Story behind the Initiative to Promote the Development of Corporate Treasury Centres in Hong Kong


03 Jun 2016

Story behind the Initiative to Promote the Development of Corporate Treasury Centres in Hong Kong


On 26 May, the Legislative Council passed amendments to the Inland Revenue Ordinance – which may not have attracted too much attention from the public but has far-reaching implications for enhancing Hong Kong’s status as an international financial centre.  As the amended legislation has been gazetted today, I want to explain in this inSight article the story behind the initiative to promote Hong Kong as a hub for corporate treasury centres (CTCs).

Some years ago, the HKMA set up a task force to promote Hong Kong’s asset management business and treasury market development.  At the time, many of the corporations we approached, to our surprise, cited Hong Kong’s taxation system as the major barrier for them to come to Hong Kong!  Hong Kong has been well known for its low and simple tax regime.  So, why had taxation become the “culprit” in deterring these corporations from coming to Hong Kong?

To find the answer, we promptly conducted a study and compared Hong Kong’s taxation regime with that of other major economies.  The study revealed that in terms of CTCs we had “lost at the starting line”.  Prior to the tax law changes, the interest expense paid by a CTC in Hong Kong on money borrowed from its overseas associated corporations was not tax deductible.1  However, all interest income derived from the loans offered by a CTC to its overseas associated corporations was chargeable to profits tax in Hong Kong.  This asymmetric tax treatment was not favourable for CTCs conducting cross-border fund transfers in Hong Kong.

During the past two years, our colleagues gave considerable thought and effort on conducting research, lobbying, and contacting over 200 multinational corporations, Mainland enterprises, banks, corporate treasury professionals, etc, to collect their views.  The HKMA discussed with the Financial Services and the Treasury Bureau and the Inland Revenue Department, and garnered the support of the Financial Secretary, on the tax amendments with the premise that the tax base would not be eroded.  That’s how the tax amendments were eventually falling into place.

The amendments mainly adjust the rules on interest deduction, and also reduce the profits tax rate on qualifying CTCs’ activities by 50%2, which is a kind of tax concession.  One may ask: why are we giving CTCs special treatment?  In answering this question, we need to first understand the role of a CTC. 

Most multinational corporations have in-house treasury centres for managing cash, forex and investment so as to centralise the processing of the transfer, borrowing, lending and management of funds among different companies within the same group.  This can ensure that every cent is well spent, thereby reducing overall operational costs and enhancing operational efficiency.  At first glance, all these activities appear to relate solely to the interests of individual companies.  Why do we work so hard to attract overseas corporations to set up their CTCs in Hong Kong?

First, CTCs have great demand for banking, financing, risk management, taxation and legal advisory services, etc.  Obviously, this will bring about tremendous business opportunities for the financial, business and professional services sectors in Hong Kong. 

In addition, many multinational corporations co-locate their CTCs with their regional headquarters.  By attracting more CTCs here, we are also providing further impetus to the development of headquarters economy in Hong Kong.  In particular, if corporations conducting real business set up their CTCs and regional headquarters here, this will induce more “real money” into Hong Kong.  Unlike speculative “hot money”, the flow of “real money” is mainly driven by a corporation’s actual business needs and is less vulnerable to market fluctuations.  This will be conducive to Hong Kong’s economy in the long run.

Setting up CTCs is still at an early stage for Mainland enterprises. Traditionally, we are the first choice as a base for Mainland enterprises to “go global”, and we believe that the same will apply when it comes to the location of CTCs.  Similarly, Hong Kong is a springboard for overseas corporations to gain a foothold in the Mainland market.  The tax changes this time greatly enhance Hong Kong’s attractiveness for multinational corporations to set up their CTCs.  We have already planned to step up our marketing efforts to promote the new tax measures to multinational and Mainland corporations in the coming future.   

Indeed, CTCs and our soon-to-be-launched Infrastructure Financing Facilitation Office (IFFO) can both serve as useful springboards.  Leveraging on these two springboards, corporations can take part in infrastructure investment and financing along the Belt and Road routes through the IFFO on the one hand, and set up CTCs in Hong Kong to manage their liquidity efficiently on the other.  I believe that Hong Kong is well-placed to help propel multinationals to reach further, achieving a win-win outcome. 

As the saying goes, “he who does not advance goes backwards”.  With intense competition among international financial centres, how we fare in terms of soft power is particularly crucial.  The HKMA has all along and will always strive to enhance Hong Kong’s financial infrastructure and soft power. 



Norman Chan
Chief Executive
Hong Kong Monetary Authority

3 June 2016

1     This is because, in general, the interest income of such an overseas corporation is not subject to profits tax in Hong Kong.

2     The Inland Revenue (Amendment) (No. 2) Ordinance 2016 mainly amends the interest deduction rules so that interest expenses arising from intra-group financing activities, under specified conditions, will be deductible.  In addition, profits derived from specified corporate treasury activities conducted by qualifying CTCs will benefit from a half-rate concession.  In other words, the applicable tax rate will be cut from the current 16.5% to 8.25%.

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Last revision date : 03 June 2016