19 Oct 2016
Tax Cuts Benefit Corporate Treasuries
New tax rules, introduced in June, make Hong Kong more attractive for multinational corporations and Chinese mainland enterprises to set up headquarters and treasury functions in the city.
The key benefits, as outlined in a briefing by accounting network Grant Thornton, are substantial tax concessions. “Analysts believe that the move is a timely one in reinforcing Hong Kong’s credentials as a hub for corporate treasury centres (CTCs), at a time when many mainland Chinese companies are expanding overseas,” noted Grant Thornton.
Professional services firm PwC explains a CTC as being, in effect, an organisation’s “in-house bank,” responsible for a range of finance functions, including regional processing of payments, liquidity management, intra-group financing and capital-raising.
As of the current financial year, qualified companies can have their profits tax halved (from 16.5 per cent to 8.25 per cent), and see all their interest expenses become tax deductible if they choose to set up a CTC in Hong Kong.
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Other Favourable Factors
Cost considerations aside, Albert Lo, Finance Consulting Partner, PwC Hong Kong, said other factors come into play when choosing the right CTC location; proximity to a corporate’s underlying businesses, availability of talent pool, strength of legal framework and structure, and accessibility to debt capital markets.
Describing the city as “the most vibrant international financial centre in Asia,” as well as the world’s top offshore renminbi centre, PwC said Hong Kong’s new CTC policy is “a very positive and important step towards establishing Hong Kong as a corporate treasury hub,” and an official recognition of the importance of professional treasury management.
“Our view is that this initiative provides corporations the opportunity to improve their competitiveness by adopting a professionally managed CTC platform and achieve substantial tax savings that will support their global business development,” said Mr Lo.
Icing on the Cake
Samantha Tan, Tax Senior Manager, International and M&A Tax at Deloitte Advisory (Hong Kong), said the new CTC rules provide Hong Kong with another tool in its competitiveness playbook.
“However many multinationals and Chinese mainland enterprises looking to establish bases here may already have been attracted to Hong Kong's deep renminbi pool, robust infrastructure and proximity to China. For these groups, the tax benefits of the CTC rules will now be the icing on the cake.”
She noted that the move is among several initiatives the Hong Kong Government is pushing to boost the financial services industry. “For example, the Hong Kong Monetary Authority is spearheading the Fintech Supervisory Sandbox and Infrastructure Financing Facilitation Office in a bid to enhance Hong Kong's competitiveness as a hub for Fintech innovation and infrastructure financing in the Asia-Pacific region.”
Closing the Gap
Howard Yang, Country Head for Treasury and Trade Solutions, Citi Hong Kong, said Hong Kong is always the first-choice destination for mainland corporates on the path of internationalisation, due to its geographical proximity and renminbi liquidity. The recent tax changes make the city even more attractive.
“Hong Kong has been one of the major treasury and financial centres in Asia with well-established regulatory and legal regimes, matured banking and finance sectors, superior infrastructure, strong import/export trades and a great talent pool,” said Mr Yang. “The newly introduced tax incentives eliminated the only gap that Hong Kong had compared to other established financial centres in the region.”
“The newly introduced tax incentives eliminated the only gap that Hong Kong had compared to other established financial centres in the region.”
The new tax change should also spur Hong Kong's development as a place for a "headquarters economy," creating great businesses as well as demand for banking, financing, risk management, taxation and legal advisory services, said Mr Yang, who expects Hong Kong’s future CTC development to pick up speed.
Citi Hong Kong
PwC Hong Kong