Asia report: Hong Kong or Singapore for a corporate treasury centre?

Once again, Singapore and Hong Kong have squared off in their bid to attract more Asian businesses as the chosen location to set up a corporate treasury centre (CTC).

Singapore started the ball rolling in April, when it further reduced taxes on treasury centres. The Finance and Treasury Centre (FTC) Tax Incentive reduced the corporate tax rate from 10% to 8% on fees, interest and gains from qualifying services and activities. It also provides a withholding tax exemption on interest payments on loans from non-resident banks, as well as loans and deposits from non-resident approved network companies. The scope of tax exemption is being expanded to cover interest payments on deposits by the FTC’s non-resident approved offices and associated companies.

At the start of this month Hong Kong fired back, after the legislature approved the deduction of interest payable on money borrowed by a corporation carrying on an intra-group financing business in Hong Kong. It also introduced a concessionary 8.25% profits tax rate for qualifying corporate treasury centres (CTCs). KC Chan, Hong Kong secretary for financial services and the treasury, opined that the changes provide “a conducive environment for attracting multinational and mainland corporations to centralise their treasury functions in Hong Kong.”

Despite the changes in Hong Kong, as EY noted earlier in the year, Singapore grants tax incentives more flexibly. Requiring a CTC to show that the overseas tax has been paid – or will be paid – for instance may impose an onerous due diligence requirement, and could undermine the attractiveness of the legislation to multinational corporations (MNCs).

Deloitte similarly noted that the bill contains many timely new measures that should reinforce Hong Kong’s competitiveness, but qualified its welcome. The firm said that aspects such as including profits from corporate treasury services provided to Hong Kong associates as qualifying profits for purposes of the profits tax concession or broadening the scope of the interest deduction could benefit from further revisions.

How much does tax matter?

Although tax incentives are an important pull factor when companies decide where to locate their CTC, KPMG says that its research shows companies also placing a high value on non-tax factors such as banking efficiency, ease of doing business and the availability of talent.

Singapore scores strongly across all factors, according to KPMG, due to its wide tax treaty network, low corporate income tax rate and mature banking sector. Hong Kong also has a dynamic financial sector, superb infrastructure and its status as an offshore renminbi (RMB) hub and closeness to China make it an excellent location for companies with business in the mainland. At the same time it also has political instability, due to its historical and social relationship with China

PwC’s view is that MNCs should take into account both tax considerations and non-tax factors in considering where the best location is for their CTC, such as their own business needs and mode of operation as well as the regulatory environment; the financial and capital markets and the availability of finance talents.

Singapore or Hong Kong?

Given that the tax rates of Hong Kong and Singapore are now so similar; companies may indeed need to review other business factors more closely in deciding where to place their CTC.

As David Blair, managing director of Singapore-based treasury consultancy Acarate, describes the two locations, taxes and costs are broadly similar; differences in the quality of life are subjective; both cities have deep talent pools, and both have large populations of multinationals. While Singapore has better coverage for Asia Pacific as whole and deeper – as well as more liquid – foreign exchange (FX) markets, Blair notes that Hong Kong has traditionally had deeper capital markets than its rival and has been preferred by corporates focused on China.

Howard Yang, Citi Hong Kong’s country head for treasury and trade solutions, similarly told the South China Morning Post recently that “the two advantages of the city (Hong Kong) are in RMB liquidity and the proximity to Chinese corporates. For most Chinese corporates on the path of internationalisation, Hong Kong will be their first choice.”

However Singapore’s early starter advantage, its more proactive stance in actively promoting pro-business policies and its signing up to double taxation waiver agreements with 70 countries – more than double Hong Kong’s total of 32 – means that it could take three to five years before Hong Kong catches up. According to Yang, out of 100 of Citi’s company clients looking to set up centralised operations for risk and cash management half had chosen Hong Kong for their base.

While Hong Kong and Singapore evidently hoped that more favourable tax treatment could lead to significant advantage when companies look at where to place their CTC, the similarity of tax rates and infrastructure may simply maintain the status quo – with companies continuing to select Hong Kong if they’re focusing on China, or heading to Singapore in other circumstances.


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