With the vigorous development of global Web3.0 technology, an increasing number of Chinese entrepreneurs are choosing to expand overseas, particularly opting for Hong Kong and Singapore due to their favorable policies and stable environments. Hong Kong and Singapore have adopted positive attitudes and transparent regulations in the Web3.0 sector, providing significant convenience and support to entrepreneurs. In Hong Kong, well-known Web3.0 companies such as Animoca Brands and HashKey have achieved remarkable success globally through continuous innovation and expansion. Meanwhile, Singapore has attracted industry giants like Binance and Crypto.com, becoming a hotspot for blockchain and cryptocurrency startups thanks to its robust legal framework and preferential tax policies.

When selecting a location for their ventures, entrepreneurs must consider not only the policy environment but also tax planning, choosing the jurisdiction most conducive to the long-term development of their enterprises.

Comparison of Policies Across the Three Jurisdictions

The tax policies of Mainland China, Hong Kong, and Singapore differ. The specific distinctions are as follows.

Mainland China and Hong Kong

Regarding the tax system, the main differences between Mainland China and the Hong Kong Special Administrative Region for enterprises are as follows:

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In terms of major tax categories, Mainland China has six primary items, specifically categorized as:

  • Corporate Income Tax (5%, 15%, 25%)

  • Individual Income Tax (3%-45%)

  • Value-Added Tax (VAT) (3%, 9%, 13%, etc.)

  • Shareholder Dividends, Capital Gains, etc. (20%)

  • Overseas Income (Global Taxation)

The main taxes in the Hong Kong Special Administrative Region include Profits Tax (8.25%-16.5%) and Salaries Tax (2%-17%). Other items, including shareholder dividends, overseas income, and capital gains from stocks, are not subject to tax.

China and Singapore

There are significant differences between the tax systems of China and Singapore, as outlined below:

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The following three case studies illustrate the tax liabilities and costs faced by startups incorporating in Mainland China, Hong Kong, and Singapore, respectively.

Case Study 1: Startup in Mainland China

Mr. Wang is a young Web3 entrepreneur who established a blockchain technology company in Beijing, focusing on the development of decentralized applications (dApps).

Corporate-Level Taxation

Assume that Mr. Wang's company achieved an annual revenue of RMB 10 million in its first year of operation, with a pre-tax profit of RMB 5 million. Under Chinese tax policy, his company is required to pay corporate income tax at a rate of 25%, amounting to RMB 1.25 million. Additionally, his company must pay Value-Added Tax (VAT). Assuming his products are subject to a 13% VAT rate and he has input VAT credits of RMB 5 million, the VAT payable would be calculated as (10 million - 5 million) * 13% = RMB 650,000.

Individual-Level Taxation

As the sole shareholder of the company, Mr. Wang receives dividends of RMB 3.75 million (RMB 5 million pre-tax profit less RMB 1.25 million corporate income tax), on which he must pay individual income tax on dividends of RMB 750,000. Assuming he draws an annual pre-tax salary of RMB 1 million from the company, his individual income tax would be approximately RMB 430,000 based on China's progressive tax rates (simplified calculation).

Ultimately, Mr. Wang's net income would be: RMB 1 million (salary) + RMB 3.75 million (dividends) - RMB 430,000 (individual income tax) - RMB 750,000 (tax on dividends) = RMB 3.57 million.

Case Study 2: Startup in Hong Kong

Ms. Li is an experienced Web3 entrepreneur who established a fintech company in Hong Kong, primarily providing blockchain solutions for multinational corporations.

Corporate-Level Taxation

Assume that Ms. Li's company achieved an annual revenue of HKD 10 million in its first year of operation, with a pre-tax profit of HKD 5 million. Under Hong Kong's tax policy, the tax rate for the first HKD 2 million of profits is 8.25%, and the remaining portion is taxed at 16.5%. The corporate profits tax payable would be HKD 660,000 (HKD 2 million × 8.25% + HKD 3 million × 16.5%).

Individual-Level Taxation

Ms. Li (a Hong Kong tax resident) draws an annual salary of HKD 1 million from the company. Based on Hong Kong's progressive tax rates, her individual income tax would be approximately HKD 150,000 (simplified calculation). Additionally, she receives dividends of HKD 4.34 million from the company (HKD 5 million pre-tax profit less HKD 660,000 profits tax). In Hong Kong, dividends are not subject to any tax.

Ultimately, Ms. Li's net income would be: HKD 1 million (salary) + HKD 4.34 million (dividends) - HKD 150,000 (individual income tax) = HKD 5.19 million.

Case Study 3: Startup in Singapore

Mr. Chen (a Singapore tax resident) is a seasoned Web3 entrepreneur who established a cryptocurrency exchange in Singapore, focusing on providing secure and efficient digital asset trading services.

Corporate-Level Taxation

Assume that Mr. Chen's company achieved an annual revenue of SGD 10 million in its first year of operation, with a pre-tax profit of SGD 5 million. Under Singapore's tax policy, the first SGD 200,000 of profits qualify for tax exemptions, resulting in a tax liability of SGD 12,750 (SGD 10,000 * 4.25% + SGD 10,000 * 8.5% = SGD 12,750). The remaining portion is taxed at a rate of 17%. The corporate income tax payable would be approximately SGD 828,750 (SGD 12,750 + SGD 4.8 million × 17%).

Additionally, his company is required to pay Goods and Services Tax (GST) at a rate of 9%. Assuming a portion of the annual sales is subject to GST, the GST payable would be approximately SGD 900,000 (SGD 10 million × 9%).

Individual-Level Taxation

As the major shareholder of the company, Mr. Chen draws an annual salary of SGD 1 million from the company. Based on Singapore's progressive tax rates, his individual income tax would be approximately SGD 240,000 (simplified calculation). He receives dividends of SGD 4.17125 million from the company (SGD 5 million pre-tax profit less SGD 828,750 corporate income tax). In Singapore, dividends are not subject to any tax.

Ultimately, Mr. Chen's net income would be: SGD 1 million (salary) + SGD 4.17125 million (dividends) - SGD 240,000 (individual income tax) = SGD 4.93125 million.

Summary of Data Comparison

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The above data comparison demonstrates that tax policies in different jurisdictions significantly impact entrepreneurs. Hong Kong has the lightest tax burden, as it imposes only three types of direct taxes and offers tax-exempt thresholds, resulting in the highest net income for entrepreneurs. Singapore ranks second; although its tax burden is relatively low, the requirement to pay GST results in a final net income slightly lower than that in Hong Kong. Mainland China has a heavier tax burden, resulting in the lowest net income. These data points can assist entrepreneurs in making more informed decisions when selecting a location for their startups.

It is important to note that applying the tax rates of different countries or regions requires compliance with the relevant regulations defining tax residency. If a Chinese tax resident expands their business overseas, income derived from outside China generally must be declared to the tax authorities where the individual's employer or engaging entity within China is located. The tax declaration period is from March 1 to June 30 of the year following the receipt of such income.

Conclusion

For Web3 entrepreneurs, selecting an appropriate jurisdiction for incorporation requires considering not only tax knowledge and costs but also comparing the regulatory policies and legal environments of different countries to ensure the long-term development of the enterprise. The open attitudes and superior tax policies of Hong Kong and Singapore in the Web3 sector provide a favorable platform for entrepreneurs. However, before making a decision, it is advisable for entrepreneurs to consult with professional lawyers and financial advisors to comprehensively understand the laws, regulations, and tax risks in various jurisdictions, thereby making the most advantageous choice.

This article does not constitute legal, accounting, or tax advice. Readers should understand and use this article in conjunction with appropriate professional advice provided by qualified professionals.