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Invest Hong Kong, the territory's inward investment promotional agency, has encouraged Mainland Chinese companies to establish corporate treasury centers (CTCs) in Hong Kong following the latest changes to the city's tax code.
The new tax perks were pointed out during a seminar on October 21 at the 8th China Overseas Investment Fair in Beijing, entitled "Hong Kong – Regional Hub for Corporate Treasury Center and New Opportunities for Mainland Enterprises," jointly organized by InvestHK and the China Overseas Development Association.
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.
At the seminar, it was said that, as Mainland enterprises "go global," they have to "cope with a more complex environment under different currencies, regulatory, and interest rate regimes. Therefore, a growing number of companies set up CTCs to raise capital, and manage liquidity and risks, in order to simplify and centralize their treasury activities."
Executive Director (External) of the Hong Kong Monetary Authority Vincent Lee therefore talked about Hong Kong's policy on CTC and how setting up CTCs can help those companies reap maximum benefits from China's economic reform policy.
He said that "Hong Kong has a series of financial strengths. For instance, Hong Kong has the largest offshore renminbi market with deep capital pool, a sound legal system, and an abundance of finance professionals. I therefore encourage Mainland enterprises to make good use of our latest change on tax law to establish their own CTCs in Hong Kong, which will help lower cost and lift effectiveness in management of capital flow."
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