The Central government has attached great importance to the Guangdong-Hong Kong-Macao Bay Area project, as part of its long-term national development plan. Corporates and individuals are seeking opportunities from this momentous regional economic collaboration.
PwC believes substantive support from local government will be an essential element for the success of the Bay Area development.
During President Xi Jinping’s visit to Hong Kong on the occasion of the 20th anniversary of the return of Hong Kong to China, the National Development and Reform Commission (NDRC), the People’s Government of Guangdong Province, the Hong Kong SAR and the Macau SAR, jointly signed the Framework Agreement on Deepening Guangdong-Hong Kong-Macau Cooperation in the Development of the Greater Bay Area.
It is reported that the Development Plan for the City Cluster in the Greater Bay Area has been formulated by the NDRC and other departments and will be announced in the near future.
The 11 cities in the Bay Area are at different stages in their growth. After several decades of development, there are significant variances in GDP per capita among the cities.
According to the forthcoming PwC study, "New Opportunities for the Guangdong-Hong Kong-Macau Greater Bay Area," GDP per capita in Hong Kong in 2016 had reached RMB 303,889, which is almost six times higher than that of the city with the lowest GDP per capital in the Bay Area (RMB 51,178).
Separately, as Hong Kong is a well-established financial hub in Asia, the level of foreign direct investment is much higher than in other Bay Area cities. Coupled with a different economic structure, there is a significant resulting imbalance of development in the Bay Area. However, from another perspective, these differences create a lot of opportunities for economic and cultural collaboration.
“By promoting system reform and providing incentives, it is practical to attract funds and talent from Hong Kong, Macau and other countries to the other cities in the Bay Area. This will propel the whole area’s economic development and make it the world’s largest bay area by 2030,” says Agnes Wong, Tax Partner, PwC Hong Kong.
Earlier this year, PwC proposed a set of strategic guidelines for Hong Kong industrialists hoping to excel in the Bay Area. The firm also recently submitted an advocacy paper to the HKSAR government which includes recommendations on improving tax policies that could benefit Hong Kong corporates and individuals running businesses in the Bay Area.
One of the key recommendations is to improve cross-border tax policies via bilateral agreements in order to facilitate the flow of capital, people, goods and services in the Bay Area. PwC suggests allowing Hong Kong companies to set up branches in the Mainland Bay Area to reduce their financing and tax burden on the Mainland.
Addressing the needs of individuals, one of the options that PwC suggests is that the income of Hong Kong residents who work and station in the Bay Area could be subject to reduced Individual Income tax of not more than 15% in the Mainland, and for those Hong Kong residents mainly live in Hong Kong and are employed by Hong Kong employers but need to frequently travel to work in the Bay Area could be subject to reduced IIT of not more than 15% or could be subject to Hong Kong salaries tax only.
PwC also suggests that the Mainland and HKSAR governments enter into a social security agreement so that Hong Kong residents who are required to make contributions to Hong Kong’s MPF scheme are exempt from social contributions in the Mainland.
The second key recommendation is to improve Hong Kong profits tax policies to promote innovation and technology. Profits tax exemptions or cuts could be offered to enterprises in encouraged industries such as software, pharmaceuticals, research and development centres and information services. Other forms of financial subsidy could also be considered.
The third area of recommendations looks at improving profits tax policies and provide incentives that attract foreign and Mainland corporations to set up their regional headquarters in Hong Kong, and nurturing talent for future business development in the Bay Area.
Jeremy Choi, PwC Hong Kong Tax Partner, concludes, “The aim of our recommendations is to encourage business activities across the Bay Area. It could reduce the tax burden of Hong Kong residents and corporates running businesses in the Bay Area, thus providing them with more resources on hand for research, development and marketing. We believe these suggestions can create greater opportunities and benefit the whole Bay Area.”