Corporate treasury centres in Hong Kong: the proposed two-tier tax regime

Context

A corporate treasury centre manages a group's cash, funding, foreign exchange and risk centrally, often lending surplus cash from one subsidiary to another. Hong Kong introduced a tax concession for qualifying corporate treasury centres in 2016, halving the profits tax rate on qualifying profits to 8.25% and relaxing interest deduction rules for intra-group lending.

The regime attracted some groups, but feedback from the market pointed to restrictive conditions and uncertainty. Requirements such as the "dedicated CTC condition", a safe harbour rule on the share of qualifying activity, and a "subject to tax" condition on interest paid to overseas associates were all cited as obstacles. Competing centres such as Singapore offer their own treasury incentives.

In June 2026, the government published an Action Plan to Promote the Development of CTCs in Hong Kong, built on a "4T" framework: tax revamp, tax agreements, targeted promotions, and talent and dialogue. The July consultation is the first concrete step on the tax side.

What is proposed

The consultation paper proposes a tiered regime.

Tier 1: refine and broaden the existing regime. The main proposals are:

• Allowing a CTC to defer the deduction of interest paid to a non-Hong Kong associate until the year in which that associate becomes taxable on the interest, where it is not taxed in the year of payment.
• Extending interest deductions to a broader range of companies, including those carrying on corporate treasury activities as a business.
• Clarifying legal and administrative points, such as the substantial activity requirement, the benchmark for intra-group financing and the definition of corporate treasury transactions.

Tier 2: a pre-approval mechanism. CTCs and associated companies that meet specified conditions could apply to the IRD for pre-approval, valid for five years. Pre-approved groups would gain:

• Exemption for the pre-approved CTC from the "dedicated CTC condition" and the "safe harbour rule".
• A 50% tax exemption on interest income that pre-approved Hong Kong associated companies earn from the pre-approved CTC.
• Exemption from the "subject to tax condition" for interest the CTC pays to pre-approved non-Hong Kong associates.
• Removal of the "anti-tax arbitrage rule" for pre-approved Hong Kong associates, allowing a full deduction for payments to the CTC, with interest deductions capped at 30% of EBITDA.

The Secretary for Financial Services and the Treasury described the proposals as designed to address the industry's pain points and to encourage multinational groups to bring their funds and core business to Hong Kong for centralised management.

Why it matters

Treasury centres are not glamorous, but they anchor real activity: cash pooling, funding decisions, foreign exchange hedging and staff. A group that runs its Asian treasury from Hong Kong also tends to use Hong Kong banks, advisers and markets.

The Tier 2 proposals are notable because they move from rigid conditions to a negotiated, pre-approved status. This mirrors approaches in other centres, where incentives are granted case by case in return for commitments on substance. The 30% EBITDA cap aligns with international norms on interest limitation and should fit within the Pillar Two environment.

For mainland groups expanding overseas, a Hong Kong treasury centre can also sit naturally between mainland operations and new markets in Southeast Asia, the Middle East and beyond.

The proposals are still at consultation stage, and the conditions for Tier 2 pre-approval have yet to be settled. Groups should also expect the IRD to look closely at how pre-approved arrangements interact with transfer pricing rules and with Hong Kong's global minimum tax regime, so modelling should cover both the concession and the wider group tax position.

Implications for investors, families and businesses

For multinational and mainland groups, the consultation is a chance to influence the final design. Groups that have avoided the current regime because of the dedicated CTC condition or safe harbour rule should consider whether Tier 2 would change their view.

For family-owned groups with operations in several countries, a treasury centre may become a practical option, provided the group can support the required substance in Hong Kong.

For investors, more treasury activity in Hong Kong supports demand for banking, foreign exchange and liquidity management services, and reinforces the city's role in regional corporate finance.

For existing CTCs, Tier 1 clarifications may resolve long-standing technical questions even before legislation passes.

Questions to consider

• Do we centralise cash and funding in Asia today, and where?
• Which current conditions have stopped us using the Hong Kong regime, and would the proposals remove them?
• Could we meet the conditions likely to apply for Tier 2 pre-approval?
• How would a 30% EBITDA interest cap affect our group financing?
• Should we submit comments before the 4 September deadline?

Closing

The proposed tiered regime is a meaningful upgrade to a concession that has underperformed its potential. The detail of the Tier 2 conditions, not yet legislated, will decide how attractive it becomes. Groups with an interest should engage now, while the design is still open.