Comparing Tax Environments: Dubai, Hong Kong, and Singapore

While Dubai, Hong Kong, and Singapore all offer attractive tax regimes, determining which one aligns best with your business goals requires careful consideration of various factors.

By Arendse Huld

Dubai, Hong Kong, and Singapore are among Asia’s leading financial hubs and offer highly competitive tax environments for regional and global companies. However, enterprises need to do their due diligence in terms of assessing corporate taxation and reporting obligations in each of these markets – as applicable to their business activity and sector. Other strategic considerations may include tax treaty relations with the country of origin, proximity to trade and business partners, exposure to geopolitical risks, and so on.

In this article, we profile the tax environments of each of these markets, including the direct and indirect tax frameworks, transfer pricing regimes, and compliance obligations. Companies must assess which criteria are of most relevance to their business undertaking.

Overview of Tax Regimes in Dubai, Hong Kong, and Singapore
	Dubai	Hong Kong	Singapore
Corporate tax	0% on first AED 375,000 (US$102,099)   9% on remaining income	Corporations: 8.25 – 16.5%   Non-incorporated entities: 7.5 – 15%	17%
Value-added tax/goods and services tax	5%	None	9%
Withholding tax	0%	Resident enterprises: None   Non-resident enterprises: 2.475 – 4.95% (on royalties only)	Resident enterprises: 0%   Non-resident enterprises: 10 – 15%

Dubai

Corporate tax

The UAE began implementing corporate tax (CT) from financial years starting on or after June 1, 2023. Now, rates in Dubai are as follows:

• 0 percent CT rate for taxable income up to AED 375,000 (US$100,737); and
• 9 percent CT rate for taxable income above AED 375,000.

This makes it the country with the lowest CT rate in the Gulf Cooperation Council (GCC), apart from Bahrain.

Meanwhile, companies located in the country’s free zones can enjoy a 0 percent CT rate on qualifying income. A Cabinet Decision released in May 2023 categorizes Qualifying Income as:

• Income derived from transactions with other Free Zone Persons, except for income derived from excluded activities.
• Income derived from transactions with a Non-Free Zone Person, but only in respect of Qualifying Activities that are not Excluded Activities.
• Any other income provided that the Qualifying Free Zone Person satisfies the de minimis requirements (where the non-qualifying revenue earned by a Free Zone Person does not exceed either 5 percent of their total revenue or AED 5 million (US$1.36 million) in a given tax year, whichever is lower).

Finally, the UAE has committed to implementing the OECD’s Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two from 2025 onward, which will require multinational enterprises (MNEs) with global revenue of EUR 750 million (US$801 million) to pay a minimum of 15 percent CT on their worldwide income. MNEs that exceed this threshold will therefore be required to pay top-up taxes on income derived in Dubai to meet the 15 percent minimum global tax rate.

Value-added tax

Dubai imposes VAT at a rate of 5 percent on most goods and services. Certain goods and services are eligible for a 0 percent VAT rate, while certain activities are exempted from VAT.

Goods and services that are eligible for a 0 percent rate include (but are not limited to):

• Certain education services, including private and public school education (excluding higher education) and higher education provided by government-owned institutions or 50 percent government-funded institutions;
• Preventive healthcare services (including vaccinations) and healthcare services aimed at the treatment of humans (including medical services and dental services);
• Crude oil and natural gas;
• Most transportation goods and services;
• First sale or rent of residential buildings after the completion of construction or conversion, and first sale of charitable buildings;
• ≥ 99 percent pure investment gold, silver, and platinum tradable in global markets; and
• Export of goods and services outside the GCC implementing states.

Meanwhile, activities that are exempted from VAT include the following:

• Domestic passenger transportation (including flights within UAE);
• Sale or rent of residential buildings subsequent to the first supply;
• All financial services except products with an explicit fee, commission, rebate, discount, or similar products (which are subject to 5 percent VAT); and
• Life insurance and life reinsurance.

Finally, certain activities are considered to be outside of the VAT system, including:

• Most government activities;
• Most activities carried out by not-for-profit organizations;
• Supplies of goods between businesses in designated free zones;
• Activities undertaken by employees in the course of their employment, including salaries; and
• Supplies between members of a single tax group.

Withholding taxes

The UAE currently does not impose withholding taxes on dividends, interest, or royalties on resident companies.

The UAE does in principle apply a 0 percent withholding tax on certain types of UAE-sourced income paid to non-resident entities. However, as the rate is 0 percent, no payment or filing is required for this tax for either resident or non-resident entities.

Transfer Pricing

The UAE adopts the Arm’s Length Principle for transfer pricing, which means it requires transactions and arrangements between Related Parties or Connected Persons to be priced as if the transactions or arrangements had occurred between independent parties under similar circumstances, per the Federal Tax Authority’s Transfer Pricing guidelines.

Under the UAE’s Transfer Pricing rules, Related Parties and Connected Persons cover various types of relationships, summarized in the table below.

Definitions of Relationships Subject to Transfer Pricing Rules in the UAE
Related parties
Associated Persons” that have a pre-existing relationship with another Person through kinship (in case of natural persons), ownership or Control, regardless of whether that other Person is resident or not in the UAE.
Kinship	Relationship between two or more people who are related up to a fourth degree of kinship or affiliation, usually through common ancestors but also through adoption.
Ownership	The individual, or one or more Related Parties of the individual, are shareholders in the juridical person, and the individual, alone or together with its Related Parties, directly or indirectly owns a 50% or greater ownership interest in the juridical person.
Control	Direction and influence over one Person by another Person (direct or indirect), including where: –       A Person can exercise 50% or more of the voting rights of another Person; –       A Person can determine the composition of 50% or more of the board of directors of another Person; –       A Person can receive 50% or more of the profits of another Person; or –       A Person can determine, or exercise significant influence over, the conduct of the Business and affairs of another Person.
Other criteria	–       A Person and its Permanent Establishment (PE) or Foreign PE; –       Two or more Persons that are partners in the same Unincorporated Partnership; and –       A Person who is the trustee, founder, settlor, or beneficiary of a trust or foundation and the trust or foundation.
Connected Persons
–       An individual, who directly or indirectly owns an ownership interest in the Taxable Person or Controls such Taxable Person, or a Related Party of such individual; –       A director or officer of the Taxable Person, or a Related Party of the said director or officer; or –       A partner in an Unincorporated Partnership, and any Related Parties of such partner.
Source: Transfer Pricing Guide, UAE Federal Tax Authority

The UAE employs the five internationally accepted Transfer Pricing methods to determine the Arm’s Length Price detailed in the OECD Transfer Pricing Guidelines. These are:

• The Comparable Uncontrolled Price (CUP) Method;
• The Resale Price Method (RPM);
• The Cost Plus Method (CPM);
• The Transactional Net Margin Method (TNMM); and
• The Profit Split Method (PSM).

Companies may also employ a combination of the above methods where the situation necessitates it.

Transfer Pricing documentation

Companies are required to provide certain Transfer Pricing documentation to the UAE’s Federal Tax Authority (FTA) to prove compliance with the Arm’s Length Principle.

There are five main pieces of documentation that, depending on the size of the company, companies must prepare for each tax period. These are as follows:

1. The Transfer Pricing disclosure form, covering details of the Controlled Transactions during a Tax Period.
2. The Master File, for large businesses only (constituent companies of an MNE that has a total consolidated group revenue of AED 3.15 billion (US$857.6 million) or more in the relevant Tax Period, or that have revenue of AED 200 million (US$54.45 million) or more in the relevant Tax Period), providing a high-level overview of the Group’s business and the allocation of income and economic activity within a Group.
3.  The Local File, for large businesses only (as detailed above), providing detailed information on the operations of the local entity and analysis and testing of the outcomes of the Controlled Transactions against the Arm’s Length Principle.
4. A Country-by-Country Report (CbCR), providing jurisdictional quantitative information about an MNE Group (with revenue above AED 3.15 billion) as well as an overview of the different activities conducted by affiliates of an MNE Group.
5. Any additional supporting information upon the request of the FTA.

Tax filing and reporting requirements

The deadline for applying for CT registration depends on the month in which the taxpayer was issued their business license. Note that the year in which the license was issued does not affect the registration deadline. Deadlines range from May 31, 2024, for companies that received their business license in January or February, to December 31, 2024, for those that received their business license in December.

Taxpayers are required to file CT returns for each tax period within nine months of the end of each tax period. Any CT that taxpayers are liable for must generally also be paid within this timeframe.

The specific deadline for filing and paying CT, as well as the start of the first tax year since the UAE’s Corporate Tax Lae (CTL) took effect, depends on the company’s financial year, as shown in the table below.

CT Filing Period for First Tax Year
Company Tax Year	First Tax Year	CT Filing Period
January 1 to December 31	January 1, 2024 – December 31, 2024	January 1, 2025 – September 30, 2025
June 1 to May 31	June 1, 2023 – May 31, 2024	June 1, 2024 – February 28, 2025
Source: UAE Ministry of Finance

Hong Kong

Profits tax

Generally, profits earned by a corporation are taxed at a standard rate of 16.5 percent, while profits earned by unincorporated businesses are taxed at a standard rate of 15 percent. Starting from the year of assessment 2018/19, Hong Kong introduced the two-tiered profits tax regime, which lowers the tax rate for the first HK$2 million (US$255,718) of assessable profits.

Two-Tiered Profits Tax Rates in Hong Kong
Assessable profits	Corporations	Unincorporated businesses
First HK$2 million	8.25%	7.5%
Over HK$2 million	16.5%	15%

Where there are two or more connected entities, only one may elect the two-tiered profits tax rates. The rest of the entities will still be taxed at 16.5 percent for corporations and 15 percent for incorporated businesses.

Moreover, enterprises that already benefit from preferential tax regimes, such as the corporate treasury center regime, aircraft leasing regime, and so on, cannot enjoy the two-tiered profits tax regime. Additionally, the assessable profits for sums received by or accrued to holders of qualifying debt instruments as interest, gains, or profits shall be excluded, as these should already be taxed at half the rate (8.25 percent or 7.5 percent, as the case may be).

Hong Kong also provides concessionary profits tax rates for certain activities.

A tax rate at 50 percent of the normal tax rate will be applied to:

• Trading profits and interest income received or derived from “short/medium term debt instruments” (issued before 1 April 2018);
• Qualifying profits of a qualifying corporate treasury center (for the year of assessment 2016/17 onwards);
• Qualifying profits of a qualifying aircraft lessor or a qualifying aircraft leasing manager (for the year of assessment 2017/18 onwards);
• Qualifying profits of a professional reinsurer or authorized captive insurer (for the year of assessment 2018/19 onwards);
• Qualifying profits of a specified insurer or licensed insurance broker company (for the year of assessment 2020/21 onwards); and
• Qualifying profits of a qualifying ship lessor or a qualifying ship leasing manager (for the year of assessment 2020/21 onwards).

A profits tax rate at 0 percent or 50 percent of the normal profits tax rate will be applied to:

• Qualifying profits of a qualifying ship lessor or a qualifying ship leasing manager (for the year of assessment 2020/21 onwards); and
• Qualifying profits of a qualifying ship agent, a qualifying ship manager, or a qualifying ship broker (for the year of assessment 2021/22 onwards).

Moreover, Hong Kong will apply a 0 percent concessionary tax rate for the assessable profits of (a) eligible family-owned investment holding vehicles managed by eligible single-family offices in Hong Kong and (b) family-owned special purpose entities earned from the qualifying transactions and incidental transactions for a year of assessment commencing on or after April 1, 2022.

Note that under Hong Kong’s new rules on foreign source income exemption, MNE groups that lack a sufficiently substantive presence in Hong Kong will now be required to pay profits tax on certain types of foreign-sourced passive income.

In effect, this will mean that MNEs that are incorporated in Hong Kong purely for tax purposes and that do not have actual operations in the region will be required to pay profits tax on this type of income, while companies with actual operations in Hong Kong can continue to enjoy the exemption.

Withholding tax

Hong Kong does not charge withholding taxes on dividends or interest for resident companies. However, non-resident companies are subject to withholding taxes on royalties, which range from 2.475 percent to 4.95 percent, depending on the jurisdiction in which the receiving entity is located, and on the tax treaties that the jurisdictions have entered into with Hong Kong. Hong Kong currently has treaties with 47 different jurisdictions.

Transfer Pricing

As with Dubai, Hong Kong endorses the Arm’s Length Principle for Transfer Pricing.

The Inland Revenue (Amendment) (No.6) Ordinance 2018 (“the Amendment Ordinance”), codifies Hong Kong’s transfer pricing principles, implements certain measures under the Base Erosion and Profit Shifting (BEPS) Package, and aligns the provisions in the Inland Revenue Ordinance (Cap. 112) with international tax requirements.

On the basis of the Arm’s Length Principle, the Amendment Ordinance introduced fundamental transfer pricing rules (FTPR) that further empower the IRD. This includes the ability to adjust the profits or losses of an enterprise where the actual provision made or imposed between two associated persons departs from the provision that would have been made between independent persons and has created a tax advantage.

The Amendment Ordinance does not contain any safe harbor rules in respect to the FTPR. This means that taxpayers of all sizes, engaged in either domestic and/or cross-border intercompany transactions of any size, will be required to ensure that the prices are at arm’s length.

Transfer Pricing documentation

Under the Amendment Ordinance, companies are subject to certain mandatory documentation requirements based on the three-tiered approach of CbCR, Master File, and Local File.

Hong Kong entities of a group will be required to prepare a Master File and a Local File for each accounting period beginning on or after April 1, 2018. The Master File and Local File must be prepared within nine months after the end of the entity’s accounting period, and be retained for a period of no less than seven years after the end of the accounting period of the entity. The Hong Kong entity has to declare in the profits tax return and supplementary form S2 whether a master file and a local file have to be prepared. The master file and the local file should be ready for submission upon request by the Assessor. The information items to be included within the Master File and the Local File are largely in line with the OECD guidance.

Companies will not be required to prepare Master and Local Files if they meet at least two of the following criteria:

1. Have a total revenue of HK$400 million (US$51.14 million) or below in a given financial year;
2. Have total assets of HK$300 million (US$38.36 million) or below in a given financial year; or
3. Have 100 or fewer employees in a given financial year.

If the amount of a category of related party transactions for the relevant accounting period is below the respective threshold, the entity will not be required to prepare a Local File for that category of transactions.

The thresholds are as follows:

1. Transfer of properties (excluding financial assets/intangibles) of HK$220 million (US$28.1 million) or below;
2. Transactions in financial assets of HK$110 million (US$14 million) or below;
3. Transfer of intangibles of HK$110 million or below; and
4. Any other transactions (e.g. service income/royalties) of HK$44 million (US$5.6 million) or below.

If all of an entity’s controlled transactions are exempted from the related party transaction criteria above, the entity is not required to prepare either a Master File or a Local File.

In Hong Kong, the requirements for filing a Country-by-Country Return, which includes a CbCR, only apply to MNE groups whose annual consolidated group revenue reaches the specified threshold amount, i.e. HK$6.8 billion (US$869.4 million).

Tax filing and reporting requirements

Businesses liable for profits tax must complete the Profits Tax Return along with supplementary documents, including financial statements and tax computations. These documents need to be filed with the Inland Revenue Department by the specified due date.

A newly registered business typically receives its first Profits Tax Return approximately 18 months after the date of commencement of business or the date of incorporation. The annual process of issuing Profits Tax Returns in bulk occurs on the first working day of April each year. Generally, the Profits Tax Return, any required supplementary forms, and other relevant documents should be filed within one month from the date of issue. Extensions may be available under certain circumstances.

Singapore

Corporate income tax

Singapore imposes corporate income tax (CIT) at a flat rate of 17 percent, which is the lowest among ASEAN member states. The country practices a single-tier corporate tax system, which means businesses pay CIT only on chargeable income (profits), and all dividends are exempt from further taxation.

Businesses that have their income derived from Singapore or income remitted to the country are obligated to pay corporate taxes at a rate of 17 percent on their chargeable income regardless of whether it is local or foreign.

The country will introduce a 15 percent minimum effective tax rate for large MNEs based in Singapore from January 1, 2025, in line with Singapore’s effort to align with BEPS 2.0.

Taxable incomes include:

• Profits from trade or business (the single-tier system means Singapore-based companies will only pay taxes on profits and not on revenue);
• Royalties and premiums;
• Rental property income; and
• Income from investments such as interests.

Goods and services tax

The goods and services tax (GST), Singapore’s VAT, is a consumption tax imposed on goods and services in Singapore, regardless of whether they are acquired from domestic or overseas suppliers.

As GST is a self-assessed tax, Singapore-based businesses are required to assess their need to register for GST. Companies must register for GST if they:

• Earn a taxable turnover of more than S$1 million (US$737,705) during a 12-month period at the end of the calendar year; and
• Expect to earn a taxable turnover of more than S$1 million (US$737,705) in the next 12 months.

The GST rate in Singapore is currently 9 percent.

The GST that is levied on customers is known as the ‘output tax’, and the GST that is incurred on business purchases and expenses, which includes the import of goods, is known as the ‘input tax’. The difference between the output and input tax is the net GST payable to the government.

Withholding tax

Companies, individuals, and other entities in Singapore must pay a withholding tax when making payments to non-resident entities.

The withholding tax only applies to non-resident companies or individuals who have sourced an income from Singapore. It is a common form of tax that most countries impose on cross-border transactions and other payments involving non-residents. It is called a withholding tax because it is levied on the payer rather than the recipient, meaning the taxable amount is withheld from the recipient.

Payments that require withholding taxes in Singapore include payments for services, interest, royalties, rentals of movable properties, and direct payments to non-residents.

The types of income subject to withholding tax are:

Withholding Tax on Payments to Non-Resident Companies
Nature of Income	Tax Rate (in %)
Dividends	Exempt
Interest	15
Royalties	10
Technical assistance and service fees	17
Rent on moveable property	15
Charter fees for aircraft or ship	0 – 2

Payers do not need to pay any withholding taxes to resident individuals and corporations. Singapore’s standard non-treaty withholding tax rates are zero for dividends, 15 percent for interest, and 10 percent for royalties.

Meanwhile, Singapore has tax treaties with several countries, many of which lower withholding tax rates.

Transfer Pricing

The Inland Revenue of Singapore (IRAS) endorses the Arm’s Length Principle as its standard guide to transfer pricing. Under this principle, profits should be taxed where the real economic activities have occurred and where profits are generated.

The IRAS uses the five internationally accepted methods to evaluate transfer prices of enterprises outlined by the OECS, based on those applied by independent parties in similar transactions.

Transfer Pricing documentation

Singapore formally introduced Transfer Pricing rules from Year of Assessment (YA) 2019, requiring taxpayers to prepare contemporaneous transfer pricing documentation. The Transfer Pricing documentation is needed to analyze whether related party transactions are conducted at the arm’s length principle.

Thus, taxpayers must comply with the arm’s length principle when transacting with their related parties and maintain proper transfer pricing documentation to substantiate their pricing.

A company is required to prepare and maintain Transfer Pricing documentation once meeting the following conditions:

• Total turnover derived from its trade or business is more than S$10 million (US$7.4 million) for the previous basis period; and
• Transfer Pricing documentation has been specifically requested for any prior establishments.

Transfer Pricing documentation requirements in Singapore include the following:

• Keeping relevant documents of an overview of the business activities in Singapore;
• Preparing Transfer Pricing documentation, no later than the filing due date of the tax return and submitting it within 30 days from a request by IRAS; and
• Retaining Transfer Pricing documentation for at least five years.

If any of the following scenarios apply, taxpayers can refrain from preparing Transfer Pricing documentation for those transactions:

• The taxpayer’s gross revenue is not more than S$10 million (US$7.4 million);
• Related party loans where an indicative margin is applied;
• Routine support services where a five percent cost markup is applied;
• Related party domestic loan; or
• Related party transactions are covered by an Advance Pricing Arrangement (APA).

Tax filing requirements

Companies are required to report their income tax returns to the Inland Revenue Authority of Singapore (IRAS) twice a year. This is completed by submitting the following two forms:

• The Estimated Chargeable Income (ECI), must be submitted within three months of the end of the company’s financial year.
• Form C-S or Form C (CIT returns forms), must be submitted by November 30 of each Year of Assessment (YA).

Companies with annual revenue of S$5 million (US$3.7 million) or less and an ECI of zero for the YA are exempted from submitting the ECI form. Some other institutes, such as foreign universities, are also exempt from submitting the ECI form.

Companies are required to fill out Form C-S or Form C even if they are making a loss. Form C-S is a simplified and streamlined version of Form C for smaller companies (those with annual revenue of under S$5 million) and also exempts them from filing additional financial statements.

Dormant companies are also required to submit their income tax returns unless they meet the criteria for a waiver.

Choosing the optimal location for investments

Navigating the complexities of international taxation and choosing the most suitable jurisdiction for your business can be challenging. While Dubai, Hong Kong, and Singapore all offer attractive tax regimes, determining which one aligns best with your business goals requires careful consideration of various factors.

Challenges include understanding the nuances of each jurisdiction’s tax laws, including exemptions, incentives, and compliance requirements. Moreover, the tax landscape is subject to change due to evolving regulations and geopolitical dynamics, adding another layer of complexity to the decision-making process.

Businesses must also weigh the tax considerations against other critical factors such as market access, infrastructure, and legal frameworks. These factors can significantly impact the long-term viability and success of investments in a particular jurisdiction.

Given the intricacies involved, seeking professional guidance from tax advisors, legal experts, and business consultants is highly advisable. Our professionals can provide tailored advice based on your business’s unique circumstances, help navigate regulatory requirements, and optimize tax planning strategies to minimize liabilities and maximize profitability. For support and guidance, you can reach our experts at dubai@dezshira.com

 

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