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Hong Kong Plugs Its Private Equity Incentives

Mary Swire, Lowtax.net, Hong Kong
10 December, 2014

The Permanent Secretary for Financial Services and the Treasury (Financial Services), Au King-chi, emphasized Hong Kong's incentives for the development of its private equity and venture capital sector at the Venture Capital and Angel Investment Conference on December 5.

Firstly, she noted that, according to the Asian Venture Capital Journal, the total capital under management in private equity funds in Hong Kong reached USD99bn at end-2013, recording a year-on-year increase of 16 percent. Accounting for 21 percent of Asia's total capital under management in private equity at end September 2014, Hong Kong ranks second only after the Mainland in this area, and, of the 379 private equity firms in the city, over 333 have their regional headquarters there.

Au confirmed that, to reinforce Hong Kong in becoming a venture capital and private equity hub in Asia, the Government is now also looking to extend the existing profits tax exemption for offshore funds to private equity funds.

The Government has prepared a legislative proposal to allow offshore private equity funds, in addition to those corporations which are licensed by the Securities and Futures Commission, to enjoy tax exemption in respect of profits gained through disposal of their portfolio companies incorporated outside Hong Kong.

"Under this proposal," Au said, "as long as an offshore private equity fund meets the specified criteria, such as being an investment vehicle with multiple investors, and not simply a vehicle majority-owned by the fund manager, it will be exempt from profits tax. This will bring benefits to an overwhelming majority of the industry. To make this happen, we aim to introduce a bill into our legislature in March next year."

"To attract more funds of various types to base in Hong Kong," she added, "we have been implementing various policy initiatives to remove existing restrictions in the legal structure, broaden the product base and provide a more facilitating tax environment for our asset management industry."

In particular, to diversify Hong Kong's fund management platform, she mentioned that the Government is "taking steps to introduce an open-ended fund company (OFC) structure to expand Hong Kong's legal structure for investment fund vehicles. The OFC proposal will allow funds to be set up in an open-ended structure like a company, but with the flexibility not enjoyed by conventional companies to create and cancel shares for investors to trade the funds."

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