Asian tax is a concept that may draw many entrepreneurs’ attention these days. However, before digging deeper, you should know that there is no such thing as a pure tax haven in Asia. There are, indeed, some tax havens in the middle of nowhere, somewhere, faraway. None of them in Asia, though…
With all these, there are a bunch of locations in Asia that provide lots of benefits for both people and businesses. On the same note, some of them have specific governmental structures, while others provide advantages in terms of financial laws or perhaps banking.
The idea is to be able to reduce your Asian tax without breaking the law – totally doable. You also need to be able to protect your assets, not to mention the possibility to boost your investment strategies without risking your wealth.
If you are looking for a simple tax haven to provide all these benefits, beating what the Caribbean can offer is almost impossible. At the moment, the region dominates. But then, the Asian market is not to be overlooked either.
malaysia" data-toc="1" >Exploring Malaysia
Located in the southeastern part of Asia, Malaysia is split into 13 different small states, as well as three federal territories. Its capital is Kuala Lumpur. The country has a population of over 33 million people and boasts a few different languages, yet only one is official – Bahasa Malaysia.
Now, Malaysia has its own territorial tax system, meaning both residents and non-residents will be taxed on the income sources in the country. However, those making money outside of Malaysia are not normally taxed – both people and businesses.
Other than that, Malaysia does not have a capital gains tax either, apart from properties you sell in the country. Then, there is no withholding tax if you deal with dividends, yet there are a few exceptions. Forget about gifts, inheritance, or wealth taxes too.
The service tax is set at 6%, while the sales tax is only 10%.
If you do make money in Malaysia, the income tax for individuals is progressive. Some people may need to pay nothing – those making less than 5,000 MYR per year. Others may pay up to 30% if they make more than two million MYR.
Businesses making money in Malaysia are charged 24%. Do it abroad, and you are less likely to be taxed then. There are some exceptions. If your business operates in air transportation, insurance, transportation, or banking, you will be taxed.
Asian tax for individuals follows a different path. Unless all the income you get comes from outside of Malaysia, you will not really have too many benefits due to the progressive territorial tax system, which is quite harsh.
Qualifying for tax residency is fairly simple. You can do it in a year by spending 182 days in Malaysia over 12 months. You can also do it over three or four years – spend 90 days a year in three of the last four years, and you can qualify for tax residency.
Based on your current nationality, it pays off considering the agreements between Malaysia and other countries. For instance, Canada has a double taxation agreement with Malaysia, so you will not be taxed twice. On the other hand, American citizens will most likely be taxed in most countries.
In other words, Americans will be taxed regardless of their residency, income source, or jurisdiction.
Getting permanent residency can be obtained in more ways – working for a local corporation, making a solid investment or a deposit, being an expert in certain fields, or getting married. In terms of citizenship, Malaysia does not allow double nationality, so you must give up on your current citizenship.
Located in the southeastern part of Asia, Singapore is close to Malaysia and represents another good choice for those who want to benefit from low Asian taxes. Over the past decade, Singapore has become a technological hub for entrepreneurs, business people, and high net worth individuals.
Singapore has one main island, as well as dozens of other small islets. There are four official languages in Singapore – Tamil, Chinese, Malay, and English. Plus, it is one of the countries with the highest population density out there.
The official currency is the Singaporean dollar.
Now, moving on to the Asian tax in Singapore, you should know that it has a territorial tax system. The system is aimed at those who make money locally. In other words, Singapore sourced income will be taxed, while international income will not.
You can forget about foreign exchange controls, capital gains, or dividends in tax. No one will tax you for an inheritance either, which makes perfect sense. There are no estate taxes either, but then, there are property taxes, withhold taxes, and sales taxes.
Now, if you do make money locally and you actually get taxed, you should know that resident and foreign Singapore sourced income is taxed at 17% only. This is the official number, but the actual tax can be dramatically reduced with a plethora of incentives.
For example, there is a progressive income tax. The first 20,000 SGD will benefit from no tax at all. Each 10,000 SGD from this point on will be taxed at 2% extra. The maximum limit you can get to is 22%, and that is for income exceeding 320,000 SGD.
Being such a modern country, Singapore has numerous agreements with other countries. Their main role is to prevent double taxation on the same income – nothing with the USA, though. Again, Americans are very likely to be double taxed just for carrying that citizenship.
Those interested in starting a business in Singapore will have multiple opportunities – foundations, trusts, partnerships, LLCs, and so on. However, it is also worth noting that there is some flexibility because the assets can be located anywhere in the world.
Protecting your wealth is an idea that can go in more directions. A holding company is probably the most popular option because you are shielded against liabilities, lawsuits, debt, and other similar risks. The regulatory framework in Singapore is also suitable for trust structures.
Shell companies – while sketchy in some countries – are perfectly legal in Singapore and can work wonders in reducing Asian tax. For instance, you could get an offshore shell company established as a modern LLC in Singapore for withholding purposes.
In order to help the government against money laundering, such companies require Singaporean residents as directors. Obviously, there are all sorts of little things that can help in the process and reduce tax.
In theory, Singapore is not a tax haven, but it has so many tax incentives that it could become one. It is not the type of regulatory system you handle yourself – unless you are familiar with it, chances are you will require a few professionals to help out.
Considering Hong Kong
Hong Kong is a relatively small territory – just 426 square miles. There are 7.5 million people gathered there, and they come from all over the world. In fact, Hong Kong is one of the most densely populated places out there.
Hong Kong has become one of the most powerful financial centers in Asia and living proof of how far entrepreneurial capitalism can go. In terms of Asian tax, Hong Kong – like other Asian countries – features a territorial tax system.
What does it mean? Simple – income generated in Hong Kong is taxed, while international income is overlooked. Now, even if you make money in Hong Kong, the tax system benefits the individual, rather than the government.
You get taxed for the income, but expenses are also taken into consideration. For example, you will first pay your educational expenses, charity donations, and other deductible expenses before getting charged on your income.
Asian tax in Hong Kong goes between 2% and 17%. To be a tax resident, you must be in the country for more than 60 days. Exceed 60 days, and you will be asked for tax – unless you are exempt from it, of course.
To benefit from a 2% tax, you should make less than 50,000 HKD. To pay 17% in income tax, you would need to make more than 200,000 HKD. It is worth noting that there are no capital gains, withholding, estate, sales, value-added, or interest taxes.
It may sound hard to believe, but you will love the lack of controls on foreign exchange too. Inheritance and estate taxes were also removed in 2006. If you do own land or properties, you will pay 15% on the actual assessable value of the property – it may change yearly, though.
Just like many other Asian countries, Hong Kong has double taxation agreements with a plethora of countries, but not with the USA. Americans will get taxed twice just for holding the actual citizenship – hard to believe, but the USA and Eritrea are the only countries still doing it today.
Now, things change when it comes to the corporate Asian tax in Hong Kong. You can pay as much as 16.5%, but chances are you will pay less than that. Hong Kong aims to help small and middle-sized businesses. You will only pay 8.25% for the first two million HKD in assessable profits.
If your company is not incorporated, the maximum limit is 15%, and the one for two million HKD is 7.5%.
Hong Kong encourages the production of high-value items. Plant, machinery, software, and hardware expenses will be written off – no tax on such things. Then, machinery for environmental protection will also go in the same category – not to mention environmentally friendly vehicles for the company.
Trusts and mutual funds established in Hong Kong will also have a bunch of benefits.
Hong Kong had a bad reputation because many shell companies registered there were used all over Asia. However, while there are a few extra regulations, it is still fairly simple to register shell companies, and there is nothing to worry about if you use them legally.
It is worth noting that China aims to interfere in local politics, while international regulations and pressure are harsher and harsher. Hong Kong does a pretty good job at resisting these issues and still represents one of the top-rated jurisdictions to establish a company.
It might be wise to discuss your goals and options with tax advisors to prevent potential problems.
To benefit from the double taxation agreements in the country, you will need a certificate of resident status. You need to stay in Hong Kong for over 180 days over a year or more than 300 days in two consecutive years.
The CRS can also be given if you are part of a trust, partnership, or company – registered in Hong Kong or controlled by someone from Hong Kong. When it comes to citizenship, there is no such thing – however, Hong Kong has its own passport, which is difficult to get.
The best you can aim for as a foreigner is a permanent residency.
Now, whether you want to relocate there or you want to reduce your Asian tax, keep in mind that Hong Kong is hunted by China. It might be the financial capital of Asia today, but China tries to take it over, causing a conflict between China and the USA. Therefore, caution is required in this country.
Assessing the Philippines
Consisting of more than 7,600 islands, the Philippines could be the ideal location if you are after low Asian tax. The capital is Manila, yet Quezon City is the most populous city in the country. Overall, there are more than 111 million people in the Philippines.
Moving on to the Asian tax, the territorial tax system applies to anything with a foreign status – nationals, businesses, and even nonresident citizens. Now, it is worth noting that only the income sourced in the country is taxed.
However, corporations registered under local laws and residents are also taxed on the worldwide income. When it comes to other taxes, you can forget about capital gains tax if your investments are international – just 6% for domestic investments, so the rate is still alright.
Also, there are no wealth taxes. On a more negative note, you should expect an inheritance or an estate tax, as well as withholding taxes, sales taxes, and value added taxes. Now, it may sound complicated, but you can get your way through all these with a little planning.
Basically, the Philippine taxes residents on worldwide income, yet foreign nationals and companies are only taxed on domestic income. The domestic income tax starts at 20% if you make more than 250,000 PHP and can go to 35% if you make more than eight million PHP.
When it comes to the corporation, they are taxed at 25% if they make less than five million PHP. Otherwise, taxes will go to 20%. Branch offices of foreign companies will also be taxed, so the Asian tax is not a good plan here.
Americans will be double taxed, of course, yet the Philippines has tax treaties with many countries out there. It has also adhered to FATCA, so it will basically tell your government that you make money there if you are American.
Registering a company in the Philippines is difficult – you will most likely need a specialized service.
Now, given all these, the Philippines may not look like a tax haven. But look closer. You can get permanent residence as a foreigner in the Philippines, meaning you can move your money there without paying any tax at all – assuming you make your money abroad.
Basically, you can manage your money abroad and transfer everything to the Philippines. It also depends on your current jurisdiction, of course. If you live in a place with super low taxes or no income taxes, this is a winning setup.
There are more ways to get residency in the Philippines, including the classic investment. Get the citizenship, and you will also be taxed on international income, so the plan is no longer viable. There are more requirements for nationality, though.
Thinking about Thailand
Thailand is also located in the southeastern part of Asia and counts 70 million inhabitants. There are dozens of minority ethnic groups, and the official language is Thai, yet you will find all sorts of dialects and plenty of people who can speak English. After all, Thailand has millions of tourists every year.
The local currency is the baht.
Thailand is yet another country that relies on a territorial taxation system for people. The income generated outside Thailand will not be taxed, but there is one condition – it must not be transferred to Thailand within the first year. Obviously, this is difficult to check, and there are ways to go around it.
Despite not having wealth taxes, Thailand asks for capital gains tax if the income is sourced locally. Then, there are also withholding taxes, not to mention social security, payroll, property, gift, inheritance, estate, and value-added taxes.
Some of these taxes apply to heavy amounts of money, so the average individual will not be affected.
Companies registered in Thailand will have to pay tax on both local and international income. There are a few deductions, but they are not too impressive. Some key industries benefit from more deductions than others.
The Resident income Asian tax is progressive. Those who make less than 300,000 THB a year will be taxed at 5% only. On the other hand, you can get up to 35% in income tax if you make more than five million THB.
Corporations are taxed at 20%.
A Thailand registered company will have more advantages than the branch office of a foreign company. There are more types of companies you can register, and each of them comes with pros and cons – you might want to talk to a tax advisor first.
To help you get an idea, if you engage in R&D and design that can improve Thailand’s development and infrastructure, your company can benefit from an eight year exemption from the corporate income tax. Such things change quite often, hence the necessity to discuss them with a professional.
How about Dubai?
Dubai is somewhere in the middle. You have an exotic place that screams luxury. You have a place that has opened up to western capitalism, but while still maintaining some super strict rules that control the values of the UAE.
Dubai is open to foreign influences, and pretty much everyone there can speak English. The best part about it? There is no income tax whatsoever. Why? Because society is mostly aimed at those with a very high net worth.
Sure, anyone can visit, but not everyone can stay there.
Dubai is not perfect, and while it looks like a playground for rich people, it is not always the type. If you are interested in sole entrepreneurship, you may want to look elsewhere. There are normally two categories of foreigners in the country.
First, you have the low-skilled construction workers – intense labor and poor pay. Then, you have high tier corporate workers. They are there with temporary jobs and do not plan to relocate to Dubai once they finish their assignments.
This is why sometimes, you may have to face more questions than others. You will be asked about the employer, as well as the salary. When you say you own your own company, some officials may raise their eyebrows and demand some more paperwork.
This is also what makes the necessity of a company formation service or tax advisor service obvious.
As a short final conclusion, Asian tax does go in a bunch of different directions. Different countries come with different standards for living, as well as unique taxing systems. As you go through some of them, you will also notice a few things in common, such as the progressive system.
In some of the above-mentioned jurisdictions, Asian tax can be completely avoided if you generate income abroad, in a country with no income tax. Sure, it takes a bit of hassle moving around and setting everything up in the smallest details, but the good news is it can be done.