HK treasury tax reforms should take effect in 2026/27: PwC

Firm calls for applications to open once bill is gazetted under proposed two-tier regime. 

The Hong Kong government has been urged to implement its proposed corporate treasury centre (CTC) tax enhancements from the 2026/27 year of assessment to encourage more funds to be placed with CTCs, PwC said. 

It also recommended that the Inland Revenue Department begin accepting applications as soon as the bill is gazetted to allow eligible companies to prepare for the new regime.

For multinational enterprise groups with significant cross-border operations and frequent fund movements, the proposed enhancements are likely to be particularly attractive, said  Rex Ho, South China Tax Leader and Asia Pacific Financial Services Tax Leader at PwC Hong Kong.

Ho added that the changes may also attract firms with a need to centrally manage group liquidity, foreign exchange, and interest rate risks.

The recommendations follow the government’s public consultation on reforms to the CTC tax concession regime, which proposes introducing a two-tier framework.

Under the proposal, businesses would be able to select a tier based on their operations. Tier 2 would offer additional tax benefits to pre-approved qualifying CTCs (QCTCs) and their associated corporations.

The proposed benefits include a five-year concessionary period with an option for renewal and a pre-approval mechanism that provides upfront certainty over tax treatment.

Pre-approved QCTCs would also be exempt from the standalone corporate entity requirement and safe harbour rules, meaning companies would not need to establish a separate legal entity to access the concession.

The government is also proposing to relax the conditions for interest deductibility for pre-approved QCTCs.

This would allow them to claim deductions for interest expenses even when an overseas associated lender that receives the interest does not pay cash tax locally, for reasons such as tax losses.

Ho said the change would address a significant pain point in the market.

Another proposal would provide a 50% tax exemption on interest income received by pre-approved Hong Kong associated corporations from a pre-approved QCTC.

PwC said the exemption is expected to encourage Hong Kong associated companies to place funds with QCTCs.

A CTC functions as an in-house bank for a corporate group, handling activities including centralised cash management, financing and risk management.

The proposed tax changes form part of the government’s Action Plan to Promote the Development of Corporate Treasury Centre in Hong Kong.