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PRESS RELEASE

(Source : Government Information Centre)

Consultation on Refined Approach for Exempting Offshore Funds from Profits Tax

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The Financial Services and the Treasury Bureau (FSTB) has commenced a consultation on how to provide for exemption for offshore funds from profits tax under the Inland Revenue Ordinance (IRO). The aim is to reinforce the status of Hong Kong as an international financial centre.

"Further to a discussion on the same subject with the industry last year, having carefully considered the deputations and explored various options, the Administration has refined the approach to amend the IRO to effect the proposed exemption for offshore funds. The aim of this consultation paper is to solicit views on this latest approach," a government spokesman said today (January 4).

"Under this latest approach, profits tax exemption would be granted to non-residents on income derived from securities trading transactions undertaken in Hong Kong through an agent who is a broker or an approved investment adviser as defined in the IRO.

"To prevent abuse, resident investors holding, either alone or with associates, 30% or more of the interest in the tax-exempt non-resident will be deemed to have derived taxable profits in respect of the securities trading transactions carried out by the non-resident in Hong Kong and liable to tax. However, the profits tax charge on the resident investor will not cover any non-taxable capital gains or offshore profits of the non-resident.

"In addition, resident investors in a non-resident fund that is bona fide widely held or that is currently exempted from tax under the IRO will also not be subject to the deeming provisions.

"Under this latest approach, brokers/investment advisors will not be required to keep records of the residence status of the beneficial owners of the non-resident claiming the tax exemption. This should address the industry's concern in response to the approach suggested earlier on the compliance burden on the brokers and investment advisors," the spokesman explained.

The consultation paper is available on the website of FSTB (http://www.fstb.gov.hk/tb/eng/info/con-paper-ptax.pdf.). Interested parties are invited to send their comments to FSTB by January 31, 2005.

Ends/Tuesday, January 4, 2005

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