A group of financial authorities in Hong Kong have published a paper detailing how corporate tax reductions should be introduced for corporate treasury centres. The paper was dated 1 June and was signed by the government’s Financial Services and the Treasury Bureau, the Hong Kong Monetary Authority (HKMA), the Inland Revenue Department.
The legislative proposal provides detail on which corporate treasury services and activities will qualify for a lower tax rate. It also proposed an amendment to the deduction of interest expense, which will create a more tax-friendly environment for corporate treasury centres and will make Hong Kong more competitive with Singapore as a location for regional treasury hubs.
It follows the proposal put forward in the Hong Kong 2015-16 Budget, announced on 25 February 2015, which set out a resolution to the problem of tax asymmetry on interest deductions for corporate treasury centres as well as a tax incentive for specified treasury activities at 50 per cent of the standard tax rate.
The paper stated that 'qualifying corporate treasury services' mean the following services provided to associated corporations in or outside Hong Kong (but not financial institutions):
- the management of the cash and liquidity position, including cash forecasting, of the corporate
- group, and provision of related advice;
- the processing of payments to vendors or suppliers of the corporate group;
- the services in relation to the provision of guarantees, performance bonds, standby letters of
- credit and services relating to remittances to and on behalf of the corporate group;
- providing corporate finance advisory services, including activities supporting the raising of capital, either by way of debt or equity, or the provision of services in relation to the raising of
- capital, for and on behalf of the corporate group;
- providing advice and services in relation to the management of interest rate risk, foreign
- exchange risk, liquidity risk and credit risk; and
- providing business planning and co-ordination including economic or investment research and
- analysis in connection with any of the above activity.
While 'qualifying corporate treasury transactions' mean the following:
- transactions in relation to the provision of guarantees, performance bonds, standby letters of
- credit or other similar credit risk instruments in respect of borrowing by associated
- investment in deposits, certificates of deposits and shares of surplus cash for liquidity
- transactions in the contracts for difference, foreign exchange contracts, futures contracts,
- options contracts for hedging interest rate risk, foreign exchange risk, liquidity risk or credit
- risk; and
- factoring and forfeiting activities.
The paper stated that Hong Kong is Asia’s premier location for corporate treasury centres and that more than 7,500 multinational corporations have set up their regional headquarters, regional offices, or local offices in Hong Kong. It added: “If more CTCs are established in Hong Kong, this will create demands for the financial and professional services sectors, and contribute to the development of headquarters economy in Hong Kong.”
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