Maintaining a competitive tax system | KPMG | CN
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Maintaining a competitive tax system

Maintaining a competitive tax system

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In her maiden Policy Address on 11 October 2017, Hong Kong’s Chief Executive, Carrie Lam, stressed the importance of taxation policies to further enhance Hong Kong’s competitiveness. As such, we expect the government to introduce more policy initiatives and programmes, some of which are listed below, to maintain Hong Kong’s position as Asia’s leading international business centre.

  • Islamic bonds (2013)
  • BEPS – modifying existing tax incentives*
  • Offshore funds exemption (2015)
  • R&D super deduction**
  • Taxation of corporate treasury centres (2016)
  • Group tax loss relief**
  • Two-tier tax system*
  • Automatic exchange of information (2016)
  • Regional headquarters**
  • Tax Treatment of Regulatory Capital Securities (2016)
  • Taxation of aircraft leasing activities (2017)

*   Pending legislation
** Proposal

 

One of the proposed tax initiatives is the introduction of a regional headquarters (RHQ) tax regime in Hong Kong. KPMG China believes that the RHQ tax incentive would greatly enhance Hong Kong’s competitiveness as an RHQ location in the Asia Pacific region. RHQs can bring increased foreign investment, prestige, demand for local goods and services, and local employment. It would also complement the corporate treasury centre (CTC) tax incentive recently introduced in Hong Kong. The implementation of the RHQ tax incentive will ensure that Hong Kong maintains its competitive position as a leading regional business and financial hub.

To incentivise RHQ establishment in Hong Kong, KPMG China proposes the following core features:

  • Provide a 50% Profits Tax rate reduction (8.25%) for all qualifying RHQ profits, in line with the CTC regime
  • Earn arm’s length profits from performing regional management and coordination services to related group companies
  • Undertake a certain level of expenditure and investment into Hong Kong with respect to the RHQ activities
  • Employ suitably qualified local professionals to perform the RHQ’s core functions.

Further details can be found in KPMG China’s publication, The case for a Hong Kong RHQ tax incentive.

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