Hong Kong

Corporate Treasury & Cash Management in Hong Kong

Corporate Treasury & Cash Management in Hong Kong

At a glance

About Hong Kong 

Hong Kong has one of the highest concentrations of financial institutions in the world, supported by an established financial sector, mature capital markets and a wide variety of sophisticated financial instruments. As a special administrative region of China, it provides a broad range of services for doing business in China and is the main offshore centre for renminbi. Its proximity to China (and to Chinese corporations) and renminbi liquidity make it an attractive destination as a treasury centre. 

It has a highly developed regulatory and legal infrastructure and a tax system conducive to financial and currency activity for all levels of investor. Trade is a key pillar of the economy, and as such Hong Kong offers attractive tax incentives, with no tariffs on imports, and levies excise duties on only four commodities. 

Hong Kong has well-established trade, shipping and logistics industries, and is one of the world’s largest exporters—ranked fourth by USD value according to WITS (World Bank’s World Integrated Transit Solution). Hong Kong is the eighth busiest container port (2020) and the world's leading air cargo transport centre (2020), as ranked by Lloyd’s List and Airport Councils International, respectively. 

Corporate Treasury in Hong Kong 

The Hong Kong Special Administrative Region (HKSAR) of China offers a number of competitive advantages for setting up a treasury function. In this section, we highlight some of Hong Kong’s key factors relevant to treasury and cash management. 

 Financial Market Development 

  • Hong Kong is ranked fourth in the 2021 Global Financial Centres Index by Z/Yen Group. 
  • Hong Kong is ranked third in The World Bank’s Ease of Doing Business 2020 Index. 
  • Hong Kong has a good supporting business environment, a high level of qualified supporting professionals and international regulatory standards. 
  • There are no restrictions on capital flows in and out of Hong Kong. 

Sophistication of Banking Systems 

  • Hong Kong has one of the highest concentrations of banking institutions in the world, with 70 of the world's 100 largest banks operating in the SAR. 
  • There are over 160 licensed banks in Hong Kong, of which 131 are incorporated outside of Hong Kong. Of the 31 banks incorporated inside Hong Kong, eight are virtual banks. There are 16 restricted license banks, which are principally engaged in merchant banking and capital market activities. 
  • It has a mature and active foreign-exchange market, ranked fourth in the world, according to the Bank for International Settlements triennial global survey. 
  • Hong Kong's debt market has developed into one of the most liquid in the region, and it has the leading global renminbi bond market outside of China. Outstanding local currency bonds stood at HKD2,445.7 billion at the end of March 2021. 

Regulatory Bodies 

  • The Hong Kong Monetary Authority (HKMA) is the governing authority in Hong Kong that is responsible for maintaining monetary and banking stability. One of its main functions is to promote the stability and integrity of the financial system, including the banking system. It also acts as the de facto central bank. 

Tax 

  • Profits tax of 8.25% is charged on the first HKD2 million of taxable profits, with 16.5% charged on the remainder of profits in excess of HKD2 million arising in or derived from business carried out in Hong Kong. However, a group of connected entities in Hong Kong can only nominate one entity within the group to benefit from the reduced tax rate. 
  • Both resident and non-resident companies are taxed on their Hong Kong-sourced income. 
  • Incomes from qualifying debt instruments issued before 1 April 2018 are either exempted from profits tax or taxed at a reduced profits tax rate i.e. 50% from the prevailing profits tax rate. 
  • There is no value added tax or goods and services tax regime in Hong Kong. 
  • Interest income from bank accounts is not taxable in Hong Kong for most corporate taxpayers. Interest income from intra-group financing in Hong Kong is subject to profits tax. 
  • There are no thin capitalisation rules in Hong Kong. 
  • Stamp duty of 0.2% (0.1% for buyer and 0.1% for seller) is charged on stock transactions for securities listed on the Stock Exchange of Hong Kong. 
  • There is no capital gains tax in Hong Kong. 
  • Dividends from local companies are tax exempt. Dividends from overseas companies are considered offshore and not subject to tax. 
  • Unrealised exchange losses are tax deductible, while unrealised profits are taxable if they are Hong Kong sourced. 
  • There is no withholding tax on payment of dividends or interest to non-resident companies. 
  • Hong Kong has tax treaties with more than 45 markets. 
  • Hong Kong is a signatory to the Organisation for Economic Co-operation and Development’s Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations, to provide a single, global picture on some key indicators of economic activity within multinational enterprises. 
  • A Tax Policy Unit, which will review Hong Kong's tax system to ensure competitiveness and to broaden the tax base, has been set up and will report directly to the Financial Secretary. 

Benefits for Regional Treasury Centres

  • Hong Kong allows tax deductions on interest paid by a Hong Kong Corporate Treasury Centre (CTC) to its overseas associated corporations under certain conditions.
  • Qualifying profits from qualifying corporate treasury activities for CTCs are taxed at a reduced profit tax rate i.e. 50% from the prevailing profits tax rate provided that at least 75% of the assets and profits relate to qualifying corporate treasury activities.
  • Cash concentration and notional pooling are available in Hong Kong on domestic and cross-border bases. Different entities can use the same cash concentration or notional pooling structure.
  • Hong Kong is the natural gateway both for multinational corporations looking to move into Mainland China and Chinese companies who are expanding internationally.
Banking

Bank Accounts 

  • Residents and non-residents: Foreign and local currency accounts are available to both residents and non-residents living locally or overseas. Domestic accounts are freely convertible to foreign currency. Overdraft facilities are available for both, and for Chinese (RMB) accounts.
  • Interest: Available for current, time deposit and demand accounts.

 Legal and Regulatory 

  • The HKMA acts as a central bank and is responsible for banking and monetary control of the HKSAR.
  • The Hong Kong dollar (HKD) is the official currency; it is pegged to the US dollar with a fixed convertibility of approximately HKD7.80 to USD1.
Payments

Payment systems 


HKD CHATS (Clearing House Automated Transfer System) 

 Hong Kong's Real Time Gross Settlement (RTGS) system 
  • Operated by Hong Kong Interbank Clearing Ltd (HKICL), a private company jointly owned by the HKMA and the Hong Kong Association of Banks (HKAB). 
  • Linked to payment versus payment (PVP) mechanism whereby USD/HKD and EUR/HKD transactions are settled. 


USD CHATS 

 Settlement for USD transactions 
  • Operated by HKICL. 
  • Linked to PVP whereby USD/EUR, USD/CNY, USD/HKD, USD/MYR and USD/INR transactions are settled. 


EUR CHATS 

 Settlement for EUR transactions 
  • Operated by HKICL. 
  • RTGS for EUR payments. 
  • Linked to PVP whereby USD/EUR and USD/HKD transactions are settled.


RMB CHATS 

 Settlement for RMB transactions 
  • Operated by HKICL. 
  • RTGS for RMB payments. 
  • Linked to PVP whereby USD/RMB and EUR/RMB transactions are settled. 


CLG (Paper Cheque Clearing) 

 Cheque Imaging and Truncation System (CITS) 
  • Operated by HKICL. 

ECG (Electronic Clearing) 

 Settlement for low-value, bulk electronic payments 
  • Operated by HKICL. 


FPS (Faster Payment System) 

 Real-time, inter-bank fund transfer system 
  • Launched by HKMA, September 2018. 
  • Open to all banks and operators of stored value facilities (SVF). 
  • Enables person-to-merchant (P2M) and person-to-person (P2P) credit or debit transactions using mobile numbers or email addresses.

 

Payment Instruments 

Credit Transfers 

  • Used for salary and supplier payments as standing orders. 
  • High-value, urgent payments in HKD settled via HKD CHATS on the same day. 
  • Low-value, non-urgent payments in HKD settled via ECG. 
  • USD, RMB and EUR-denominated payments are usually settled via USD CHATS, RMB CHATS AND EUR CHATS, respectively. 
  • Electronic Bill Presentment and Payment (EBPP) platform settles HKD, USD and RMB electronic bill payments as straight-through-processing transactions between merchants and individuals or companies on a domestic or cross-border basis. 

Direct Debits (auto debits) 

  • Used for low-value, regular payments, e.g. utility bills. 
  • Possible to set up RMB autodebits. 
  • Settled via ECG whereby payments are cleared on Friday and settled on Monday. 

Card Payments 

  • There are eight payment card scheme operators in Hong Kong, including Visa, MasterCard, UnionPay, American Express and JCB. Depending on the card, payments can be made via swiping, chip insertion or a contactless system. 
  • According to the HKMA, credit card use is much more widespread than debit cards, with 2.62 credit cards per capita and 0.82 debit cards per capita. 
  • The Electronic Payment System (EPS) is a widely established point-of-sale debit system that is linked to 20 banks in Hong Kong and Macau. They also offer a phone and online bill payment system called PPS. 
  • JET Payment scheme operates an electronic non-point of sale (POS) instruction service through JETCO (Joint Electronic Teller Service Ltd) via JETCO ATMs (approximately 3,000 in Hong Kong, Macau and mainland China), accessible through ATM cards by JETCO member banks. Also accessible on the internet. 
  • The Octopus Card is a pioneering stored-value card and is widely used for payments in the transport and retail sectors. The card can be topped up at authorised outlets, including all MTR train stations and numerous shops, or via the Octopus app or FPS (as seen below). Octopus has expanded its consumer range to include Cross Border, On-Loan and Bank Co-Branded cards. 

Online Payments 

  • The Faster Payment System (FPS), launched by the HKMA, is open to all Hong Kong banks and operators of stored value facilities (SVF), and offers P2M and P2P real-time fund transfers. Mobile numbers and email addresses can be used as account identifiers. 
  • FPS is part of the HKMA’s seven initiatives to foster a New Era of Smart Banking and has triggered government cooperation with industry to develop a common QR code. 
  • The Fintech Supervisory Sandbox (FSS), also part of HKMA’s seven initiatives, was created to allow banks to pilot fintech projects and receive feedback without being constrained by regulation.  
  • With an annual growth rate of over 30%, digital wallets are forecast to overtake cards as the primary e-commerce payment method in Hong Kong. Market leaders in digital wallets include AlipayHK, WeChat Pay, PayMe and Tap & Go. 

Digital Currencies 

  • While cryptocurrency is not banned in Hong Kong, as of late 2021, recent moves within China (banning cryptocurrency activities) have clouded prospects for cross-border business. The Hong Kong government classifies cryptocurrency as a virtual commodity, not a currency. As such cryptocurrency exchanges and initial coin offerings (ICO) are not overseen by any financial regulatory body. 

Cash, Cheques and Money Orders 

  • While Octopus cards are ubiquitous in Hong Kong and digital wallet use is increasing, cash still ranks as the top payment option amongst consumers, especially for small transactions. 
  • Cheques are converted into electronic form and then cleared through CLG system. The physical cheque must be presented at the bank if the amount exceeds HKD100,000. It is possible to deposit a Hong Kong e-cheque in Guangdong (including Shenzhen) for next-day settlement.  
  • Possible to process RMB-denominated cheques through RMB CHATS for local or cross-border payments with China. 
  • Possible for USD and HKD dollar cheques issued in Hong Kong to be presented in Shenzhen Special Economic Region, Macau and 19 cities in Guangdong, China, to be cleared via the CLG system as well as other institutions in Guangdong and Shenzhen; funds are available the next day. 
  • Money orders are available in Hong Kong through vendors such as Western Union and MoneyGram. Money can be sent domestically or internationally, either online or in person. Hongkong Post also offers remittance services as well as PayThruPost for bill payments. 

Foreign Exchange (FX) 

Hong Kong is the leading regional financial centre in Asia and the world’s largest offshore renminbi pool. There are no foreign exchange (FX) controls in place.  

FX Landscape 

  • The official currency of Hong Kong, HKD, is fully convertible domestically and offshore. 
  • Hong Kong’s monetary policy is set and managed by regulator the Hong Kong Monetary Authority (HKMA). The HKMA also sets interest rates, although these are primarily influenced by US interest rates as the HKD is pegged to the USD. 
  • The exchange rate of the HKD is pegged to the USD in a tight trading band of HKD7.75 to HKD7.85 to USD1. The HKMA maintains the exchange rate within this band by controlling the supply and demand of HKD. 
  • Hong Kong is the fourth largest FX centre globally after London, New York and Singapore, according to BIS. 
  • Hong Kong is the world’s largest offshore renminbi centre. Its RMB RTGS system handles RMB transactions. 

FX Management 

  • Resident companies can have accounts denominated in both local and a wide range of foreign currencies both onshore and offshore. 
  • Non-resident companies may also hold accounts in both local and foreign currencies. All accounts can be converted into other currencies. 
  • Companies are not required to convert their foreign currency receipts into HKD. 
  • Both resident and non-resident companies can borrow in a wide range of foreign currencies, including RMB. 
  • A wide range of products to help companies manage FX risk are available in Hong Kong, including FX options, FX spot and FX forward, non-deliverable forward, cross currency swap and structured forwards. 

Exchange Controls  

  • There are no restrictions on capital flows in and out of Hong Kong. No prior approval is required for inward investment or outward payments. 
  • There are no restrictions on the remittance of profits or dividends in any currency to other countries. No withholding tax is charged on dividends. 
  • Domestic and cross-border intercompany lending is allowed, subject to transfer pricing rules. 
  • Foreign currency invoices are allowed but must be converted into HKD for tax purposes. 
  • The Outline Development Plan for the Greater Bay Area (GBA) has set out a number of initiatives to increase the capital flow between Hong Kong, Macau and cities in the GBA. These measures include establishing the creation of a cross-border two-way RMB capital pool, and the introduction of cross-border RMB settlements and interbank lending. RMB foreign exchange spot and forward business, as well as related RMB derivatives products are also allowed.  

Trade 

Trade accounts for one of the four key pillars of Hong Kong’s economy. Hong Kong is a free port. Its largest trading partners are China, the US, and Taiwan, as measured by imports and exports in Hong Kong dollars. 

Trading Landscape 

  • Hong Kong was the eighth busiest container port and the world’s leading air cargo transport centre in 2020. 
  • Hong Kong is a free port with no trade barriers and no tariffs. As a result, there is no need for specific free trade zones. 
  • Hong Kong’s main imports are machinery and transport equipment, miscellaneous manufactured articles and manufactured goods. 
  • Hong Kong was a founding member of the World Trade Organisation. It continued its separate membership after its return to China in 1997, under the name Hong Kong, China. 
  • The Hong Kong Trade Development Council (HKTDC) is a statutory body that works to create trade opportunities for Hong Kong businesses. It has more than 50 offices around the world. 
  • Under Hong Kong law, companies must comply with the United Nations Sanctions Ordinance (Cap 537), which imposes sanctions on 13 countries and organisations. Alongside prohibitions on supplying certain products, such as military equipment, to these countries, certain financial transactions are also not allowed. 

Import Regulations 

  • Import licences are not required for the majority of goods. Certain goods, including biological materials, animals, birds and reptiles or their parts, and controlled chemicals, do require a licence. Where import licences are required, it is to fulfil Hong Kong’s obligations to its trading partners, or to meet public health, safety or internal security needs. Licensing procedures have been made as simple as possible. 
  • If certain conditions are met, shipping companies, airlines and freight companies that are registered with the Trade and Industry Department are exempt from the licensing requirements for transhipments. 
  • Hong Kong is a free port and no tariffs are charged on imported goods. Excise duty is levied on only four commodities, namely tobacco, liquor, methyl alcohol, and hydrocarbons. 
  • There are no financing or risk mitigation requirements for imports into Hong Kong. Import insurance and financing is widely available, with options including letters of credit, import loans, documentary collections, trade receivables and import factoring.  

Export Regulations  

  • Export licences are not required for the majority of goods. Certain goods, including biological materials, animals, birds and reptiles or their parts, and controlled chemicals do require a licence. Where export licences are required, it is to fulfil Hong Kong’s obligations to its trading partners, or to meet public health, safety or internal security requirements. The licensing process has been made as simple as possible. 
  • If certain conditions are met, shipping companies, airlines and freight companies that are registered with the Trade and Industry Department are exempt from the licensing requirements for transhipments. 
  • Hong Kong is a free port and no tariffs are charged on exported goods. 
  • There are no export financing requirements in Hong Kong. Export finance solutions are widely available, with options including letters of credit, export loans, documentary collections, trade receivables and export factoring.  
  • There are no risk mitigation requirements for exports from Hong Kong. Export credit insurance is widely available, including from the Hong Kong Export Credit Insurance Corporation, which is backed by the government. 

For more information, login to Treasury Prism for contextual insights on market regulations that are relevant to your cash management structure.

Sources (Banking & Payments) 
Fintech News Hong Kong, Hong Kong Monetary Authority, JPMorgan, SCMP 

Sources (Foreign Exchange) 
Hong Kong Monetary Authority, Bank for International Settlements, PwC 

Sources (Trade) 
The Trade and Industry Department, the Hong Kong Government, Lloyd’s List, Customs and Excise Department 

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