Treasury

How to Establish a Strategic Regional Treasury Center

An increasing number of companies are seeking to gain more control and efficiency in their treasury operations and mitigate financial risks by setting up regional treasury centers in Asia or EMEA—find out how you can, too.


For many businesses, Asia and EMEA are becoming strategic locations for growth and sales objectives. Companies that once preferred to keep corporate activities closer to their global headquarters are viewing these geographies not simply as good locations for performing low-cost or routine processing activities, but as ideal locations for establishing regional treasury centers (RTCs).

 

The Rationale for RTCs

An RTC is essentially a location where a business has centralized all its treasury operations. Doing so allows the business to optimize subsidiary funding costs, gain more control and efficiency in its treasury processes and mitigate financial risks. As a baseline, companies that set up an RTC do so because they're looking to achieve three key benefits:

  1. Enhanced operational efficiency: By simplifying processing, rationalizing bank accounts and negotiating lower transactional fees, companies can boost productivity and efficiency.
  2. Mitigated risk: By standardizing processes, leveraging technology, managing foreign-exchange risk and reducing finance costs, companies can enhance control and reduce their risk profile.
  3. Optimized capital: By reducing operating cash needs via centralized liquidity management and enhancing yield on available funds, companies can increase working capital and optimize liquidity.

Selection Criteria for Your RTC Location

The location of your RTC is important, as it helps to centralize activities in a business-friendly environment supported by good infrastructure, availability of general banking services, a large labor pool and relevant experts.

When selecting a location, companies should take into account their current footprints and future expansion plans, as well as their short-term and longer-term objectives. There is also a need for qualitative and quantitative analysis to determine an ideal location based on a company’s unique requirements. Key qualitative factors can include:

  • Foreign exchange convertibility
  • Ease of cross-border fund movements
  • Human resource availability
  • Reliability of the technology infrastructure
  • Availability of support services, such as access to consultants and tax experts
  • Capabilities of banks in the market

Quantitative factors can include:

  • Tax profile (e.g., corporate, withholding)
  • Double tax treaty network
  • Foreign tax credit
  • Thin capitalization rules

Key RTC Locations in Asia Pacific

Singapore and Hong Kong are often considered the most attractive locations for RTCs in Asia. However, other locations such as Thailand and Malaysia are increasingly relaxing and refreshing their incentives and regulatory restrictions in order to attract companies that can compete with their established counterparts. The Shanghai Free Trade Zone (FTZ) is seen as facilitating trade flows and not necessarily as an RTC location, based on announcements thus far.

Key RTC Locations in EMEA

There are a number of attractive locations for RTCs in Western Europe, including the United Kingdom, Ireland, the Netherlands and Switzerland. As you determine which location is best for your business, make sure to take into account the distinct differences in politics, taxes, controls and the macro environments of each country you're considering.

Is An RTC Right for You?

Companies looking to implement an RTC should conduct internal assessments that factor in industry, geographical footprint, business objectives and future expansion plans. Furthermore, there is a need for a location analysis, given the dynamic nature of incentive schemes and economic and political changes, which have resulted in regulatory and tax regime complexity. In addition to senior management buy-in to support the change, a robust business case and superior execution capability are necessary when implementing an RTC to ensure sustainability and scalability of services to participating entities.
 


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