Despite being the world’s fifth busiest container port, Hong Kong as a maritime cluster encounters a keen competition from other world cities, according to a paper released by the Financial Services Development Council (FSDC). The paper examines Hong Kong’s strengths and weaknesses in this global competition and recommends strategies for Hong Kong to ensure growth.
As explained, Hong Kong’s strengths lie in:
- its status as an international financial centre, its established common law system,
- its world-class port,
- its proximity to major sources of and markets for goods,
- its stable and competitive tax environment for shipping companies, and
- its young, well-educated workforce.
Its well-run shipping registry is also an asset, but its marginal value in deepening the Hong Kong maritime cluster has declined over time, the report adds.
Hong Kong lags behind other major shipping centres in building a base for commercial principals, such as shipowners, lessors, carriers, investors, operators, and shipmanagement companies. If more of these principals are attracted to Hong Kong, related service providers will follow. Many tonnage providers around the world continue to search for an Asian base of operations. At the same time, many Mainland China vessel leasing companies with all or part of their fleet based or registered outside Mainland China in low tax jurisdictions are looking into housing their offshore ownership operations in respectable jurisdictions with a stable tax and legal environment, along with other considerations. All these activities present a real opportunity for Hong Kong.
One step to attract maritime players to set up and conduct business in Hong Kong is to make it easier for commercial principals to move key employees to Hong Kong, to facilitate the interaction between various different government departments and regulators, and to help the Marine Department to enhance its service and deal with its increased workload as a result of the enormous expansion of the ship register.
Another step is to raise Hong Kong’s global profile to be a leader in the development of Belt and Road Initiative, while a transparent and consistent tax policy seems also vital. Some jurisdictions offer more 2 tax concessions and have more double tax agreements than Hong Kong does, so there is room for improvement, FSDC notes.
Hong Kong needs to structure a program that combines its friendly legacy tax policy for global shipping, its core competency as a financial centre, and its deep balance sheet in order to attract more shipping activities to be based in Hong Kong. The reliance on tonnage size in the local ship register is not enough.
Recommendations
To develop a significant maritime financing and leasing industry in Hong Kong, the FSDC recommends:
- Capture more commercial principals, capital providers and lessors who have meaningful activities in Hong Kong by ensuring the stability, consistency and transparency of Hong Kong’s section 23B tax regime.
- Offer credit and liquidity enhancement products by a sovereign-rated financial institution (SRFI). An SRFI may support and endorse market-based and market tested credit and liquidity enhancement products and offer the products to qualified investors.
- Ensure full consultation with the industry in implementation of OECD’s Base Erosion and Profit Shifting (BEPS) package. As a participating jurisdiction, the Government, through the Inland Revenue Department, is reviewing its tax regime on shipping, and will take into account a number of factors, including whether the regime requires substantial activities. Given that section 23B has been the bedrock of the maritime activities in Hong Kong, the Government needs to conduct a full and deep consultation with the industry during its tax review.
- Encourage the growth of shipping and maritime-related support and management services. This can be done by including relevant business activities carried out in Hong Kong in a standalone tax regime under which the tax rates are competitive with other maritime centres.
- Nurture talent in the maritime cluster. Leverage the Government’s initiatives, such as the Maritime and Aviation Training Fund (MATF), to reassess and/or develop policies to train and grow local talent and attract skilled labour from overseas to grow Hong Kong’s group of professionals with expertise in the maritime cluster.
- Conclude more double tax agreements (DTAs) with major shipping jurisdictions. Hong Kong does not have DTAs with several jurisdictions that are important to Hong Kong shipping industry such as Australia and Brazil. As a consequence, cargo carried on Hong Kong-registered vessels may be subject to freight taxes which do not apply to vessels registered in some other jurisdictions.
- Support international participation. The Government should support Hong Kong-based organizations and companies in participating in and contributing to international industry bodies with a global footprint to enhance its position as a responsible centre of industry expertise and the leader in the development of the Belt and Road Initiative.
- Upgrade the Hong Kong Maritime and Port Board, or create a centralized Maritime Office. This is for overseeing and coordinating maritime policies, regulations and initiatives, and regular quality reviews for the Hong Kong Ship Registry, as well as acting as a channel for private sector input for public policy formulation.
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