Hong Kong vs Shanghai vs Singapore

RISING COSTS AND DECREASING INVESTMENT INCENTIVES FORCE MANY FOREIGN COMPANIES TO REASSESS THEIR SET-UP IN ASIA. THE SEARCH FOR THE IDEAL REGIONAL LOCATION COMES DOWN TO THREE INTERESTING OPTIONS.

There are many parameters to compare Hong Kong, Shanghai and Singapore. Recent political and economic developments could be one way to find differences, historical aspects and colonial heritage would be another. But in order to get a sound idea of the distinctions that impact day-to-day operations, it makes sense to take a closer look at the ease of conducting businesses' activities in each city. China Focus examines some of the main areas that impact foreign business' choice of Asia headquarters.

Hong Kong, Shanghai or Singapore? A look beyond the skyline is necessary.

Overview
In the World Bank Group's "Doing Business 2009" study, Singapore appears to be a very attractive city to establish an office. With a mere five days needed to set up, it is about half the time needed for Hong Kong and a fraction of the duration necessary in Shanghai. Dealing with licenses is more cumbersome in Shanghai than the two locations and only a daughter company in Shanghai requires a minimum capital injection (amount varies by type of company). Hong Kong and Singapore do not have any minimum capital requirements. Nevertheless, renting an office in Singapore or Hong Kong comes at a premium, as office rent is between three to four times the rent of Shanghai. Both Hong Kong and Singapore allow flexible conversion of currencies and have no restrictions on the repatriation of profits whereas China's RMB continues to be non-convertible and restrictions hinder sending funds out of the country.

Paying taxes
The tax rates differ across the destinations as does the amount of time necessary to comply with the administrative burdens. While Singapore and Hong Kong make do with less than half a dozen payments, Shanghai requires nine. The time spent for this is more than six times as high in China. Taxwise Hong Kong remains the most attractive but Shanghai has become more interesting after corporate tax was lowered to 25% in January 2008 under the Unified Enterprise Income Tax Law. Also the personal income tax is the highest in Shanghai compared to 16% for Hong Kong and 20% for Singapore as a maximum rate. In order to ease the administrative hurdles and to attract more quality overseas enterprises, the municipal government of Shanghai recently issued new regulations to encourage more multinationals to set up their regional headquarters there:

• Shorten the approval process to 10 working days
• Lower minimum investment significantly
• Open up new areas of activity: domestic distribution, import/export, logistics, shared services, outsourcing and centralisation of finance management services
• Ease hiring of non-Shanghai residents
• Ease permanent residence for expatriates

Having examined these three locations it is clear that significant differences exist. However, each investment situation requires individual analysis. Furthermore, it may be best to separate business functions across locations according to the individual advantages, so a Hong Kong vs. Shanghai may in reality become a Hong Kong plus Shanghai.

	Hong Kong	Shanghai	Singapore
Incorporation and Investment Environment
Duration of incorporation (days)	11	40	4
Incorporation procedure steps	5	14	4
Capital requirements for incorporation of a Limited Company	No minimum	Yes (depending on company type)	No minimum
Currency convertability / profit repatriation	Yes / Yes	No / No	Yes / Yes
Ranking: Corruption perception index	12	72*	4
Office rent per sqm / month for A-grade office** (EUR)	110	30	85
Tax and Duties
Amount of yearly tax payments	4	9	5
Preparation and filing (hours required)	80	504	84
Corporate income tax	16.5%	25%	18%
Individual income tax (max. tax rate)	16%	45%	20%
Double taxation agreement with Germany	No	Yes	Yes
Business Travel
Cost** (EUR) / time (min) / distance (km) from airport to city centre	8 / 24 / 34	15/ 60 / 46	8 / 27 / 20
Standard hotel room per day** (EUR)	150	90	160

Sources: Fiducia, Worldbank Study "Doing Business 2009". Transparency International.
* China data serves as proxy for Shanghai
** Original currencies converted to EUR, exchange rates by www.xe.com

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