On 12 December 2018, Hong Kong’s Legislative Council gave the Inland Revenue (Profits Tax Exemption for Funds) (Amendment) Bill 2018 (Bill) its first and second reading. The Bill aims to expand and unify the rules and application of the profits tax exemption for privately offered funds following concerns raised by the Council of the European Union on ring-fencing features exhibited in Hong Kong’s existing tax regime. The legislative initiative also supports the government’s efforts to enhance Hong Kong’s competitiveness as a regional and international asset and fund management centre.
The proposed new regime allows profits tax exemption for qualifying transactions of certain funds whether or not the central management and control of the funds is exercised in Hong Kong, and allows the exemption to apply to investments in Hong Kong and non-Hong Kong private companies. Other key features of the Bill include:
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.