In December 2017, the Council of the European Union (EU) identified certain ring-fencing features in Hong Kong’s profits tax exemption regime, which are considered discriminatory and isolated from the domestic economy. In order not to be labelled as a non-cooperative jurisdiction by the EU Council, Hong Kong committed to addressing this concern by considering appropriate modifications and proposing legislative amendments by the end of 2018.

On 7 December 2018, the Hong Kong Government Gazette published new and self-contained provisions in the Inland Revenue Ordinance (Cap. 112) (IRO) that will allow all funds operating in Hong Kong, regardless of their location of central management and control, their size or the purpose that they serve, to enjoy profits tax exemption for transactions in specified assets subject to meeting certain conditions. The bill will be introduced into the Legislative Council on 12 December 2018, and when adopted, will come into operation on 1 April 2019.

Once the proposed amendments are adopted, more funds are expected to become eligible for enjoying tax exemption benefits in Hong Kong. This is a significant development that will create a level playing field for tax for all funds operating in Hong Kong, whether domiciled in or outside Hong Kong, and whether operating or managed in or from Hong Kong.

The change is expected to enhance Hong Kong’s position as an international asset and wealth management centre, and could attract more professional asset management and related services to be brought into and be carried out from Hong Kong.

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