Over the past 12 months, there have been regular news items covering unrest in Hong Kong. Initial demonstrations over a proposed extradition bill of Hong Kong citizens to China (which was eventually dropped) escalated into large scale protests. With the Covid-19 pandemic, these demonstrations ceased. However, in recent times, the introduction of a sweeping national security law by China which criminalises protests and dissent have re-ignited concerns about Hong Kong’s future.
On 8th July 2020, the Guardian reported:
“But while the target of the law may have been Hong Kong’s pro-democracy movement, which has been protesting in the streets of the city-state for a year, it has also spooked a business sector already nervous about Beijing’s control.“
Money has already started leaving Hong Kong, with US$5bn quitting the territory last year as Beijing pushed for the extradition bill, according to Bank of England figures.
Also on 8th July 2020, the BBC reported:
Several social media companies have said they will stop co-operating with the Hong Kong police on requests for user data over concerns about how it will be used, while TikTok has said it is pulling out of Hong Kong entirely.
Even prior to the introduction of the National Security laws, concerns were being raised about Hong Kong’s continuing role as the premier financial services location in Asia.
In January 2020, Moody’s Investors Service downgraded the long-term issuer and senior unsecured ratings of the Government of Hong Kong to Aa3 from Aa2 and changed the outlook to stable from negative. Moody’s stated that the downgrade principally reflects Moody’s view that Hong Kong’s Institutions and Governance Strength is lower than previously estimated.
Even going back to October and November 2019, when the pro-democracy protests were shutting down the city, Goldman Sachs estimated that up to USD 4bn had flown from HK to Singapore in the 3 months to Oct 2019.
JPMorgan was more circumspect, saying in Nov 2019 inflows of FX into Singapore increased markedly in the preceding 3 months, without speculating as to where the money had come from.
The MAS on 8th June 2020 rebutted news reports of large inflows of cash from Hong Kong. Although foreign currency deposits had increased by 20% from a year earlier, there was no evidence that these deposits were mainly coming in from Hong Kong. They stated that this reflects a desired for liquidity in the current Covid 19 times. As a comparison, foreign currency deposits in Hong Kong have increased 5% over the same time period.
On 14th July 2020 the US announced the withdrawal of trade privileges that Hong Kong has enjoyed with the US, saying that it would now be treated the same as China from a trade perspective.
In light of the changing environment in Hong Kong, many have considered moving their business out of the country.
Among some popular alternatives, Singapore stands out based on a number of key factors. Acclime’s definitive guide on the issues to be considered, and the steps you should take follows.
Singapore ranks highly as one of the world’s freest economies. In 2020 it is ranked #1 in the Index of Economic Freedom, which is an annual index and ranking created in 1995 by The Heritage Foundation and The Wall Street Journal to measure the degree of economic freedom in the world’s nations. Interestingly, in 2020 Singapore replaced Hong Kong at the top of the list (HK is now ranked #2).
Singapore is also the world’s most competitive economy, based on the Global Competitiveness Report 2019 issued by the World Economic Forum.
In the past decade, Singapore has consistently been ranked as the easiest place to set up and run a business. According to the World Bank’s Doing Business Report 2020, Singapore is ranked second among 190 economies in the ease of doing business.
Singapore is a leading financial hub in the region and is projected to surpass Switzerland in the next few years as the private banking capital of the world.
It has an attractive tax regime with an extensive Double Tax Treaty network. It is a trading nation and has many free trade agreements with countries in the region and around the world as well as being a member of ASEAN. Singapore has a vibrant startup ecosystem, supported by many Government incentives.
Since October 2017, Singapore has allowed foreign companies to redomicile themselves in Singapore. In order to achieve this, the jurisdiction in which the company is originally incorporated must also allow for redomiciliation. Although various representations have been made to the Hong Kong authorities over the years to introduce redomiciliation (both inwards and outwards), it is still not permitted.
Therefore, in order to move a business from Hong Kong to Singapore, a new company needs to be set up and all of the assets and liabilities of the Hong Kong company transferred to that new company.
The shareholder of the Singapore company should be carefully considered so that it fits in with the overall structure of the group. The shareholder could be the same as the shareholder of the Hong Kong company. If you are intending to liquidate the Hong Kong company after the transfer has taken place, the shareholder of the new Singapore company should not be the Hong Kong company, as that would create additional complications on liquidation of the Hong Kong company.
The minimum capital required for a company in Singapore is $1. However, this may not be practically sufficient, depending on the business that is being transferred. In determining the right capital, stakeholders in the business (other than shareholders) need to be considered. If the company has employees, the Ministry of Manpower (MoM) that grants employment passes will need to see an adequate level of capital. Customers and suppliers and banks (particularly if they are providing loans or trade finance to the company) will need to see an adequate level of capital. Acclime can advise of an appropriate level of capital required for your business.
Every Singapore company needs to have a Singapore resident director and a Singapore resident company secretary. Each of these positions needs to be filled by a natural person. One individual can act as both the resident director and secretary as long as he/she is not the sole director of the company. Acclime can provide specialist professionals for these roles, if required.
As part of the planning of the move of the company to Singapore, conversations should be had with the Economic Development Board (EDB) in Singapore. The EDB is a Government body that has the role of encouraging investment into Singapore. Depending on the scale of your business and plans for Singapore, assistance in the form of tax incentives and cash grants are available. Acclime has a great working relationship with the EDB and can assist with introductions and presentations to the EDB as to your plans for the Singapore company.
Once the Singapore company is set up and before any business activities commence, the company will need to obtain any licenses that it needs to operate in Singapore. To the extent that the company uses Trademarks in its business, they should be registered in Singapore to afford protection to the company in the running of its business.
When moving the company to Singapore, it is highly likely that you will want to transfer employees to Singapore from Hong Kong. Equally, you will likely lose some employees who choose not to move to Singapore. For those transferring to Singapore you will need to obtain employment passes for them and dependents passes for members of their family(s).
Depending on the size of the company you may need to comply with the rules outlined under the Fair Consideration Framework (FCF). All employers that have a workforce of 10 or more employees must advertise any job opportunities on a Singapore Government website, MyCareersFuture.sg for a period of 14 days and give all applicants a fair job interview. This must be done before the company can apply for an Employment Pass for a foreign employee. The only exceptions to this rule are for employees on a salary of more than $20,000 per month or for those holding senior positions in the organisation or with an advanced level of expertise. The FCF is designed to ensure that local Singaporeans have an equal opportunity in applying for the jobs that your company will be creating in Singapore.
Acclime can assist to navigate your way through the FCF and apply for the necessary passes for your employees and their families.
Depending on the type of business you are moving to Singapore, you will be requiring office space or manufacturing facilities (or both). It is beneficial to engage with a local expert such as Acclime to assist you in this search. If you are setting up a substantial manufacturing facility, (particularly in high tech industries) it is likely that some Government assistance will be available to assist you to set up the business.
As part of this process, you also need to consider your supply chain for your products and services – are your inputs readily available in Singapore and do you have the logistical framework in place to distribute your products (and services) to your existing and new clients
This is potentially the trickiest part of the exercise as all assets need to be transferred at arms length value. This could give rise to a tax liability crystallizing, though the effect of this is somewhat mitigated by the absence of a Capital Gains Tax in Hong Kong. To the extent plant, equipment and other fixed assets (such as computers) are transferred, a recoupment of previously claimed depreciation may occur, giving rise to a tax liability.
For the transfer of liabilities to the new company, the consent of the creditor would normally be required. Otherwise, the liability may need to be paid out. Another consideration is the lease on the premises that the business occupied in Hong Kong – can the lease be terminated early and what are the penalties (if any) for doing so?
You may like to examine any shareholdings that the Hong Kong company has in other group companies and see whether you would like to transfer those shareholdings or leave them under the Hong Kong company. Likewise for any investments in third party companies – do you want them to remain in Hong Kong or move to the company in Singapore?
The clients for your products and services are a major consideration in deciding whether to move your company. If you manufacture in Hong Kong and most of your clients are in China, then it makes no sense to move. But if your clients are around the world, manufacturing in Singapore may be beneficial in terms of its free trade agreements and double tax treaties.
If you are in a services industry such that your physical location is not so important, you can still keep clients in Hong Kong whilst relocating to Singapore. Key in the process is keeping your clients engaged throughout the process so that they continue to use your products and services, rather than move onto another provider who may be more conveniently located.
Any client engagement letters and contracts will need to be assigned from the Hong Kong company to the Singapore company.
Another matter to consider is the opportunities that may be opened up by moving to Singapore. Does the move enable you to tap a market that previously was not explored?
An established company in Hong Kong will likely have numerous banking relationships in Hong Kong. The question is are they easily transportable? Although the same bank may have multiple branches in both Singapore and Hong Kong (most of the major banks are in both cities), they are often run as very separate organisations, with the files not shared between countries (mainly for legal reasons pertaining to banking secrecy).
This will generally mean that the Singapore bank(s) will need to carry out their own independent Know Your Client (KYC) checks which will involve providing much of the information to the bank in Singapore as has been provided to their sister bank in Hong Kong. This is an inevitable consequence of the evolving Data Protection laws that are gaining more traction around the world.
Once the bank in Singapore has agreed to take on the new Singapore company as a client, the next issue to be addressed is what happens with loans that might be outstanding to the HK company? Can they simply be assigned to the new company in Singapore or will the company need to go through a full, formal credit assessment by the Singapore bank? The answer will depend on the bank’s policies, but most banks will probably require a full credit assessment of the new entity prior to agreeing to take on the loan.
After the business has been transferred to Singapore, the decision needs to be taken whether to keep the Hong Kong company, or liquidate it. If you have decided to retain passive investments in the Hong Kong company, then it will keep operating with minimal management time needing to be devoted to its operations.
If you have transferred all of the business out of the company and left it with no assets or liabilities, then it probably makes sense to de-register and liquidate the company to avoid on-going costs in keeping a dormant company running.
If the company left in Hong Kong is simply a shell, then the de-registration process should be fairly straightforward.
The de-registration procedure involves the Inland Revenue Department (“IRD”) and Companies Registry (“CR”). An eligible company may apply to the IRD for their consent to de-registration. The IRD may request the final audited accounts for tax clearance. Otherwise, the IRD will issue a letter of no objection within 1 month from the date of the application.
Upon receipt of the no objection letter from the IRD, the company may apply to the CR for de-registration. CR will normally issue an acknowledgement letter within 1 month. It will advertise the company’s name in the HKSAR Gazette, stating that unless objection is raised within 3 months, the company will be de-registered.
There is no doubt that the Hong Kong landscape is changing and it is prudent for active companies to analyse whether Hong Kong remains the best location to be based or whether a country like Singapore would be a better alternative.
Acclime is here to assist you to weigh up the risks and benefits of remaining in Hong Kong or moving to Singapore. Once the strategy has been determined, Acclime can assist with every aspect to ensure that the execution is done in a seamless manner.