Tax Exemptions for Open-Ended Fund Companies in Hong Kong

Updated on Sunday 18th March 2018

Investment funds in Hong Kong registered as open-ended vehicles can benefit from tax exemptions, under the Inland Revenue Amendment No.4  Bill 2017. The legislation was created in order to increase the registration of hedge fund startups or other types of investment vehicles. The tax exemption will be applied to the profits deriving from the activities of open-ended vehicles operating on the local market.
It is important to know that in the last years the total number of funds registered in Hong Kong increased, showing that the governmental approach to a suitable legislation had positive effects. For example, in 2016, the total number of funds increased by 12%, compared to 2013, as revelead by a study conducted by the Hong Kong Securities and Futures Commission (SFC)

Tax exemption on profits in Hong Kong 

Businessmen interested in how to start a fund in Hong Kong can register a wide range of business structures. In the case of an open-ended investment fund, investors can benefit from a tax exemption on company’s profits, in the following cases: 
profits deriving from qualifying transactions;
transactions incidental to the development of qualifying transactions
The qualifying transaction in Hong Kong refers to a type of transaction carried out through a specific class of assets concluded by a person who has received a Type 9 License
Such assets can refer to the following: 
debt or equity securities;
future contracts;
foreign exchange contracts;
foreign currencies

Eligibility criteria for Hong Kong tax exemption

One of the main eligibility criteria for the Hong Kong tax exemption is to have a company registered in Hong Kong, set up as an onshore fund, with the company’s central management located in this country. 
Also, there are special requirements related to the types of assets in which businessmen can invest. In this sense, at least 90% of the assets have to be invested in permissible asset classes. If more than 10% of the assets are invested in non-permissible asset classes, the fund will no longer benefit from the tax exemption and the profits will be imposed with the standard corporate tax
Hong Kong had more than 2,200 investments funds in 2016 and investors opening a fund in this country may also benefit from other tax exemptions, if they invest in private equity funds or offshore special purpose vehicles
Investors are invited to contact our team of affiliates in Hong Kong for consultancy services related to the taxation of local investment vehicles