29 October 2020
In the recent consultation conclusions on the proposed enhancements to the open-ended fund companies (OFC) regime issued by the Securities and Futures Commission (SFC), the SFC indicated that new provisions under the Securities and Futures Ordinance (SFO) to cater for re-domiciliation of existing overseas corporate funds to Hong Kong would be introduced, in a bid to promote and establish Hong Kong as an asset management hub in Asia.
Under the existing framework, overseas corporate funds would be required to transfer assets or adopt share swap arrangements in order to re-domicile to Hong Kong, each of such methods potentially raising tax implications. Under the SFC’s re-domiciliation proposal, there would be no change in the legal personality of the corporate fund and therefore no “transfer” of assets between legal entities would be required. Accordingly, no stamp duty charge is triggered which would otherwise apply to such transactions. Corporate funds choosing to re-domicile to Hong Kong would also benefit from being able to keep their existing track records and retain existing contractual relationships with service providers and investors, hence eliminating the hassle to re-execute any agreements. Upon re-domiciliation, the OFC can continue to enjoy profits tax exemptions subject to meeting the same conditions under the unified profits tax exemption regime that are applicable to funds domiciled in Hong Kong and overseas.
Pending details to be issued, overseas corporate funds intending to re-domicile to Hong Kong are expected to satisfy the same basic requirements for registration of an OFC, including the appointment of qualifying investment managers, custodians and directors. The mechanism will adopt a simple one-stop application and establishment model similar to that for the registration and incorporation of OFCs under the existing regime, provided that evidence of de-registration in its original place of incorporation can be provided.
The introduction of a simple re-domiciliation framework for OFC structures is welcomed in light of increasing regulatory and legal complexities and costs for corporate funds established in overseas jurisdictions in recent years. It has already generated a lot of interest amongst fund managers. From a macro perspective, it is envisioned that the move will enhance the city’s status as the leading asset management hub in Asia, allowing for a single jurisdictional platform to raise funds from international and domestic investors.
For further information, please contact:
Fiona Fong, Partner, Deacons
fiona.fong@deacons.com.hk
