Is Payment from Singapore Company to Hong Kong Company Taxable? Tax Strategies and Policy Analysis

Does a Singapore company need to pay taxes when making payments to a Hong Kong company? This question has become increasingly important against the backdrop of growing cross-border trade and investment. In recent years, as economic ties between the two regions have strengthened, more companies have started to pay attention to tax compliance in cross-border fund flows. This article will analyze the potential tax issues involved in Singapore companies paying money to Hong Kong companies, based on recent news and policy updates, and provide some tips to avoid pitfalls.

First, it is important to note that although Singapore and Hong Kong are both international financial centers, their tax systems differ significantly. Singapore follows a territorial tax system, meaning it only taxes income generated within Singapore. Hong Kong, on the other hand, adopts the source-based principle, meaning only income sourced from Hong Kong is subject to taxation. From a tax perspective, whether a Singapore company needs to pay taxes when making payments to a Hong Kong company depends primarily on the nature of the payment and whether the transaction is deemed to be sourced from Hong Kong.

According to the 2025 Singapore Budget Statement released in January, Singapore continues to strengthen its regulation of cross-border transactions, especially regarding profit shifting. This means that if a Singapore company pays money to its affiliated entity in Hong Kong, and the payment is considered a profit distribution or service fee, it may be regarded as income sourced from Singapore, thus requiring the payment of Singapore corporate income tax.

In August 2025, the State Administration of Taxation of China issued a notice on the management of cross-border payments, emphasizing increased scrutiny of tax evasion in such transactions. Although the notice mainly targets mainland Chinese companies, it also reflects a rising global emphasis on tax transparency in cross-border transactions.

Next, let's analyze the specific situation of a Singapore company making payments to a Hong Kong company. If the payment is for goods, services, or investments, it typically does not result in additional tax liability. However, if the payment falls under categories such as profit distribution, interest, royalties, or technical service fees, relevant tax regulations should be considered.

For example, according to Section 152 of the Singapore Income Tax Act, if a Singapore company pays interest, royalties, or technical service fees to an overseas entity, and the payment is not deductible in Singapore, it may be subject to withholding tax. The current withholding tax rate for dividends, interest, and royalties in Singapore is 15%. However, this rate may be reduced if there is a Double Taxation Agreement DTA between the two countries.

Take, for instance, a news report from June 2025, where a Singapore technology company was required to pay back taxes and penalties by the Singapore Inland Revenue Authority after failing to reasonably justify the cost of technical service fees paid to its subsidiary in Hong Kong. This case serves as a reminder that companies must ensure the authenticity and reasonableness of cross-border transactions, otherwise they may face tax audit risks.

To avoid similar issues, companies can adopt the following tips

1. Ensure the authenticity of transactions All cross-border payments should be based on genuine and reasonable business purposes, such as procurement, services, or investments. Avoid fictitious transactions or artificially adjusting payment amounts.

2. Keep complete documentation This includes contracts, invoices, payment records, etc., so that sufficient evidence can be provided when tax authorities conduct audits.

3. Comply with bilateral tax treaties If there is a Double Taxation Agreement DTA between Singapore and Hong Kong, take full advantage of its provisions to reduce tax burden.

4. Consult professional tax advisors Especially in cases involving complex transaction structures or multinational company setups, it is recommended to seek the help of professional tax consultants to ensure compliance.

5. Conduct regular internal audits Companies should regularly review the compliance of cross-border payments and promptly identify and correct potential issues.

In conclusion, whether a Singapore company needs to pay taxes when making payments to a Hong Kong company depends on the nature of the transaction, the amount involved, and whether there are relevant tax agreements in place. With the continuous strengthening of global tax regulation, companies must pay more attention to tax compliance in cross-border payments. Through proper planning and professional advice, companies can effectively reduce tax risks and protect their interests within the framework of legal compliance.