Is Hong Kong the World’s Next Fund Hub?

In February 2021, Hong Kong’s Financial Services and The Treasury Bureau (FSTB) issued a proposal for easier migration of foreign funds to Hong Kong, in order to encourage more locally domiciled funds and thereby boost the investment market in Hong Kong.

Re-domiciliation is not a new industry concept; many major fund jurisdictions have introduced necessary measures to ensure that this is an easy and seamless process for market players. Jersey, the British Virgin Islands, Luxembourg, Ireland and more recently Singapore, with their Variable Capital Company (VCC) structure introduced in early 2020, are of a few notable jurisdictions that have created a more conducive and attractive environment for funds to re-domicile.

Hong Kong’s Case for Re-Domiciliation

Hong Kong, a major regional player in the asset and wealth management space, is not one to miss out. In August 2020, Hong Kong introduced the Limited Partnership Fund (LPF)< regime, an enhancement to their already existing Open-Ended Fund Company (OFC) regime and the proposal to provide tax concessions for carried interest distributed by eligible private equity funds. These new regimes have seen immediate success, evident by the high number of newly registered LPFs. In order to continue this growth trajectory, the Government of the Hong Kong SAR, has in addition promised to provide subsidies to cover third party local professional fund services, such as legal or consultancy services, for funds setting up OFCs or re-domiciling overseas corporate funds to Hong Kong as OFCs.

A fund established outside Hong Kong in the form of a limited partnership or a corporate is permitted to register as an LPF or an OFC in Hong Kong, respectively, provided it meets the requirements for a Hong Kong domiciled OFC or an LPF.  The proposal is still a work-in-progress; however, it is a testament to Hong Kong’s ongoing commitment to create a competitive and attractive market for fund domiciliation.

Double Tax Treaty Benefits Offered by Hong Kong

In addition to the cost benefits offered by the Hong Kong government, Hong Kong domiciled funds attract other benefits including tax incentives, with its wide range of double tax treaty (DTT) networks. Utilising the treaty network which Hong Kong residents have access to, enables lower withholding tax leakage and can significantly boost investment returns. These networks may be a key factor when considering re-domiciliation as limited treaty access has a direct negative impact on dividend and interest returns through the withholding tax levied by foreign tax authorities. Simply put, Hong Kong’s introduction to fund enhancements and regimes coupled with its wide treaty benefits, may be the ideal domicile for funds.

Improve Fund Performance through WHT Reclaims

WTax’s dedicated team specialises in foreign withholding tax claims on investment income. By applying various reclaim mechanisms which include DTT and ECJ claims, WTax improves investment performance of funds domiciled in fund hubs worldwide, including Hong Kong. WTax’s offers vast experience with Hong Kong domiciled investors and the determination of maximum available withholding tax recovery opportunities, post re-domiciling. For more information or for assistance with foreign withholding tax reclaims contact WTax today.

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