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Hong Kong, China Join To Develop Treasury Centers

by Mary Swire, Lowtax.net, Hong Kong
28 November, 2016

On November 22, the Hong Kong Monetary Authority (HKMA) and the Hong Kong Chinese Enterprises Association (HKCEA) signed a memorandum of understanding (MOU) to cooperate in helping Chinese enterprises to establish their corporate treasury centers (CTCs) in Hong Kong.

The HKMA and the HKCEA pointed out that, as more Chinese enterprises "go global" and invest overseas, they can undertake liquidity and risk management and achieve cost-saving more effectively by setting up CTCs. That would also bring about a greater demand for Hong Kong's financial and professional services.

According to the MOU, the HKMA and the HKCEA will work together to promote better understanding among Chinese enterprises of CTCs and deepen their knowledge about the CTC-related policies in Hong Kong, particularly following the latest changes that has helped to create a more conducive tax environment in the city.

A concessionary 8.25 percent profits tax rate for qualifying CTCs (one-half of the prevailing tax rate) now applies to relevant profits accrued on or after April 1, 2016. The concession is granted to a qualifying CTC if, in a year of assessment, the central management and control of the corporation is exercised in Hong Kong and the activities that produce its qualifying profits in that year are carried out in Hong Kong.

Furthermore, from the same date, a new interest expense deduction has been available on money borrowed within an intra-group financing business, even if the corresponding interest income accrues outside Hong Kong and is not subject to Hong Kong profits tax.

HKMA's Chief Executive Norman Chan said: "Hong Kong is Asia's premier location for business and treasury management, as well as a global financial center and the world's leading offshore renminbi business hub. We have a clear edge to become the preferred hub for CTCs in the region. The relevant amendments to the Inland Revenue Ordinance will attract more multinationals to centralize their treasury functions in Hong Kong."

HKCEA's Chairman Yue Yi added that "many Chinese enterprises have already gained a solid footing in Hong Kong with diversified business. … As they are already well-conversant with the Hong Kong environment, the preference for setting up their CTCs here is quite obvious."

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