In 2013, the Hong Kong government announced it would extend its
offshore funds tax exemption. After extensive consultation with the
funds industry and its advisers, a draft bill is under review and
due to become law in June 2015.
The extension includes the following proposed changes for
investments will include private companies
purpose vehicles may be exempt from Hong Kong tax
decisions and management can take place in Hong Kong
advisers do not need to be licensed by Hong Kong's Securities
and Futures Commission
These changes should make the exemption more accessible to
private equity (PE) and real estate funds in Hong Kong, and have
been welcomed by the industry.
real estate funds miss out on current offshore
The offshore funds exemption, introduced in 2006, was designed
to attract international investors to Hong Kong. Provided certain
conditions are satisfied, profits are exempt from Hong Kong
One condition is that a fund makes only 'qualifying
investments'. These include shares in listed companies but not
private companies or Hong Kong real estate. While this works well
for hedge funds, many PE and real estate funds cannot benefit from
the exemption at all. To remain outside the Hong Kong tax net,
these funds need to limit activities in Hong Kong to basic
administration. All investment decisions and fund management must
take place offshore – not ideal for funds investing in the
expected to stimulate Hong Kong funds industry
Once the changes come into effect, fund formation and
administration in Hong Kong should be simpler, with streamlined
fund structures and less regulation. Funds will be able to manage
investments in Hong Kong while remaining outside the Hong Kong tax
net. They will also benefit from greater access to Hong Kong's
broad network of double tax treaties, in particular its treaty with
Meanwhile, the Hong Kong government has high hopes for the
extension. If it attracts more funds to Hong Kong as expected,
there should be increased demand for local asset management,
investment and advisory services. Combine this with Hong Kong's
existing financial and legal infrastructure, and Hong Kong is set
to secure its place as a leading centre of expertise for the funds
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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