping tax jurisdictions. As a result, when it comes to double taxation, Hong Kong holding companies would have little concerns.

3 Benefits of Setting Up a Holding Company in Singapore

• Attractive Tax System 

Singapore has a favourable tax framework for businesses, so establishing your holding company here may enable you to leverage on the various tax advantages. For instance, Singapore has a single-tier corporate tax structure, where the corporate tax paid by a company on its profits is final. 

Dividends paid by Singapore resident companies are tax exempted in the hands of the shareholders. Additionally, Singapore does not impose withholding tax on dividends paid to non-resident shareholders.

The country offers a low corporate and individual income tax rate. It also does not impose a capital gains tax. Therefore, the sale proceeds from the disposal of assets or shares (deemed as capital gain in nature) will not be taxable. Although Singapore does not have capital gains tax, the Inland Revenue Authority of Singapore (IRAS) will apply the “badges of trade” to determine if the gain on disposal of investments is revenue or capital in nature. 

• Ease of Compliance 

The rules for establishing a holding company in Singapore are not too complicated. Two basic obligations must be met with regards to the continued compliance requirements of establishing a holding company in Singapore. These two requirements are the customary tax filing obligations and the financial reporting obligations. 

• Supportive Economic & Legislative Environment

The Singapore government often offers schemes and incentives that aim to boost specific sectors of the economy and to attract foreign investment in the country. The Economic Development Board (EDB) has several grants and schemes to support growing businesses, innovation and R&D, as well as productivity. 

Lastly, Singapore has a comprehensive tax treaty network regulated by the Inland Revenue Authority (IRAS). These tax treaties help to mitigate double taxation of both passive and active income.

Conclusion

Businesses should carefully consider where they want to establish a holding company and some or all of their subsidiaries. They might also consider a corporate services partner who is well-versed in the regulations of the jurisdiction and can assist them throughout the procedure. 

Ledgen Group has helped countless clients to start businesses over the years, whether it is a venture into Malaysia, Singapore or Hong Kong. We continue to serve our clients by offering a comprehensive solution at every step of their business, from incorporation to regional expansion, in several countries around the world. We have professionals in countries to advise you on each step you have to take and make your time valuable for incorporation.

 Contact us today to get started with a holding company incorporation. 

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