Hong Kong dangles 50 percent off to bait corporate treasury services opportunity
Large businesses require access to finances to fund on-going market development, regional expansion and mergers & acquisitions (M&A) to name a few. Conglomerates in particular have discovered that pooling together the different business units’ assets under treasury operations enables these to better manage the company’s liquidity as well as mitigate operational, financial and reputational risks. For the Corporate Treasurer finding a safe haven for the company’s finances comes down to a number of criteria including ease of doing business, financial regulatory environment and taxation – among others.
n recent years governments have discovered that having low corporate tax rates help attract foreign investments usually in the form of companies setting up local operations, employment and new revenue streams for both government and private businesses.
The KPMG 2014 global corporate rates table shows Asia’s top two lowest corporate tax havens as Macau (12%) and Hong Kong (16.5%). However, Singapore and other Asian governments, offer incentives to lure Corporate Treasurers to set up shop locally. For example in Singapore, qualified corporate treasuries end up paying only 10%. Coupled with ease of doing business, large pool of skilled local talent, stable economy and government, rule of law, and you have all the qualities Treasurers want when looking for a place to park the company’s financial assets.
Jeremy Choi, Tax Partner at PwC Hong Kong acknowledged that Singapore is currently the preferred domicile of corporate treasuries in the region.
During the 2015 Budget Speech, the Hong Kong SAR Financial Secretary John Tsang announced the government will be amending the tax law to allow (under specified conditions) interest deduction for corporate treasury centers set up in the SAR.
Choi said the new proposal includes a reduction of 50% on the current corporate rate of 16.5% for specified treasury activities. Thus organizations may find Hong Kong’s new proposal of 8.25% an enticing proposition. Other considerations, of course, include double tax treaty network, legal and banking system, ready talent pool, and extensive experience in the financial services market.
All these things Hong Kong has in spades.
“China’s proximity to Hong Kong will also be favorable to Chinese companies looking to invest overseas. Cost of raising funds in Hong Kong is lower than China. With the changes in the tax law, this will put Hong Kong in a better position,” added Choi.
The initiative is targeted at multinational and Mainland enterprises looking to establish corporate treasury centers in Hong Kong. Said Davy Yun, Tax Partner at Deloitte China, these companies would engage treasury, banking, legal and regulatory professionals further enhancing Hong Kong’s strength in financial and professional services. It will also help connect trade and fund flows between Hong Kong and the Mainland and serve a role to facilitate the process of internationalization of RMB.”
Charles Kinsley, Tax Principal at KPMG Tax Limited in Hong Kong, “there is keen interest to get treasury centers to set up in Hong Kong as their business is complimentary to that of the broader financial services sector. Qualifying profits will be taxed at a reduced rate from 16.5% down to 8.25%. In a broader context, this will generate revenue for banks and treasury centers, which in turn will create employment and opportunities. ”
Kinsley also added that Hong Kong is the largest offshore RMB market and is therefore attractive to for Chinese headquartered companies when they are looking to set up outside China as part of their foreign expansion.
According to the Hong Kong Trade Development Council in 2012 China ranked as the third largest investor economy with over US$87 billion. Sixty percent of that money flows through Hong Kong.
