Abacus | After G7 tax deal, here’s how Hong Kong can keep its edge

Hong Kong’s tax rates are among the lowest in the world, attracting family offices and wealth managers for the mega rich

But the city’s government may need to address a lack of whistle-blower protection and modern day slavery legislation if it is to remain competitive

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People are seen reflected in an awning next to office buildings in Hong Kong’s Central district on June 7. Photo: Bloomberg

Published: 7:00am, 21 Jun 2021Updated: 7:00am, 21 Jun 2021

THE RACE

A race to the bottom is never good news in any business context, as I and a former colleague discovered around 10 years ago when we decided to make the move out of stockbroking – and competing with brokers offering negative commission rates – to “value added” fee-based research, which they could not offer.

What reminded me of those difficult times, and prompted this article, was the agreement reached on June 5 by the G7 on minimum corporate tax rates.

Under a new proposal from the G7, every member country will be compelled to maintain a corporate tax rate no lower than 15 per cent. Even as this is working its way into binding rules that will prevent a tax “race to the bottom”, the member states of the G7, and soon the G20, have been told where the bottom will be.

Faced with big bills post Covid-19, governments will be looking at ways to boost tax revenues, and are likely to offer special tax deals to big businesses.

For example, London post-Brexit needs to secure its financial industry, which currently contributes 16 per cent of GDP, and it may use tax concessions to do that. Elsewhere, the Tokyo metropolitan government, led by Governor Yuriko Koike, has been waiting for a good reason to ring-fence the city’s Nihombashi district to offer supertax deals to asset managers looking to set up their headquarters there, or relocate from Singapore or Hong Kong.