Hong Kong fund structures

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Hong Kong

Hong Kong is seen as a strong global financial centre and acts as a financial gateway between China and the rest of the world.

Key factors that are increasing its popularity are:

  • Strategic Location - its location provides a key link to both Western and Eastern markets, as well as mainland China.
  • Currency Flexibility - hold and manage funds in multiple currencies with ease.
  • IPO Leadership - a global leader in IPOs, offering a popular exit strategy for private funds.
  • Investor-friendly Tax System - benefit from a straightforward tax regime with no capital gains, withholding, or dividend taxes for foreign investors.

Explore Fund Structures: Hong Kong Limited Partnership Fund (HKLPF) |  Hong Kong Private Open-ended Fund Company(OFC)  

 

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Hong Kong Limited Partnership Fund (HKLPF)

Fund vehicle description

The regulatory regime of the Hong Kong Limited Partnership Fund (HKLPF) is the Limited Partnership Fund ordinance (LPFO). A HKLPF is to be registered with the Hong Kong Company Registry (CR), with activities around the HKLPF potentially being in scope of the Securities and Futures Commission’s (SFC) supervision. The set-up of HKLPF requires a general partner(GP), an Investment Manager (IM) which can also be taken up by the GP and a responsible person (RP).

Key considerations

Applications for registering an HKLPF have to be submitted to the Hong Kong CR by the proposed GP, acted on the behalf, by a Hong Kong lawyer or a solicitor.

  • Re-domiciliation regime is also available for funds with other jurisdictions such as Cayman Islands’ exempted limited partnership (ELP) to redomicile to Hong Kong.
  • The HKLPF structure is intended and should be attractive to asset managers/investors of the Greater Bay area.
  • The downside is that although HKLPF is not supervised by the SFC, the fund’s activities may easily fall in scope of SFC director supervision, hence it may require a licensed entity be appointed as the IM (who can also be the RP) to carry out the activities.
     

Tax treatment

  • The concessionary tax rate (0%) will have retrospective effect, meaning that eligible carried interest received by or accrued to qualifying carried interest recipients on or after April 1, 2020 will, in essence, be exempt from Hong Kong profits tax.
  • To be eligible for the tax concession, the private equity fund has to comply with the certification criteria published by the Hong Kong Monetary Authority (HKMA). To apply for certification, a fund or the local authorised representative of a non-resident fund must submit an application to the HKMA, together with the required information and/or documents.

 

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Hong Kong Private Open-ended Fund Company

Fund vehicle description

An open-ended fund company (OFC) is a new investment structure introduced in 2018 and revamped in 2020, aiming to increase its competitiveness, with key enhancements such as removing investment restrictions and expanding the scope of persons permitted to act as custodians for private OFCs. The enhancements to HK OFC regime and the increasing challenges arising from the changes in the Cayman Islands, making the OFC an alternative structure to Cayman Islands segregated portfolio company (SPC) for hedge funds. 

An OFC is an open-ended fund in corporate form with its own legal personality and board of directors, which can be set up as an umbrella fund with multiple sub-funds and each sub-fund has segregated assets and liabilities. The OFCs are registered with and approved by the Securities and Futures Commission (SFC). The SFC provides one-stop establishment for setting up an OFC.

Key advantages in using an OFC compared to a SPC

Lower operating costs.

The costs of setting up and operating an OFC is lower than the costs for a Cayman fund.

Tax exemption and Grant scheme for OFCs

A fund may be exempted from profits tax on the profits from qualifying transactions as well as incidental transactions.  OFCs may also be eligible for exemption from profits tax on transactions in the asset class of non-schedule 16C to the Inland Revenue Ordinance. 

An OFC grant scheme was available from May 10, 2021 to May 9, 2024. This has now been extended for a further three years to May 9, 2027, providing subsidies for qualified OFCs for up to 70% of the eligible expenses, subject to a cap of HK 500,000 per private OFC and a cap of three OFCs per investment manager currently.

 

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