The introduction of a new tax regime has increased Hong Kong’s competitiveness in the battle to attract corporate treasury centres.
Hong Kong aims to be Asia Pacific’s leading corporate treasury centre (CTC) destination, as more companies decide to centralise treasury operations in the region.
Moves to realise this ambition began in 2016 when the government revised the tax ordinance. It cut the corporate tax rate and made it cost-effective for companies to conduct intra-group financing activities from Hong Kong. More recently, the government has introduced several other incentives to support CTCs. These include financial support for first-time bond and green bond issuers in the city-state.
“There has been an extremely positive reaction to our work from the corporate community,” says Enoch Fung, Head of Market Development at the Hong Kong Monetary Authority (HKMA). “Approximately 50 of the 300 corporates we have reached out to have established or are planning to set up corporate treasury operations in Hong Kong. And we anticipate this number to increase in the coming months.”
Hong Kong, as one of world’s leading financial centres, has many of the ingredients required to make an ideal corporate treasury centre location.
Over 70 of the world’s top 100 banks have operations in Hong Kong, it has deep and liquid financial markets, a strong rule of law, and companies operating in the city have access to a full range of professional services.
However, Fung admits that it is only now beginning to achieve its potential. “Reducing the tax rate for treasury centres to 8.25% and allowing for the deduction of interest expense on intra-group financing activities has removed many of the barriers corporates faced when considering Hong Kong as a home for their corporate treasury centre,” he says.
“When we consider this alongside additional incentives, such as offering subsidies to corporates which have not issued any bonds in Hong Kong for the past five years up to HK$5m to cover the cost of their first two bond issuances in Hong Kong, and the fact that it is one of the world’s leading financial centres, I think we have a very strong proposition.”
A mixture of multinationals
Companies that already have corporate treasury centres in Hong Kong include western multinationals like Avnet, IKEA and WPP. The city-state is also home to an increasing number of Asia-domiciled and Chinese multinationals, including CGN Huasheng and COSCO Shipping.
Fung says that it is a diverse mix of companies that are planning on setting up shop in Hong Kong. “We are seeing interest from plenty of western multinationals that are growing in this region and looking to formalise and standardise their treasury operations to support this.”
There is also a strong pipeline of Chinese companies going global that are using Hong Kong as a stepping stone to the world. These include the State Power Investment Corporation and China Three Gorges Corporation.
“Many Chinese companies are expanding globally and see Hong Kong as a natural home for their international treasury centres because it has strong links with the world but is still connected to the Mainland,” explains Fung. “Hong Kong is also the world’s largest offshore RMB hub.”
Given the continued corporate focus on technology, Fung notes that treasurers are keen to operate in a market that recognises the benefits of technological development. Therefore, in an effort to ensure that Hong Kong remains competitive, the government and HKMA have made digitisation a priority.
Most notably, the HKMA established a fintech sandbox – a closed environment where new products and concepts can be developed. “We have had good success with this, seeing roughly 20 products tested in the sandbox launched into the market,” says Fung. “There are also other initiatives, such as the rollout of Hong Kong’s faster payment system.”
Hong Kong is looking outwards as well, connecting with regional and global partners to work on tackling issues such as the inefficiency in global trade. For example, the HKMA recently signed an MoU with the Monetary Authority of Singapore (MAS) on digitising trade flows between the city-states. Hong Kong has also closely collaborated with its neighbouring city of Shenzhen – China’s technology hub – on fintech development. For example, the HKMA has recently co-organised the “Shenzhen-Hong Kong Fintech Award” with Shenzhen’s Office of Financial Development Service, with a view to further deepening the financial cooperation between the two cities.
Of course, Hong Kong is not the only market in Asia tempting companies to set up CTCs. Singapore remains a key CTC destination in the region and has recently enhanced its own tax and incentives package. Thailand and Malaysia are also trying to capture some business.
Corporates should be the ultimate beneficiaries of this competition, benefiting from lower tax rates, incentives and enhanced products and services.
Asia RTC deep-dive
Treasury Today Asia will be comparing and contrasting the region’s top treasury centre locations in the July/August edition of the magazine.