Hong Kong's New Limited Partnership Fund Regime for FundsA new opportunity for private equity market18 May 2020
2Hong Kong's New Limited Partnership Fund Regime for Funds© 2020. For information, contact Deloitte China.
Agenda
Topic Speakers
Introduction Anthony Lau
Hong Kong: Asia’s Premier Private Equity Hub Anson Law
Unified Fund Exemption Regime Roy Phan
Panel Discussion All speakers
Q & A All speakers
3Presentation title© 2020. For information, contact Deloitte China.
Unified Fund Exemption Regime Roy Phan
4Hong Kong's New Limited Partnership Fund Regime for Funds© 2020. For information, contact Deloitte China.
Features of the “unified” fund exemption regime
“Unified” fund exemption regime
A “fund” as defined (regardless of location of its
central management and control)
Transactions in “qualifying assets” (include private
companies incorporated in HK subject to conditions)
and incidental transactions (with a threshold)
Qualifying transactions carried out or arranged in HK by a “specified person”
or
the “fund” is a qualified investment fund
5Hong Kong's New Limited Partnership Fund Regime for Funds© 2020. For information, contact Deloitte China.
Features of the “unified” fund exemption regime Decision tree for tax exemption on PE investment
Yes
(a) The private company holds
>10% of its assets in immovable
property in Hong Kong
(b) The private company is
controlled by the fund or a
special purpose entity
No tax exemption
Yes No
Tax-exempted
No
(c)(i) The private company has
been held by the fund or a
special purpose entity for
less than 2 years
Yes
Tax-exempted(c)(ii) The private company holds
more than 50% value of its assets
in short-term assets
Yes
No tax exemption Tax-exempted
No
No
• Not a “qualifying asset”
• Not immoveable property in HK
• Held for less than 3 consecutive years before disposal
6Hong Kong's New Limited Partnership Fund Regime for Funds© 2020. For information, contact Deloitte China.
“Specified person” or “qualified investment fund”Features of the “unified” fund exemption regime
Satisfy either:
(i) Qualifying transactions carried out or arranged by a “specified person” (i.e. corporation or authorized financial institution registered under the SFO for carrying out any regulated activity)
or
Originator Investor InvestorInvestor Investor Investor
Fund
Capital commitments < 10%Net proceeds
≤ 30%
Qualified investment fund
(ii) The fund is a “qualified investment fund”
7Hong Kong's New Limited Partnership Fund Regime for Funds© 2020. For information, contact Deloitte China.
Features of the “unified” fund exemption regime No tainting effect
With tainting
Fund
Fund
Qualifying
transactions
Non-qualifying
transactions
All or nothing
No tax exemption; general tax rules apply
Without tainting
Fund
Qualifying
transactions
Non-qualifying
transactions
Tax-exempt No tax exemption; general tax rules apply
8Hong Kong's New Limited Partnership Fund Regime for Funds© 2020. For information, contact Deloitte China.
Deeming provisions
Attribution of taxable income to certain HK resident investors who hold a benefit interest in the tax-exempt fund, if:
• The HK resident investor, either alone or jointly with his associates (whether resident or not), holds direct and/orindirect beneficial interest of ≥ 30% in the fund; or
• The HK resident investor has direct and/or indirect beneficial interest in the fund and the fund is an associate of the HKresident person
9Hong Kong's New Limited Partnership Fund Regime for Funds© 2020. For information, contact Deloitte China.
Taxation of management fee and carried interestPotential impact of the “unified” fund exemption regime
Management fee
•Annual meetings between IRD and HKICPA
− Functions, assets and risks attributed to the HK operations?
− Challenge service fees received by HK fund managers or advisers if not on an arm’s length basis
− Potential partial offshore claim
Carried interest
•DIPN
− Could be service fee/ employment income; may seek to tax if not an arm's length return on a genuine investment
•2020/21 Budget
− Tax concession on carried interest
More fund management
activities in Hong Kong?
How would this impact the
taxation of management
fee and carried interest?
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