Hong Kong steps towards revamping its profits tax exemption regime for the asset management industry

• the extension of the profits tax exemption to special purpose entities of a fund – such entities may be wholly or partly owned by the fund and should be established for the sole purpose of holding and administering investee private companies – to the extent of such fund’s holding or interest in such entity;  

• as an anti-avoidance measure, a fund may invest in any private company provided that it can satisfy (i) the immovable property test: the private company holds not more than 10% of its assets in immovable property (excluding infrastructure) in Hong Kong; and either (ii) the holding period test: the fund has held the private company for at least two years; or, if less than two years, (iii) the short-term asset test: the fund does not have a controlling stake in the private company or the fund has control over the private company but that company does not hold more than 50% of the value of its assets in short-term assets;

• removal of the “tainting” effect on transactions falling outside the tax exemption regime.

The new rules under the Bill will also cover open-ended fund companies. For non-fund entities, the existing profits tax exemption and its conditions will continue to apply as a separate regime. The profits tax exempt position of funds authorised under the SFO shall remain unchanged.

The Bill, when enacted, will come into operation on 1 April 2019.

Key Contacts

Alwyn Li

Partner | Financial Services

Email or call +852 2825 9627