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. It is dependent on trade and as such 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 was the seventh largest trading economy in the world (2018), the seventh busiest container port (2018) and the world's leading air cargo transport centre (2018).
What solutions are available in Hong Kong?
|Treasury Centres||A centralised treasury is one way to reduce the tax burden, centralise risk management, improve liquidity and enhance yield on cash.|
|Interest Optimisation||Maximise your interest yield from for your balances held with the bank.|
|Notional Pooling||Cash balances in different accounts are notionally offset to derive the net balance, which is then used to calculate interest.|
|Sweeping/ Zero Balance Account (ZBA)||ZBA are checking accounts with zero balances where funds are physically swept to eliminate excess balances and maintain greater control over disbursements.|
|Intercompany loans||Similar to bank loans, intercompany loans refer to lending between entities within the same group.|
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. Here, we highlight some of Hong Kong's key benefits relevant to treasury and cash management.
Financial Market Development
- The World Economic Forum ranks Hong Kong second in the world for the stability of its financial system in The Global Competitiveness Report 2018.
- Hong Kong has strong and stable financial markets, coming sixth in the report for the soundness of its banks. It is also ranked second in the world for availability of credit and first for market capitalisation.
- Hong Kong has a good supporting business environment with a sound legal system, 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 160 licensed banks in Hong Kong, of which 130 are incorporated outside of Hong Kong, and 18 are restricted license banks, which are principally engaged in merchant banking and capital market activities. The total includes eight virtual banks, which were recently awarded licences.
- It has a mature and active foreign-exchange market, ranked fourth in the world by turnover (Bank for International Settlements triennial global survey 2019).
- 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. There was HKD1,845 billion outstanding in Hong Kong dollar denominated debt instruments at the end of 2018.
- 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.
- 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 are either exempted from profits tax or taxed at a reduced profits tax rate i.e. 50% from the prevailing profits tax rate.
- Qualifying profits from qualifying corporate treasury activities for corporate treasury centres (CTC) are taxed at a reduced profits tax rate i.e. 50% from the prevailing profits tax rate provided that at least 75% of the assets and profits must relate to the qualifying CTC.
- 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 40 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.
- The new Tax Policy Unit, which was set up to review Hong Kong's tax system to ensure competitiveness and to broaden the tax base, will now report directly to the Financial Secretary.
Benefits for Regional Treasury Centres
- Hong Kong allows tax deductions on interest paid by a Hong Kong CTC to its overseas associated corporations under certain conditions.
- Qualifying profits from qualifying corporate treasury activities for CTC 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 world's largest offshore renminbi centre.
- Hong Kong is the natural gateway both for multinational corporations looking to move into Mainland China and Chinese companies who are expanding internationally.
- The Outline development Plan for the Greater Bay Area sets out a range of measures to increase capital flow between Hong Kong, Macau and the nine cities in Guangdong Province, including the creation of a cross-border two-way RMB capital pool, and the introduction of cross-border RMB settlements.
- Hong Kong has a three-tier banking system comprising licensed banks, restricted license banks and deposit-taking companies, collectively known as authorised institutions.
- Licensed banks: Current and savings accounts available with no limit on size or maturity of deposits from the public; minimum capital requirement (including paid-up share capital and balance of share premium account) of HKD 300 million or equivalent.
- Restricted licensed banks: Accept minimum of HKD 500,000 in deposits from the public with no limits on maturity; minimum capital requirement (including paid-up share capital and balance of share premium account) of HKD 100 million or equivalent.
- Deposit-taking companies: Accept deposits of a minimum of HKD 100,000 with original maturity term or a call or notice period of three months; minimum capital requirement (including paid-up share capital and balance of share premium account) requirement of HKD 25 million or equivalent.
- Hong Kong has 160 licensed banks, 18 restricted licensed banks and 16 deposit-taking companies. There are also 46 foreign bank representative offices. The total includes eight virtual banks, which were recently awarded licences.
- Maintained by the Hong Kong Deposit Protection Board, the Deposit Protection Scheme (DPS) protects eligible deposits held with member banks in Hong Kong, and will pay compensation up to a limit of HKD 500,000 to deposit-holders if the bank holding the eligible deposits fails. All licensed banks, unless otherwise exempted by the Board, are required to participate in the DPS as scheme members.
- 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 Hong Kong Monetary Authority 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 HKD 7.80 to USD 1.
|FPS (Faster Payment System)||Hong Kong's Real-time, inter-bank fund transfer system|| |
HKD CHATS (Clearing House Automated Transfer System)
Hong Kong's Real Time Gross Settlement (RTGS) system
Settlement for USD transactions
Settlement for EUR transactions
Settlement for RMB transactions
CLG (Paper Cheque Clearing)
Cheque Imaging and Truncation System (CITS)
ECG (Electronic Clearing)
Settlement for low-value, bulk electronic payments
- 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.
- Main cards in use are Visa, MasterCard and China UnionPay (CUP). American Express and Diners Club cards are also in use. Depending on the card, payments can be made via swiping, chip insertion or a contactless system.
- Over 30,000 EPS terminals available in Hong Kong, Macau and Shenzhen that accept all three main debit cards, including CUP from China. Also processes RMB payments.
- 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.
- ETC Payment scheme is an electronic non-POS debit instruction service used mainly for payment of utility bills.
- Registration is required for use of PPS, a phone and online payment platform.
- 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. There are two types: the On-Loan Octopus Card, which requires a deposit for the card and allows a small negative value; and the Sold Octopus Card, which has no restrictions for use and a refundable outstanding value.
- The Fintech Supervisory Sandbox (FSS) was launched in 2016 by the HKMA to allow banks to pilot fintech projects without being constrained by regulation.
- The Faster Payment System (FPS), launched by the HKMA in September 2018, 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, email addresses and FPS IDs 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 also triggered government cooperation with industry to develop a common QR code.
- Mobile wallets, including wearable payment systems such as watches, are becoming a more common form of payment. The most popular mobile wallets are Apple Pay and Octopus O! ePay. China’s mobile wallets, Alipay and Wechat Pay, both operate in Hong Kong.
- Digital banking is growing in popularity, mainly through online banking facilities provided by the major banks. Mobile banking has had a slower uptake. There are digital-only mobile banking apps available, with the most popular being MYbank and WeBank.
- Octopus has launched a mobile wallet, an Octopus app, as part of its Smart Octopus system. In conjunction with Samsung Pay, consumers can use a tap-and-pay function with participating retailers. Taxis have the use of a mobile app with a QR (quick response) code to enable payments to be made by scanning Octopus cards.
- Octopus also has a funds transfer facility, Octopus O! ePay, which can make person-to-person payments as well as retail and online payments.
- Cryptocurrency is not banned in Hong Kong, but is defined by the government as a virtual commodity, not a currency. As such cryptocurrency exchanges and ICOs are not overseen by any financial regulatory body.
Cash, Cheques and Money Orders
- While Octopus cards are ubiquitous in Hong Kong for small transactions, cash still ranks as the top payment option amongst consumers.
- 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 HKD 100,000. It’s 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 available 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.
1 (Two-tiered) first HKD2 million of profits: 8.25%; remaining profits: 16.5%
2 (Progressive) max rate for incomes over HKD200,000
Slow Start for Virtual Banks
Virtual banks could launch their first products as early as the fourth quarter of 2019, the deputy chief of executive of the Hong Kong Monetary Authority (HKMA) has said. Arthur Yuen said the banks would likely start with a soft launch, with additional services rolled out gradually. The HKMA has so far granted eight virtual banking licences. The banks are initially expected to offer a simple selection of products that are focused on customer experience.
Read more about the development here.
Retailer Accepts Cryptocurrency Payments
Hong Kong home furnishing retailer Pricerite is now accepting payments by Bitcoin, Ethereum and Litecoin at its full-line stores in Kowloon Bay, Mong Kok and Causeway Bay. The group will convert payments made using cryptocurrencies into Hong Kong dollars in real-time at its checkouts. If customers are using a digital wallet that is compatible with Lightning the transaction can be completed in seconds. Pricerite claims to be the first large retail chain in Hong Kong to accept cryptocurrency payments.
Read more about the development here.
Consumers Embrace Digital Banking
Consumers in Hong Kong are opting for digital channels over physical ones to interact with financial services providers, according to a study by market research company Forrester Research. It found that 78% of people preferred interacting with banks through digital channels, with just 7% opting for a physical branch, in line with other Asia Pacific markets. But only 18% of consumers were ready to switch to a digital-only financial services provider, the lowest level in the region.
Read more about the development here.
Mobile Payment Services Gain Traction
The use of mobile payment apps is increasing in Hong Kong, driven by cross-border payments. The apps are particularly popular with the city’s migrant workers who use them to send money home. Tencent’s WeChat Pay has risen in popularity thanks to initiatives to enable Hong Kong shoppers to buy items in Mainland China and partnerships with cross-border payment hubs enabling it to offer remittance services. Digital payment solutions are also differentiating themselves through integration with platforms that enable customers to shop, book hotels and rides and order food.
Read more about the development here.
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Sources: World Economic Forum, Hong Kong Census and Statistics Department, Hong Kong Monetary Authority, PwC, International Monetary Fund, CIA World Factbook, Trading Economics, Organisation for Economic Co-operation and Development, Bank for International Settlements, Hong Kong Trade development Council.
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