Hong Kong 2013-14 Budget Insights
Enhancing tax incentives to consolidate Hong Kong’s reputation as an international finance centre
Under the Profits Tax Exemption for Offshore Funds Ordinance introduced in 2006, all non-resident persons (including individuals, corporations, partnerships and trusts) are exempt from tax in Hong Kong if their activities in Hong Kong are restricted to specified transactions and transactions incidental thereto.
In this regard, specified transactions include transactions in securities, other than shares in a private company.
The legislative intent of this exclusion was to avoid exempting funds which deal in shares of special-purpose private companies whose underlying assets are not intended to be covered by the exemption ordinance, such as Hong Kong real estate assets.
Many industry players however, especially venture capital and private equity funds, find this exclusion too restrictive because they often employ overseas special-purpose private companies to invest in start-up businesses with potential growth prospects. Responding to these concerns, Tsang proposed in the budget to extend the profits tax exemption for offshore funds to include transactions in private companies which are incorporated or registered outside Hong Kong and do not hold any Hong Kong properties nor carry out any business in Hong Kong.
To attract more enterprises to form captive insurance companies in Hong Kong, Tsang also proposed to reduce the profits tax rate on the offshore insurance business of captive insurance companies to 50% of the normal corporate tax rate.
The above proposed tax measures are in addition to the legislative bill introduced last December with a view to enhancing Hong Kong’s competitiveness in the development of Islamic finance.