On 9 September 2016, Hong Kong Inland Revenue issued Departmental Interpretation and Practice Notes No. 52 - Taxation of Corporate Treasury Activity, which covers the new interest deduction rules for intra-group financing and concessionary profits tax rate for corporate treasury centers as approved in Inland Revenue (Amendment) (No. 2) Ordinance 2016. The Ordinance enables, under specified conditions, the deduction of interest payable on money borrowed by a corporation carrying on an intra-group financing business in Hong Kong. It also provides for a concessionary profits tax rate of 8.25% (half the standard rate - 16.5%) for qualifying corporate treasury centers in Hong Kong. The main conditions are summarized as follows.
The interest deduction rule allows a corporate borrower carrying on an intra-group financing business in Hong Kong to deduct interest payable on money borrowed from a non-Hong Kong associated corporation, provided that:
For the purpose of the deduction, "intra-group financing business" in relation to a corporation means the business of the borrowing of money from and lending of money to its associated corporations.
The interest deduction rule applies to sums payable on or after 1 April 2016.
The concessionary tax rate (half rate) applies for corporate treasury centers (CTC) that are considered qualifying corporate treasury centers (QCTC). A corporation is considered a QCTC if:
Financial institutions are specified as ineligible to be a QCTC.
The concessionary tax rate for QCTCs applies from 1 April 2016. Any sums received or accrued before that date are not eligible.
Click the following link for Departmental Interpretation and Practice Notes No. 52 - Taxation of Corporate Treasury Activity for additional information and examples.
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