(Source : Information Services Department)
Inland Revenue (Amendment) (No. 2) Ordinance 2018 gazetted
The Government published in the Gazette today (March 29) the Inland Revenue (Amendment) (No. 2) Ordinance 2018 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 (hereafter referred to as “subject OFCs”).
A government spokesman said, "Tax treatment is one of the key factors influencing the choice of jurisdiction for fund domiciliation and management. To provide a more facilitating tax environment for the fund industry, the Ordinance seeks to allow the subject OFCs, like the offshore ones, to enjoy profits tax exemption. We hope that this will help attract more OFCs to domicile in Hong Kong, thereby generating demand for services along the whole fund service chain and enhancing Hong Kong's fund manufacturing capabilities.
"In the course of formulating the Ordinance, we are cognisant of the need to meet the prevailing international standards on tax cooperation and promote the development of the fund industry. The Ordinance stipulates that if a subject OFC carries out non-qualifying transactions, it will only be assessed to tax in respect of profits from direct trading or direct business undertaking in Hong Kong in relation to such transactions or utilisation of such assets with a view to generating income. Its tax-exempt profits will not be tainted. Also, more clarity and flexibility is provided for a subject OFC to invest in both local and overseas private companies, subject to certain requirements imposed on the private companies’ holding of local immovable property and short-term assets.
"We hope that the Ordinance will help strengthen Hong Kong's position as an international asset management centre and foster the further development of our financial services industry as a whole."
The legal framework for the OFC as a fund structure was enacted by the Legislative Council in June 2016 by way of the Securities and Futures (Amendment) Ordinance 2016. It is a key initiative to help diversify Hong Kong’s fund domiciliation platform and build up our 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 fund. This is not enjoyed by a conventional company. Also, an OFC will not be bound by restrictions on distribution out of capital applicable to a conventional company, and instead may distribute out of capital subject to solvency and disclosure requirements. The Ordinance aims to complement the introduction of an OFC fund platform by providing a level playing field with respect to the tax treatment of all OFCs.
The Ordinance will come into operation later this year at the same time as the OFC regime on a date to be appointed by notice published in the Gazette.
Ends/Thursday, March 29, 2018
Issued at HKT 11:00