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HK moves closer to PE tax exemption

The government is expected to extend the offshore funds exemption to private equity firms.

Private equity funds should soon be able to enjoy offshore fund exemptions to Hong Kong tax, a move by the government to further boost the special administrative region’s position as a regional financial hub in Asia, according to financial secretary John Tsang, who talked about the exemption as part of a budget speech this week.

Currently the tax exemption is for hedge funds and it doesn’t apply to private equity. 

“The issue is whether the exemption will be legislated, or perhaps [introduced] by way of published guidelines. It will be a huge boost for the private equity industry in Hong Kong,” said Darren Bowdern, tax partner at KPMG China. 

“We are looking to get the exemption to cover not only offshore funds, but special purpose vehicles that funds can set up in Hong Kong and use to invest in other markets in Asia such as China or Japan. The aim is to use Hong Kong as a private equity investment hub without exposing funds to tax in Hong Kong.”

While Hong Kong is often considered the financial hub for Asia, it has fallen behind Singapore with regard to offering tax exemptions for private equity funds.

However, there have been significant calls from the industry to change this, as increasingly China-focused funds want to set up in Hong Kong rather than far-away fund domiciles, some industry sources say.

“The hope is we’ll have the exemption in force sometime this year,” Bowdern said.