Private Fund Tax Exemption
In its efforts to remain a global leading financial hub, Hong Kong has now unified it’s tax exemptions for funds.
Publicly-offered funds
HK Profits Tax exempts profits in respect of a publicly-offered fund (regardless of where the central management and control located) authorized by SFC or similar bona fide widely held investment schemes which comply with the requirements of a supervisory authority within an acceptable regulatory regime*.
*Acceptable Regulatory Regime would indicate any fund regulated in a jurisdiction identified by the SFC in the Code of Unit Trusts and Mutual Funds as a “Recognized Jurisdiction Scheme”. A full list can be found in below link: https://www.sfc.hk/-/media/files/PCIP/List-of-RJS/List-of-RJS_Eng_20210120.pdf
Privately-offered funds
Effective from 1 April 2019, the below will become irrelevant factors as to taxability of profits received from a privately-offered fund:
– Structure, size and purpose of fund
– Location of central management and control of fund
HK Profits Tax exempts profits from qualifying transactions (and incidental transactions#) of a privately-offered fund, with either one of the below conditions satisfied:
– Those transactions in securities, shares, stocks, debentures, loan stocks, funds, bonds, or notes of, or issued by private company, future contracts, foreign exchange contracts, deposits^, bank deposits, certificates of deposit, exchange-traded commodities, foreign currencies, OTC derivative products are arranged in Hong Kong through a SFC Licensed Corporation
OR
– After final closing the fund have at least 5 investors with capital commitments made by investors exceeding 90% of the aggregated capital commitments, and the originator together with its associates receiving no more than 30% of the fund’s net proceeds.
#Incidental transactions shall not exceeding 5% of fund’s total trading receipts
^other than those made by way of money-lending business
Profits not satisfying the above will be taxable.
Anti-avoidance measure of IRD
1) A resident person, who alone or jointly with his associates, holds a direct or indirect beneficial interest of 30% or more in a tax-exempt fund, will be taxable on his share of the fund’s profit.
2) A resident person, who holds any percentage in a tax-exempt fund if the fund is his associate, will be taxable on his share of the fund’s profit.