Singapore: a strategic regional treasury location
Going beyond taxes
Over the last few decades, multinational corporates have been centralizing their treasury functions across various legal entities and geographical jurisdictions. The aim is to effectively meet the needs of the business operations, optimize the working capital, improve visibility on liquidity positions, reduce external borrowings, and hedge currency and interest rate risks.
With the growing treasury demands and as global economies become increasingly influenced by the rise of the “Asian Century”, multinational corporates have become more focused in expanding their global or regional treasury footprint within Asia.
Hong Kong and Singapore have emerged as the top two regional treasury locations Asia. The EY report Singapore: a strategic regional treasury location examines the primary and secondary factors that influence multinational corporates in their decision to locate their regional treasury in Singapore.
The presence of the Finance and Treasury Centre (FTC) tax incentive in Singapore had played a key role in encouraging treasury centers to select the city-state as the location. However, a similar incentive introduced by Hong Kong in 2015-16 had leveled the playing field.
They study found that proximity to the regional business headquarters and a well-developed financial ecosystem are important primary factors in influencing the decision on treasury location. The availability of tax incentives is a secondary consideration.
Proximity to regional business headquarters
Proximity to the regional headquarters where the regional management resides allows for better engagement with the leaders as the corporate treasuries plan the funding and investment requirements over a long-term horizon, balance the intercompany lending and borrowings across different entities and markets and manage the central and in-country banking relationships in the most efficient manner.
With 4,200 regional headquarters based in the city-state, Singapore is home to the largest number of regional headquarters in Asia-Pacific, followed by Hong Kong with 1,389 regional headquarters.
Hong Kong is seen as a preferred regional business headquarter for companies that have a heavy focus on China, while Singapore is preferred by those that look to serve the wider Asia-Pacific region.
Depth and breadth of financial ecosystem
The depth and breadth of the financial ecosystem in the treasury location is also critical as regional treasuries seek to tap on solutions for funding and hedging needs, and advisory for managing investments and cross-border flows. Integration and interaction with the wider finance ecosystem is important and valuable, as it promotes the conduct of more sophisticated treasury activities in hedging, risk management and foreign exchange transactions.
The other key criteria that play an important role in treasury location decisions are:
- Legal and regulatory system: A strong legal system is necessary to ease management of business contracts and relationships, given cross-border treasury activities.
- Political stability: Political stability allows for greater consistency and predictability of long-term economic policies.
- Tax system and availability of incentives: A simple and efficient tax system as well as a strong tax treaty network to mitigate the impact of double taxation.
- Diverse workforce and talent: The availability of relevant skilled resources and quality of the workforce.
- Livability: The ease of relocation, lifestyle and ability for families of talents to adjust easily.
For more, download a copy of the report.