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Corporate Services Blog

Hong Kong Tax Exemption for Offshore Private Equity Funds

04/02/2016

The introduction of The Inland Revenue (Amendment) (No.2) Ordinance 2015 which was enacted as of 17 July 2015 has brought about the extension on profit tax exemptions on specified transactions conducted by offshore private equity funds or their special purpose vehicles.  This exemption applies to transactions carried out after 1 April 2015.

Although a previous exemption did exist this was proving too limiting due to the following;
  • The specified transactions included six categories which did not allow for transactions in securities of a non-Hong Kong private company.  This has now been broadened to include most non-Hong Kong private companies.
  • The transactions had to be carried out or arranged by a ‘specified person’ which had to be licensed or registered in Hong Kong under the Securities and Futures Ordinance (Cap. 571) (the ‘SFO’), but many offshore private equity funds are often arranged by entities that do not require SFO licensing in Hong Kong.  Therefore amendments have been brought in whereby exempting certain ‘qualifying funds’ from this requirement in order to capture legitimate funds whilst still preventing possible abuse of this legislation.

In addition to the above investments must be in portfolio companies incorporated outside Hong Kong and must not have carried out business in Hong Kong or held any immovable property in Hong Kong.
It is hoped that this exemption will promote Hong Kong’s status as an asset management hub.




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