|
Publications and Press Releases :
Press Release
: News Archives
Revenue (Profits Tax Exemption for Offshore Funds)
Bill 2005 to be gazetted on Thursday
**********************************************************************************************
The Revenue (Profits Tax Exemption
for Offshore Funds) Bill 2005, which seeks to amend the Inland Revenue
Ordinance (Cap. 112) (IRO) to implement the proposal to exempt offshore
funds from profits tax, will be gazetted on Thursday (June 30).
To reinforce the status of Hong Kong
as an international financial centre (IFC) and enhance our competitiveness
vis-á-vis other IFCs, the Government proposed in the 2003-04
Budget to exempt offshore funds from profits tax.
"The proposed exemption
will help attract new offshore funds to Hong Kong and to encourage
existing ones to continue to invest here. Anchoring offshore funds
in Hong Kong markets could also help maintain international expertise,
promote new products, and further develop the local fund management
industry. The proposal would lead to an increase in market liquidity
and employment opportunities in the financial services and related
sectors," a government spokesman said.
"Hong Kong is facing keen
competition from other major IFCs in attracting foreign investments.
Major financial centres such as New York and London as well as the
other major player in the region, Singapore, all exempt offshore
funds from tax. The financial services industry has expressed the
view that it is vital for us to provide tax exemption for offshore
funds, or otherwise some of these funds may relocate away from Hong
Kong, leading to loss of market liquidity and a negative read-across
impact on other financial services, including downstream services
such as those provided by brokers, accountants, bankers and lawyers,"
the spokesman added.
It is believed that the actual cost
to revenue of the proposal should not be significant. This is because
due to difficulties in obtaining details of securities transactions
involving non-resident persons, the Inland Revenue Department has
not been in a position to enforce the relevant provisions effectively
in practice in respect of cases where the persons carrying out securities
transactions in Hong Kong are non-residents. Besides, even if an
assessment is raised on a non-resident, the Administration would
have practical difficulty in recovering the tax from the non-resident
who is outside the reach of legal action initiated in Hong Kong.
"The Administration has
conducted two rounds of consultation with the industry, interested
parties and the public in early 2004 and early 2005 on the approach
for effecting the proposed profits tax exemption for offshore funds.
Respondents generally consider that the Administration's proposed
approach is the correct one," the spokesman said.
Under the proposal in the Bill, offshore
funds, i.e. non-resident entities (which can be individuals, partnerships,
trustees of trust estates or corporations) administering a fund,
are exempt from tax in respect of profits derived from dealings
in securities, dealings in futures contracts and leveraged foreign
exchange trading [as defined in the Securities and Futures Ordinance
(Cap. 571) (SFO)] in Hong Kong carried out by specified persons
such as corporations and authorized financial institutions licensed
or registered under the SFO to carry out such transactions.
To prevent abuse or round-tripping
by local funds disguised as offshore funds seeking to take advantage
of the exemption, the Government proposes to introduce as a deterrent
measure specific anti-avoidance provisions to deem a resident holding
a beneficial interest in a tax-exempt offshore fund to have derived
assessable profits in respect of profits earned by such offshore
fund in Hong Kong. These deeming provisions will not apply if the
offshore fund is bona fide widely held. Considering that a resident
may have difficulty in obtaining information from an offshore fund
in which he only holds a small percentage of beneficial interest,
the deeming provisions would also not apply if the resident (alone
or with his associates) holds less than 30% of the offshore fund
unless such offshore fund is his associate.
"Profits derived by offshore
funds from securities trading transactions in Hong Kong are currently
liable to profits tax. The effect of the deeming provisions is merely
to recoup the tax amount in the hands of residents holding substantial
interests in the offshore funds which would become tax-exempt under
the proposal. There are other deeming provisions in the IRO for
tax collection and anti-avoidance purposes," the spokesman
explained.
The exemption provisions would apply
with retrospective effect to the year of assessment commencing on
1 April 1996, in order to provide legal certainty on the tax liability
of offshore funds in respect of past years, which is much called
for by the industry as otherwise there would be huge problems for
offshore funds to finalise their tax liabilities for past years.
The deeming provisions would apply upon enactment of the Bill.
The Bill will be introduced into
the Legislative Council on July 6, 2005.
Ends/Tuesday, June 28, 2005
Issued at HKT 17:08
NNNN
|
|