Hong Kong Gazettes Private Equity Fund Tax Break
Hong Kong’s Government brought into effect the promised extension of the profits tax exemption for offshore funds to private equity funds, by publishing in the Gazette on July 17 the Inland Revenue (Amendment) (No.2) Ordinance 2015.
A government spokesman said: “With the implementation of the Amendment Ordinance, transactions conducted by offshore private equity funds in respect of securities of eligible overseas portfolio companies will be able to enjoy profits tax exemption.”
“By providing a tax exemption to specified transactions conducted by offshore private equity funds or their special purpose vehicles,” he added, “we hope to attract more private equity fund managers to expand their business in Hong Kong and hire local asset management, investments and advisory services, which will be conducive to the further development of our asset management industry.”
Under the Amendment Ordinance, to qualify for profits tax exemption, offshore private equity funds must carry out specified transactions through corporations licensed by the Securities and Futures Commission; or they must have more than four investors, the capital commitment made by investors must exceed 90 percent of aggregate capital commitments, and the portion of net proceeds arising from the fund’s transactions to be received by the originator must not exceed 30 percent.
To prevent abuse by local companies by simply converting their taxable profits to non-taxable income via an offshore fund structure, an eligible portfolio company should be an overseas incorporated private company, and it must not hold any Hong Kong properties or carry out any business in Hong Kong.
Moreover, the existing deeming provisions, which provide that a resident person holding a beneficial interest of 30 percent or more in a tax-exempt private equity fund will be deemed to have derived assessable profits in respect of profits earned by the fund in Hong Kong, will equally apply to offshore private equity funds.
