Hong Kong plans tax overhaul to attract PE

The Hong Kong government plans to overhaul its tax regime to attract more private fund managers to the country.

Paul Chan, the financial secretary, and Norman Chan Tak-lam, CEO of the Hong Kong Monetary Authority, have both said they intend to review the tax regime to allow the country to better compete with Singapore.

Under the current system, profits are subject to 16.5 percent tax. It is only waived if a manager bases its operations outside Hong Kong.

“We must ensure that Hong Kong’s tax arrangements can compete with other asset management centres,” said Chan in a blog post, adding that Britain and Singapore have implemented several tax incentives to attract fund management companies.

Once the fund managers choose a jurisdiction to undertake activities, it is difficult for them to shift their business to Hong Kong in the short term, he added.

It follows a report published in July by government-appointed think tank the Financial Services Development Council, which called for a tax exemption for private equity firms investing in Hong Kong.

It said the tax laws were “too restrictive” and the current legislation “discourages investment in Hong Kong start-ups.”

“This is contradictory to Hong Kong government policy, to promote Hong Kong as a start-up centre,” the report said.

Hong Kong’s tax laws also ban private equity funds setting up special-purpose vehicles to manage start-ups in which they invest.

Total private equity assets under management in Asia have reached $784 billion, of which Hong Kong-based managers manage around 30 percent, according to PwC data.