Action Now - Apply For The New Government Grant For OFCs And REITs In Hong Kong.
Legal News & Analysis - Asia Pacific - Hong Kong - Regulatory & Compliance
9 June 2021
The market had been looking forward to the launch of the Government’s incentives for setting up or redomiciling open-ended fund companies (“OFCs”) and listing real estate investment trusts (“REITs”) in Hong Kong since the plan was first announced in the 2021-2022 Budget in February 2021.
On 10 May 2021, the Securities and Futures Commission (“SFC”) announced the much-anticipated launch and the details of the grant scheme.
Application for the grant scheme is open from 10 May 2021 to 9 May 2024, subject to an early closure of the application window if the initial funding for the grant scheme is fully committed. The Government has allocated HK$270 million funding to the scheme.
With the launch of the grant scheme, we are expecting a greatly increased level of interest among asset managers to set up or redomicile OFCs and list REITs. As applications are processed on a first-come-first serve basis, we encourage asset managers who have been considering these projects to take action and benefit from the grant scheme as early as possible. This article sets out the highlights of the grant scheme. For further details, please refer to the SFC’s press release and FAQs.
Grant for OFC applicants
Eligible applicants include OFCs successfully incorporated in, and non-Hong Kong fund corporations successfully re-domiciled to Hong Kong as OFCs, on or after 10 May 2021. Investment managers of OFCs can apply for the grant on behalf of the OFCs.
The grant amount for each application is equivalent to 70% of the eligible expenses, capped at HK$1 million per OFC. Each investment manager can make grant applications for a maximum of 3 OFCs.
To apply for the grant scheme, an OFC applicant should:
for a private OFC, submit to the SFC a duly signed and completed Application Form for the Grant Scheme (“Application Form”) together with all requisite supporting information and documents within 3 months from the date on which the certificate of incorporation or certificate of redomiciliation was issued by the Companies Registry; and
for a public OFC, submit to the SFC a duly signed and completed Public Open-ended Fund Companies – Confirmation of Intention to Apply for a Grant under the Grant Scheme for Open-ended Fund Companies as part of their product application submission; and then submit to the SFC the Application Form and the requisite supporting information and documents within 3 months from the date on which the authorisation of the public OFC becomes effective.
Grant for REITs applicants
Eligible applicants include REITs that are successfully listed on the Stock Exchange of Hong Kong (“SEHK”) on or after 10 May 2021 with a minimum market capitalisation of HK$1.5 billion (or its equivalent) at the time of listing. For a REIT that is also listed outside Hong Kong, the market capitalisation of its units listed on the SEHK must be at least HK$ 1.5 billion (or its equivalent) at the time of listing. REIT managers can apply for the grant on behalf of the REITs.
The grant amount for each application is equivalent to 70% of the eligible expenses, capped at HK$8 million per REIT.
To apply for the grant scheme, a REIT applicant should submit to the SFC a duly signed and completed Application Form within 3 months after the listing date of the REIT.
Scope of eligible expenses
Eligible expenses must be paid to Hong Kong-based service providers and must be in relation to the incorporation or re-domiciliation of an OFC or listing of a REIT.
For OFCs, examples of such eligible expenses include fees for legal counsel, auditors, accountants, tax advisors, fund administrators, corporate service providers, company secretaries, regulatory consultants and listing agents (for listed OFCs only).
For REITS, examples of such eligible expenses include underwriting commissions charged by underwriters for the listing of a REIT, as well as fees for legal counsel, auditors, accountants, tax advisors, REIT valuers, marketing agencies or advertising consultants and listing agents.
For reference, the below expenses will generally be outside the scope of the grant scheme:
licensing or registration fees for an investment manager;
costs incurred in the establishment of a sub-fund under a pre-existing umbrella OFC;
listing fees to the SEHK; and
audit fees paid to accounting firms in relation to annual audit review.
Clawback of grant
The Government has the right to claw back the grant if:
an OFC commences winding-up or applies for termination of registration within two years from the date of its incorporation or redomiciliation; or
a REIT is delisted or suspended from trading within two years of its listing date.
Therefore, it is important that the OFC or REIT applicant has a relatively long-term (at least over two years) business plan before the investment manager makes the application for the grant.
The commencement of the grant scheme is to be warmly welcomed and when taken with the launch of the Hong Kong limited partnership fund, the enhancement to the Hong Kong open-ended fund company and the zero per cent rate of tax or carried interest for qualifying funds means that Hong Kong is now a truly competitive funds domicile.
Helen Wang, Partner, Eversheds