December 2015 - Hong Kong Proposes To Provide Tax Incentives for Corporate Treasury Centres
As reported in our 2015-2016 Hong Kong Budget News issued in February 2015, in order to enhance Hong Kong’s attractiveness as a Corporate Treasury Centre to multinational corporations, the Financial Secretary announced that the Government would amend the Inland Revenue Ordinance (“IRO”) to provide tax incentives for corporate treasury centres (“CTCs”) in Hong Kong by introducing a concessionary profits tax rate for qualifying profits derived by a qualifying CTC, and allowing interest expense deductions on monies borrowed from non-Hong Kong associated corporations carrying out intra-group financing business. The relevant provisions are set out in the Inland Revenue (Amendment) (No. 4) Bill 2015 (“the Bill”) which was gazatted on 4 December 2015. (1)
The Bill has been introduced into the Legislative Council (“LegCo”) on 16 December 2015 for scrutiny and approval. Upon enactment of the Bill, the relevant tax provisions will apply from 1 April 2016.
The Bill has been introduced into the Legislative Council (“LegCo”) on 16 December 2015 for scrutiny and approval. Upon enactment of the Bill, the relevant tax provisions will apply from 1 April 2016.
BACKGROUND
Under the current tax law, interest expenses paid by a CTC in Hong Kong to a lender which is not a financial institution will only be deductible for Hong Kong profits tax purposes if the recipient is subject to Hong Kong tax for the corresponding interest income. Generally speaking, a CTC cannot claim a tax deduction for interest expenses paid to its overseas associated companies if the overseas associated companies do not carry on a business in Hong Kong and are not subject to Hong Kong profits tax. On the other hand, interest income received by the CTC from its borrowing from and lending of money to local and overseas associated companies would be chargeable to Hong Kong profits tax.
To remove the above mentioned obstacle and to provide a more tax-friendly environment for CTC operation, the Government propose to amend the law.
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