March 8, 2021
Hong Kong announces 2021/22 Budget
The Financial Secretary (FS) announced the 2021/22 Hong Kong Budget (Budget) on 24 February 2021. This Alert summarizes the key features of the Budget.
Increasing the stamp duty rate on stock transfers
The FS has proposed an increase in the stamp duty rate on stock transfer transactions from 0.1% to 0.13%, payable by both buyers and sellers (i.e., a total stamp duty rate of 0.26%). Based on the Revenue (Stamp Duty) Bill gazetted on 5 March 2021, the change will come into effect on 1 August 2021.
Promoting the development of the funds industry in Hong Kong
Tax concessions for eligible carried interest received by private equity fund managers
After introducing the unified fund exemption regime (UFR) in April 2019 to develop Hong Kong as a premier private equity (PE) fund hub, Hong Kong introduced a new limited partnership law on 31 August 2020 to further accommodate the operational needs of PE funds. These efforts have led to the formation of about 100 limited partnership funds (LPFs) in Hong Kong.
To further incentivize PE fund managers to select Hong Kong as a location of domicile and operation of funds, Hong Kong introduced a bill in January 2021 which exempts eligible carried interest, arising from in-scope transactions received by qualifying recipients for the provision of investment management services to qualifying payers, from tax in Hong Kong.1
Subject to the passage of the bill by the Legislative Council, the above concessionary tax treatment will apply retrospectively and will be applied to eligible carried interest received by or accrued to a qualifying recipient on or after 1 April 2020.
Expansion of the investment scope of special purpose entities owned by a fund
Under the UFR, if a special purpose entity (SPE) is used to hold investments in private companies, the activities of the SPE should be limited to administering and holding the investments of the private companies. Otherwise the SPE's gain on the disposal of the private companies would not be exempt from tax.
In order to provide flexibility to the UFR, the bill proposes to enable SPEs to hold investments in private companies and other types of investments, such as listed securities and derivative contracts.2
Facilitate foreign investment funds to set up in or re-domicile to Hong Kong
It is expected that a new law allowing foreign investment funds to re-domicile to Hong Kong for registration as open-ended fund companies (OFC) or LPFs will be introduced in the second quarter of 2021. The new law aims to provide a commercially viable mechanism with legal and tax certainty to foreign funds and proposes to provide an exemption for stamp duty.
In addition, subject to a cap of HK$1 million per OFC, government subsidies covering 70% of the expenses paid to local professional service providers for setting up OFCs in or re-domiciling to Hong Kong in the forthcoming three years have been proposed.
Enabling Hong Kong to compete internationally for reinsurance and specialty insurance businesses
To enable Hong Kong to compete in the international insurance market and obtain new opportunities, the new tax law granting the following tax concessions to relevant insurers and insurance brokers3 will be effective on 19 March 2021:
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Services Limited, Hong Kong
Ernst & Young LLP, Hong Kong Tax Desk, New York
Ernst & Young LLP, Asia Pacific Business Group, New York
1 See EY Global Tax Alert, Hong Kong introduces tax concessions for carried interest, dated 12 February 2021.
2 See Schedule 16C of the IRO.
3 See EY Global Tax Alert, Hong Kong enacts new legislation providing tax incentives for insurance-related businesses, dated 29 July 2020.