The Hong Kong Monetary Authority (HKMA) and Bank Negara Malaysia (BNM) took part in a meeting on 14 April 2014 to discuss Islamic finance. They are aiming to increase interest in the financial instrument known as sukuk as a viable financing and investment instrument for the business community in Hong Kong and Mainland China.

The financial instrument known as sukuk is similar to a bond in its function but the instrument does not include any provision for interest. The issuer sells the certificate to the investor who then rents the instrument back to the issuer for a rental that is determined in advance. The issuer also undertakes to purchase the instrument back from the investor at a specified future date at its par value.

The Hong Kong Monetary Authority is working closely with the Hong Kong Government to prepare for the inaugural issuance of Government sukuk under the Government Bond Program and thereby to promote the further development of the sukuk market in Hong Kong. Hong Kong’s tax framework in respect of sukuk was introduced in July 2013. Further amendments to the rules have granted tax and stamp duty relief for transactions involving sukuk products. These transactions do not involve the payment of interest, and as a result they could give rise to additional profits or property tax liabilities, or they could bring a liability to stamp duty. The amending legislation was therefore necessary to ensure that these products are not burdened with these additional tax charges. The legislation aims to reach a situation where financial instruments whose economic substance is similar are subject to similar tax treatment.