Further Hong Kong SAR incentives for the asset and wealth management industry
Lewis Lu and John Timpany of KPMG discuss further initiatives for the asset and wealth management industry in Hong Kong SAR.
The 2021–2022 Hong Kong SAR Budget announcement included further initiatives for the asset and wealth management industry. Particularly, the Hong Kong SAR government announced subsidies of up to 70% of expenses paid to local professional service providers of open-ended fund companies (OFCs) set up in or re-domiciled to Hong Kong SAR in the coming three years, subject to a cap of HK$1 million (approximately US$128,641) per OFC.
Similarly, a subsidy of up to 70% of the expenses paid to local professional service providers will be offered for qualifying real estate investment trusts (REITs) that list in Hong Kong SAR in the coming three years, subject to a cap of HK$8 million per REIT. The Securities and Futures Commission will announce further details regarding the subsidies in due course.
The OFC is an open-ended collective investment scheme that is intended to operate as an investment fund vehicle managed by a professional investment manager. The OFC is set up in the form of a limited liability company but with the flexibility to create and cancel shares for investors’ subscriptions and redemptions (which is not currently possible in the case of conventional companies). The LPF enables asset managers to raise capital through an onshore domestic limited partnership fund structure ─ an alternative to the typical Cayman Islands limited partnership model.
With 11 OFCs set up since the regime was introduced in 2018, and over 100 limited partnership funds (LPFs) already set up since the LPF regime’s introduction on August 31 2020, the latest announcement of further incentives and stimulus should further promote the already popular OFC and LPF regimes.
The trend once again is to attract talent and professional services to the region and incentivise new fund managers to establish operations in Hong Kong SAR, redomicile funds from traditional fund jurisdictions such as the Cayman Islands, and to encourage existing funds to expand their operations in Hong Kong SAR.
The latest announcement comes on the heels of the introduction of the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021, which confirms that eligible carried interest distributions are to be taxed at a 0% rate for qualifying persons who are subject to Hong Kong SAR profits tax, and for qualifying employees subject to Hong Kong SAR salaries tax.
In light of all of the recent tax developments in fund management, Hong Kong SAR should have a regulatory and taxation fund regime that is compelling and one that entices Asia-focused funds to domicile themselves in Hong Kong SAR.
The budget announcements further cement Hong Kong SAR’s status as Asia’s leading international private equity and asset management hub and will further attract talent and professional services to the region.