HK Urged to Cut Tax for Asset Management

A number of research reports has been released by Hong Kong’s Financial Services Development Council (FSDC), including one that addresses tax issues relating to open-ended fund companies (OFCs) and private equity (PE) investments.

A report entitled “A Paper on the Tax Issues on OFCs and Profits Tax Exemption for Offshore PE Funds” is a follow-up to the FSDC’s report on “Proposals on Legal and Regulatory Framework for Open-ended Investment Companies in Hong Kong” that was published in November 2013. It provides recommendations relating to the tax regime for OFCs, which is currently under review by the Government of Hong Kong, as well as the profits tax exemption criteria for offshore PE funds introduced on July 17, 2015.

As regards the profits tax exemption for offshore PE funds, the FSDC makes another 2 recommendations.
– First the criteria for determining whether or not a PE fund is “bona fide widely held” should be relaxed. Under its proposals, a PE fund would be regarded as “bona fide widely held” if no person holds a participation interest of 20 percent or more in the non-resident fund; or if no five or fewer persons have a combined participation interest of at least 50% in the non-resident fund.
– Second, the “bona fide widely held” concession should be extended to the following specified types of entities: sovereign wealth funds, pension funds that comply with the requirements/regulations of certain stipulated jurisdictions, central banks, and government agencies, as well as to special purpose vehicles for investments set up and controlled by these entities.

Filed under: Business and Economy, HK as a Financial Centre, Offshore Legislation, Taxation

Hong Kong forex reserves fall

Hong Kong’s official foreign currency reserve assets fell to USD 355.8 billion at the end of November. This fall from USD 357.1 billion in October was announced by the Hong Kong Monetary Authority.

The total foreign currency reserve assets of USD 355.8 billion represent about 8 times the currency in circulation or 48% of Hong Kong dollar M3.

Filed under: Business and Economy, HK as a Financial Centre, News and politics

Mainland Chinese Companies attracted to HK Properties

Famous for the world’s priciest office towers, Hong Kong’s Central district is attracting more mainland Chinese companies to move in. This leads to a rise in rents and prompting some Western firms to search for cheaper digs elsewhere.

Despite China’s stock-market tumult this year, mainland banks and asset managers are crowding into the district in hopes of drumming up new business with foreign clients. This further cements Hong Kong’s status as the prime gateway into and out of China, according to property experts and bank analysts.

To remind, Mainland China firms long have had a presence in the former British colony. Bank of China opened its first Hong Kong office in 1917 and now occupies the I.M. Pei-designed Bank of China Tower. In the early 2000s, the 4 largest state-controlled banks opted to list on the Hong Kong stock exchange and took nearby office space, sometimes whole buildings.

Filed under: Banking Services, Business and Economy, Financial Services, HK as a Financial Centre, Hong Kong and China

HK and China sign Services Trade Agreement

On November 27, a new agreement aimed to extend the breadth and depth of services trade liberalization between Mainland China and Hong Kong was signed.

Under the agreement, Mainland China has committed to fully or partially open up over 150 sectors to the Hong Kong services industry. Together these account for 95.6% of all the WTO services trade sectors. In respect of “commercial presence,” national treatment will be applied to Hong Kong in 62 sectors.

Hong Kong will benefit from the Mainland’s most preferential liberalization measures. This is assured through the agreement’s Most-Favored Treatment provision, which specifies that any preferential treatment the Mainland accords to other countries or regions, if more preferential than those under the CEPA, will also be extended to Hong Kong.

The agreement came into force immediately, and will be implemented on June 1, 2016.

Filed under: Business and Economy, HK as a Financial Centre

HK adapts to international tax developments

Hong Kong’s Secretary for Financial Services and the Treasury, K C Chan, has emphasized that the Government is committed to complying with the latest international tax developments, including on tax transparency and tackling base erosion and profit shifting.

In his speech to the Taxation Institute of Hong Kong 2015 CTA Conference on November 20, Financial Services Secretary said: “For Hong Kong, as an international financial center, we can ill afford not to adapt to the rapidly evolving situation and catch up with the latest global developments.”

One of the major initiatives that the Government is currently addressing is the implementation of the international standard on the automatic exchange of financial account information as regards taxation. The territory has committed to commence the first automatic information exchanges by the end of 2018, providing the necessary domestic legislation is in place by 2017.

Filed under: HK as a Financial Centre, Taxation

HK explains its Free Trade Agreement Agenda

On November 4, Hong Kong’s Secretary for Commerce and Economic Development, Gregory So, discussed the territory’s free trade agreement strategy.

So stressed that the Government’s primary goal is entering into FTAs with its major services trading partners, as the services industry constitutes 93% of the city’s GDP (gross domestic product).

Hong Kong’s first trade treaty was signed with Mainland China, its largest services trading partner. Through the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), signed in 2003 and has been supplemented 10 times, Hong Kong service suppliers can now access most services sectors in the Mainland.

Also, Hong Kong is actively participating in the Trade in Services Agreement (TISA) negotiations between 23 participating economies, which commenced in 2013. Of these participants, 8 are among the city’s 10 largest markets for services. Hong Kong’s exports of financial services and business services to them account for 80% and 70% of total exports, respectively.

So also pointed to the commencement of FTA negotiations with the Association of South East Asian Nations (ASEAN) in July 2014. Collectively, the 10 ASEAN member states are Hong Kong’s 4th-largest trading partner for services. The Government’s target is to conclude these negotiations in 2016.

So confirmed that the 3 trade deals will benefit 95% of Hong Kong’s trade flows in services.

After the conclusion of the FTA negotiations with ASEAN, the Government will seek to join the Regional Comprehensive Economic Partnership (RCEP), currently being negotiated between ASEAN and its 6 FTA partners – the Mainland, Japan, India, South Korea, Australia, and New Zealand.

Filed under: Business and Economy, HK as a Financial Centre, Hong Kong and China, International Business Environment

HK welcomes Foreign-Owned Firms Growth

As at June 1, 2015, the number of business operations in Hong Kong with parent companies overseas and in Mainland China had reached an all-time high of 7,904, which is up 4.2% on last year.

In terms of source country, the annual survey by Invest Hong Kong and the Census & Statistics Department showed that the US topped the list with 1,368 companies in Hong Kong, followed by Japan (1,358), The Mainland (1,091), the UK (631), and Taiwan (413). The Mainland registered the strongest growth in company registrations, which is 14% over the year.

By sector, import/export trade, wholesale, and retail topped the list (3,482 companies, or 44.1 percent of the total), followed by finance and banking (1,438 companies, 18.2 percent). More than 1,400 of the operations were regional headquarters and almost 2,400 were regional offices. The 7,904 businesses employed a record of 422,000 people – up 4.3% on last year.

Hong Kong’s Director-General of Investment Promotion, Simon Galpin, said: “The growth in the last 5 years in the numbers of financing and banking companies (plus 36%) demonstrates Hong Kong’s position as an international financial hub in the world.”

He added that Hong Kong is set to continue generating numerous new business opportunities in different economic segments for its foreign investors.

Filed under: Business and Economy, HK as a Financial Centre, Hong Kong and China, International Business Environment, Investment Environment, Offshore Companies

HK and Macao to start FTA Negotiations

Hong Kong has begun a consultation on the areas to be covered in a proposed Closer Economic Partnership Arrangement (CEPA) trade treaty with Macao.

“Establishing the Hong Kong-Macao CEPA would further enhance economic co-operation and development of the two places,” a spokesperson of the Government of Hong Kong said. “At present, Hong Kong and Macao have each entered into a separate CEPA with Mainland China. After the establishment of the HK-Macao CEPA, the three places may build upon those CEPAs to establish a new, common platform to advance the further liberalization and facilitation of trade and investment in the ‘Greater China’ region.”

Hong Kong and Macao do not apply any tariffs on imports. Under the new CEPA negotiations, Hong Kong and Macao will seek to bind the existing tariff-free regimes, providing legal certainty on the tariff-free movement of goods between the two jurisdictions.

Also, as both Hong Kong and Macao are free ports and impose no tariffs, their CEPA need not cover preferential rules of origin, as in the case of Hong Kong’s other trade agreements. Both sides will seek to minimize non-tariff barriers and avoid imposing trade remedy measures, including anti-dumping, safeguards, and countervailing measures, in order to further reduce obstacles to trade between the Hong Kong and Macao.

It is worth mentioning that while Macao was only the 19th largest trading partner with Hong Kong in terms of goods in 2014, bilateral trade in goods between the two economies grew by an average of 22% annually between 2010 and 2014. Also, Macao is the 11th largest source of foreign direct investment (FDI) into Hong Kong and the 11th largest recipient of FDI from Hong Kong.

Filed under: HK as a Financial Centre, International Business Environment

HK Heads is Freest Economy in Global Ranking

The Government of Hong Kong has welcomed the Fraser Institute’s ranking of the city as the world’s freest economy, based in part on its commitment to low taxation.

Out of 157 countries and territories, Hong Kong and Singapore again occupy the top two positions. They are followed by New Zealand, Switzerland, UAE, Mauritius, Jordan, Ireland, Canada, and the UK.

Among the major areas of assessment, Hong Kong ranks first in “size of government,” “freedom to trade internationally” and “regulation.”

“The Government attaches great importance to Hong Kong’s economic freedom, and will strive to uphold the tradition of the rule of law and an independent judiciary, a small and efficient public sector, and a free and open business and trade environment, which are the cornerstones of Hong Kong’s economic success,” a spokesman said.

Filed under: Business and Economy, Financial Services, HK as a Financial Centre

Exchange Fund foreign assets up, foreign currency reserves down

According to the Hong Kong Monetary Authority (HKMA) announcement, the Exchange Fund’s foreign assets increased by $5.9 billion to $2.8321 trillion in March 2015. The monetary base amounted to $1.3553 trillion, while claims on the private sector in Hong Kong amounted to $188 billion. Foreign liabilities, representing fees payable to the Exchange Fund’s external managers, reached $300 million.

Earlier, the HKMA announced that the jurisdiction’s official foreign currency reserve assets fell by USD 300 million to USD 332.2 billion in March. There were no unsettled foreign exchange contracts at the end of March, nor the end of February. The total foreign currency reserve assets are more than 7 times the currency in circulation, which is about 49% of Hong Kong dollar M3.

Filed under: HK as a Financial Centre, Monetary Policy