Over the last decade, New York and London have been tussling with each other to gain the title of ‘Top Financial Center of the World’. However, the rules of the game have changed in recent times with Asian market players such as Singapore and Hong Kong catching up with their Western counterparts. The recently released Global Financial Centers Index has placed New York as the top financial center in the world, relegating the market dominant player London to the second spot. Although Hong Kong and Singapore maintained their rankings at #3 and #4., the differential gap between the top two cities and the two Asian financial centers has narrowed.

Stuart Fraser, Policy Chairman at the City of London Corporation, is right in stating,

“This research is a wake-up call for decision-makers that our standing as a world-leading global financial center should not be taken for granted.”

The UK government has threatened its position as a leading financial center ever since it announced the increase in its top personal income tax rate from 40% to 50% and its punitive 50% tax on bonuses in excess of £25,000 on employees of financial institutions. Naturally, London’s financial community is up in arms and many investment banks, hedge funds and financial firms are considering relocating part of their operations to tax friendly financial centers such as Singapore and Hong Kong. Moreover, with China experiencing robust economic growth there is an increased need for financial centers closer to home. This only serves to strengthen Singapore and Hong Kong as global financial hubs.

Factors that have traditionally bolstered London’s “Top Financial Center” image are now reflected in Singapore and Hong Kong – a talented English speaking workforce, transparent governments, and reliable legal systems. However, what sets Singapore and Hong Kong apart from London or New York are their low tax rates. Singapore’s personal income tax rates start at 0% and end at 20%, while its corporate income tax rate is 17%. Hong Kong’s corporate income tax rate is a flat 16.5% while individuals are taxed at progressive rates starting at 2% and ending at 17%; or at a standard rate of 15%. For instance consider a simple illustration in our Comparative Tax Analysis Report that compares the tax policies of UK, USA, India, Australia, Russia, and Singapore. According to the report, the tax burden of a hypothetical start-up firm that expects to make an annual income of US$300k is least in Singapore (US$34k) as compared to its tax burden in UK (US$63k) or the US (US$100k).

The changing fortunes and current developments in the US and UK are likely to create opportunities for Singapore and Hong Kong to emerge as the next biggest international finance centers.

Interested in doing business in Singapore? Find out how to incorporate a Singapore company.