Hong Kong

            

Introduction

 

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 to 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 corporates) and renminbi liquidity make it an attractive destination as a treasury centre.

It has 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 eighth largest trading economy in the world (2016), the fourth busiest container port (2014) and the world's leading air cargo transport centre (2016).

 

           

  

What solutions are available in Hong Kong?

Solution Description
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.
In-house Banks (IHB) In-house banks provide corporate treasurers with another method of centralising and consolidating their business.
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 third in the world for financial market development in The Global Competitiveness Report 2015-2016.

  • It states Hong Kong’s financial sector is very well developed, with a high level of sophistication, trustworthiness and stability, and relatively good availability of credit.

  • 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 largest 100 banks operating in the SAR.

  • It has a mature and active foreign-exchange market, ranked fourth in the world by turnover (Bank for International Settlements triennial global survey 2016).

  • 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.

 

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 include promoting the stability and integrity of the financial system, including the banking system.

 

Tax

  • Profits tax of 16.5% is charged on profits arising in or derived from business carried out in Hong Kong, with a 50% discount for specific treasury activities.

  • Interest income from bank accounts is not taxable in Hong Kong for most corporate taxpayers.

  • Stamp duty of 0.1% (rounded up to the nearest dollar) is charged on stock transaction for securities listed on the Stock Exchange of Hong Kong.

  • Hong Kong has tax treaties with more than 40 countries.

  • A new Tax Policy Unit, announced in the budget on 22 February 2017, is being set up under the Financial Services and Treasury Bureau, to review Hong Kong's tax system and ensure it remains competitive, and to broaden the tax base.

 

Benefits for Regional Treasury Centres

  • Hong Kong offers tax deductions on interest paid by a Hong Kong corporate treasury department to its overseas associated corporations under certain conditions.

  • There is a concessionary tax rate of 8.25% on qualifying profits for qualifying corporate treasury centres.

  • 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.

 

Banking

 

Banking System

  • 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 156 licensed banks, 22 restricted licensed banks and 17 deposit-taking companies. There are also 55 foreign bank representative offices.

  • 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.

 

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 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.

 

      

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 PVP (payment versus payment) 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.

 

 

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 (autodebits)

  • 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.

 

Cheques

  • 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.

  • 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.

 

Card Payments

  • Main cards in use are Visa, MasterCard and China UnionPay (CUP). American Express and Diners Club cards are also in use.

  • Over 30,000 EPS terminals available in Hong Kong, Macau and Shenzhen that accept all three main 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 an e-money 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.

 

Demographics

 

Recent Developments

 

Faster Payment System to be Launched

The Hong Kong Monetary Authority (HKMA) has said its Faster Payment System (FPS) will be launched in September, covering 20 banks and eight e-payment operators. The FPS will enable payments to be made in both Hong Kong dollars and renminbi using mobile phone numbers and email addresses. The move is one of seven initiatives launched by the HKMA to usher in a new era of smart banking.

Read more about the development here.:

 

Innovative Industries Receive HKD50 billion Boost

The Government has ear-marked HKD50 billion to invest in innovation and technology in Hong Kong in the coming year. In his 2018 Budget speech, Financial Secretary Paul Chan said the money would be used to boost the growth of innovative and creative industries as well as to fund research and development. It will be targeted to four specific areas: biotechnology, artificial intelligence, developing a smart city and FinTech.

Read more about the development here.

 

FinTech Investment More Than Doubles

Investment in Hong Kong-based FinTech firms more than doubled in 2017 to stand at USD545.7 million, according to consultancy firm Accenture. The rise in investment was attributed to not only the adoption of FinTech solutions by banks - giving firms in the sector a steady stream of income which in turn makes them more attractive to investors - but also efforts by the Government and regulators to encourage innovation. The sector received higher levels of funding than both Singapore and Australia during the year.

Read more about the development here.

 

 

This Market Profile is brought to you by DBS. Get in touch with us for further insights on doing treasury in Hong Kong and take advantage of our innovative solutions to emplower your business. Click here to find out more.

 

 

Sources: IMF World Economic Outlook database, October 2016; CIA World Factbook; Trading Economics; PwC

Please note that the information contained in this document, assembled based on information available and accurate as at July 2017, is of a general nature only and is subject to change whether for economic, political, social or other reasons.

 

Last updated on 20 May 2018