On 23 June 2017 the Hong Kong SAR Government published in the Gazette the Inland Revenue (Amendment) (No. 4) Bill 2017 to implement the 2017-18 Budget initiative of extending profits tax exemption to privately offered open-ended fund companies (OFCs) with their central management and control exercised in Hong Kong.
The Bill seeks to create a level playing field for all kinds of OFCs by allowing onshore privately offered funds, like the offshore ones, to enjoy profits tax exemption. Hong Kong considers that the Bill would be conducive to enhancing Hong Kong’s competitiveness in respect of the domiciliation of privately offered funds in the form of an OFC, thereby generating demand for services along the whole fund service chain. This would help strengthen Hong Kong’s position as an international asset management centre and foster the further development of the financial services industry.
The legal framework for the OFC structure was enacted by the Legislative Council (LegCo) in June 2016 by way of the Securities and Futures (Amendment) Ordinance 2016. This is a key initiative to help diversify Hong Kong’s fund domiciliation platform and build up fund manufacturing capabilities. An OFC is a collective investment scheme with variable capital set up in the form of a company, but with the flexibility to create and cancel shares for investors’ subscription and redemption in the funds, which is currently not enjoyed by conventional companies. Also, OFCs will not be bound by restrictions on distribution out of capital applicable to conventional companies, and instead may distribute out of capital subject to solvency and disclosure requirements. The Bill aims to complement the OFC initiative by providing a more facilitating tax environment for OFCs.
The Bill was introduced into LegCo on 28 June 2017.