The Hong Kong government is offering tax incentives to encourage multinational and mainland Chinese enterprises to set up corporate treasury centres in the region.
Delivering his 2015-16 Budget, financial secretary John Tsang said that the government would amend the Inland Revenue Ordinance to allow, under specified conditions, interest deductions under profits tax for corporate treasury centres. Profits tax for specified treasury activities would also be reduced by 50%.
A fact sheet from the Hong Kong Monetary Authority (HKMA), which is responsible for maintaining monetary and banking stability in the region, said that the changes were necessary because, in certain circumstances, interest expenses paid by a Hong Kong corporate treasury centre on borrowing from associates outside Hong Kong may not be deductible.
On the other hand, interest income received by the Hong Kong corporate treasury centre would generally be subject to profits tax, “resulting in a relatively less favourable taxation environment to conduct corporate treasury activities”.
The move positions Hong Kong as a strong rival to other locations such as Singapore in terms of being a base for regional treasury hubs. “The development of Hong Kong as a regional corporate treasury centre hub would benefit the financial and business sectors, and help to deepen our capital markets, including the offshore renminbi market,” HKMA said.
Corporate treasury centres are effectively in-house banks that facilitate intragroup borrowing and lending of money; cash and liquidity management; processing of payments to vendors or suppliers; capital raising; and risk management.