With the gazetting on March 1, 2019 of the new Inland Revenue (Profits Tax Exemption for Funds) (Amendment) Ordinance 2019 (“Amendment Ordinance”), from April 1, 2019, the tax position of investment funds in Hong Kong will be governed by a new tax exemption (“Private Funds Exemption”). Though the new exemption is broadly similar to the exemption (“Offshore Funds Exemption”) previously relied upon, there are significant differences, including:
Under the new Private Funds Exemption, an investment vehicle will qualify for relief whether or not the vehicle is resident in Hong Kong. In other words, there is no longer any need for structures to artificially locate the central management and control outside of Hong Kong.
Under the new Private Funds Exemption, an investment vehicle must qualify as a “collective investment scheme” to be eligible for relief. An investment vehicle that does not so qualify may continue to rely upon the Offshore Funds Exemption for relief. It is not clear to what extent the Inland Revenue Department will apply a lax approach to the issue of tax residency of the vehicle in light of the new Offshore Funds Exemption.
The new Private Funds Exemption permits a broader range of underlying investments than the Offshore Funds Exemption.
A full overview of the new Private Funds Exemption is available in our earlier article "Private Funds Tax Exemption: New Legislation To Re-Center Hong Kong As An Asset Management Center". Though there remain technical issues in the application of the new Private Funds Exemption as discussed in our earlier article "The New Private Funds Exemption: An Update on Discussions with the Inland Revenue Department", the Inland Revenue Department has confirmed to us that they will be providing guidance on at least some of these issues in a forthcoming Departmental Interpretation and Practice Note. There is no defined timeline for the issuance of this guidance.
Asset managers may wish to review their current fund offering materials ahead of the April 1 implementation date to ensure that such offering documents correctly reflect the new legislation and to review their arrangements to ensure compliance with the new requirements. If you wish to discuss the new changes under the Amendment Ordinance, please contact your usual contact or any of the contacts listed in this email.