June 3, 2016 in the official government publication in Hong Kong were published changes in the tax law, introducing a tax break for companies that perform the function of the treasury center. The changes were adopted by the Legislative Council of Hong Kong on May 26, 2016.
Now, the company engaged in Hong Kong treasury activities (namely intra-group financing business, the provision of treasury services and conducting treasury operations), under certain conditions, are able to take into account the the interest paid by them on loans as an expense for tax purposes. Under the changes, the Hong Kong companies, which meet the criteria of corporate treasury center will pay income tax at a reduced rate, in the amount of 8.25% (the standard corporate tax rate in Hong Kong is 16.5% rate).
The reduced rate of corporation may be applied against to income from treasury activity, obtained from April 1, 2016 and later. The new rules on percent accounting in the composition of expenditure of companies involved intragroup funding, will also be applied in respect of amounts accrued for payment on April 1, 2016 or later.
By introducing new benefits Hong Kong trying to increase its appeal to corporations interested in establishing treasury centers in Asia to intra-group financing and compete in this area with Singapore.
Last year, IKEA International Group has started creation of a regional treasury center to support its expansion in Southeast Asia. The corporation has chosen Singapore to accommodate the treasury center. In Singapore has long existed the benefit for regional treasury centers of large corporations (reduced corporate tax rate of 10% compared to standard rate of 17%). In addition, Singapore has concluded twice as much agreements on avoidance of double taxation with other countries than Hong Kong, which adds the attractiveness to the jurisdiction in the eyes of multinational corporations.