Hong Kong Profits Tax - Unified Funds Tax Exemption Regime

Cayman Islands Segregated Portfolio Companies (Cayman SPC)

Hong Kong Limited Partnership Fund (Hong Kong LPF)

Hong Kong Open-ended Fund Companies (Hong Kong OFC)

Background of Hong Kong LPF and Hong Kong OFC

To attract more investment managers (IM) to set up and operate funds in Hong Kong, the HKSAR government is committed to providing a facilitative tax environment for the funds. The Unified Funds Tax Exemption Regime has been implemented in Hong Kong since 1 April 2019 to replace the previous offshore fund tax exemption regime.

On 31 August 2020, the Hong Kong Limited Partnership Fund (LPF) Ordinance became effective. Hong Kong investment managers may now have one more options to set up Hong Kong Limited Partnership Fund (LPF).

Hong Kong OFC Grant Scheme / Subsidy

For Hong Kong Open-ended Fund Companies (Hong Kong OFC), the HKSAR Government is offering grant scheme and subsidy for SFC Type 9 asset managers to set up Hong Kong OFC. The grant scheme / subsidy covers 70% of the cost spent on set-up of the fund. Tax advice on Hong Kong Profits Tax positions of the OFC and the Investment Managers is also covered in the SFC OFC grant scheme.

Our legal team has tremendous experience in setting up Hong Kong Open-ended Fund Companies (Hong Kong OFC) and Hong Kong Limited Partnership Fund (LPF).

To qualify for tax exemption from Hong Kong Profits Tax, an investment fund is required to satisfy the following three fundamental conditions:

· The investment fund is a “fund” defined under the Inland Revenue Ordinance;

· The profits are derived from “qualifying transactions” and “incidental transactions” (subject to a 5% threshold); and

· The qualifying transaction is carried out or arranged in Hong Kong by a “specified person”; or the fund is a qualified investment fund.

Hong Kong Carried Interest Tax Concession

Pursuant to the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Ordinance 2021 enacted, tax concessions are available for eligible carried interest:

· 0% Hong Kong Profits Tax rate on eligible carried interest received by the person; and

· Exclusion of eligible carried interest from employment income for the purpose of salaries tax calculation by the employee.

Eligible carried interest refers to a sum received by, or accrued to, a person by way of a (i) profit-related return from the provision of (ii) investment management services by the person for a (iii) certified investment fund.

We provide advices to the funds to be set up in Cayman Islands and Hong Kong:

· Review and comment on relevant agreements (including but not limited to Private Placement Memorandum and Fund Management Agreement)

· Review and advise on the structure and investment portfolio of the fund

· Advise on Hong Kong Profits Tax positions of the fund, including analysis on whether the Unified Funds Tax Exemption applies to the fund

· Advise on Hong Kong Tax implications on Investment Advisor and Investment Manager, including analysis on whether tax concession incentive applies to them