KPMG proposes the introduction of a regional headquarter (RHQ) tax incentive in Hong Kong in its report titled ‘The Case for a Hong Kong RHQ tax incentive’ (the Report) that was released today.
The Report highlights the key locations in the Asia Pacific region that have been successful in attracting multinational corporations (MNCs) to establish RHQs and the factors that have led to their success.
One of the key factors contributing to the decision on where to set up an RHQ is tax. Although Hong Kong has a large number of MNCs with their RHQs established in the city, it does not have a specific tax incentive to encourage MNCs to consider Hong Kong as a location for their RHQs. Singapore on the other hand has considerably more RHQs than Hong Kong on the back of their RHQ tax incentive regime that is targeted at MNCs.
Ayesha Lau, Managing Partner of KPMG Hong Kong, says: “Our research shows that Singapore has historically been the clear leader in the Asia Pacific region as an RHQ hub for the world’s largest and technology focused MNCs. RHQs bring economic growth and development to where they are situated due to the accompanying investment, demand for local goods and services, and the employment of local personnel. Given the implications for economic growth and development, there is a clear economic imperative for Hong Kong to do more to attract RHQ establishment and narrow the gap between Singapore.”
Lau says of RHQ tax incentive frameworks: “An RHQ tax incentive framework is not a novel idea in the Asia Pacific region. Many of Hong Kong’s competitors in the Asia Pacific region for RHQ establishment, particularly Singapore, all have some form of RHQ incentive providing tax, commercial and regulatory benefits to RHQs. A Hong Kong RHQ tax incentive framework would ensure that Hong Kong is ultimately on a level playing field.”
Darren Bowdern, Partner and Head of Financial Services Tax KPMG Hong Kong, also talks of the need for Hong Kong to increase its competitiveness as a regional RHQ location: “Taxation is an important consideration for MNCs in considering the establishment of RHQs in the Asia Pacific region. Singapore has clearly been successful as an RHQ hub through the use of an incentive framework. Hong Kong needs to replicate Singapore’s success and implement an RHQ tax incentive to complement its strengths as a leading international financial centre and business hub. An RHQ tax incentive in Hong Kong would attract more MNCs to use Hong Kong as an RHQ hub and thereby increase Hong Kong’s status as an international business hub in the Asia Pacific region.”
The Report also outlines a broad RHQ tax incentive framework that is modelled off existing RHQ tax incentives offered in the Asia Pacific region.
Bowdern says: “The RHQ tax incentive would require a level of economic commitment and investment into Hong Kong from MNCs looking to benefit from the RHQ tax incentive, which would be to the benefit of Hong Kong’s economy. Additionally, we would expect that given the resulting increase in economic activity from an RHQ in Hong Kong, the RHQ tax incentive should over time be self-funding from increased tax revenue.”
Lau does not consider that the RHQ tax incentive would be facilitating tax avoidance: “The requirements for there to be a certain level of economic activity undertaken by the RHQ and the employment of suitably qualified professionals to qualify for the RHQ tax incentive means that there are ‘real people doing real things’ in Hong Kong. Accordingly, there should be commercial and operational substance in Hong Kong for all RHQs qualifying for the RHQ tax incentive. Furthermore, as a leading international financial centre and business hub, Hong Kong has many attributes that MNCs are naturally drawn to outside of tax. Consequently, the RHQ tax incentive should not be viewed as a tax avoidance tool, but more as a business facilitator, assisting in the reduction of RHQ establishment and maintenance costs.”
KPMG China operates in 16 cities across China, with around 10,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 152 countries and regions, and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.