Home Asia-Pacific Hong Kong

Hong Kong

Hong Kong and Thailand: The Future of Asia – Hong Kong & Thailand Mutual...

0
On 20 January 2021, the Hong Kong Securities and Futures Commission ("SFC") and the Office of the Securities and Exchange Commission of Thailand ("Thai SEC") jointly announced1 ("Announcement") that they had entered into a bilateral Memorandum of Understanding ("MOU") for the Mutual Recognition of Funds between the Hong Kong Special Administrative Region of the People's Republic of China and Thailand ("HK-TH MRF").2 The HK-TH MRF represents a significant additional step to foster closer ties and financial cooperation between Hong Kong and Thailand. It follows, amongst other existing arrangements, the long term co-operation between the Hong Kong Monetary Authority and Bank of Thailand to explore a Distributed Ledger Technology solution for cross border funds transfers known as project Inthanon - Lionrock3 and the Memorandum of Understanding on the Strengthening of Economic Relations signed on 29 November 2019 by the respective governments.4 In this Client Alert we provide an overview of some of the key aspects of the HK-TH MRF.

Peeling the Layers – Recorded Webinar: Practical Analysis and Application of Controllership and Beneficial...

0
The laws on identifying effectively beneficial owners of companies have been in force in Hong Kong and Singapore for a few years now. Malaysia...

Hong Kong: Gazettal of bill providing tax concessions for carried interest

0
In brief The Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021 (“Bill”) was published in the Gazette today. The Bill sets forth the legislative framework for granting concessionary tax treatment to carried interest received by or accrued to fund managers and their employees, and is in line with the proposals put forward by the government in its August 2020 consultation paper as well as in the discussion paper issued by the Legislative Council Panel on Financial Affairs earlier this month.Further to our client alerts published in August 2020 and January 2021 detailing the parameters and eligibility criteria of the concession, we set forth in this alert other features newly introduced in the Bill, which are worthy of note. We will provide a more detailed alert summarizing the features of the Bill at a later date.The Bill adopts all the features mentioned in the discussion paper issued earlier this month. For the purposes of this alert, we set out other notable features of the concessionary regime that are further elaborated in this Bill.Application. The concession will have retrospective effect and will apply to eligible carried interest received by or accrued to qualifying persons on or after 1 April 2020. However, the Bill makes it clear that the concession will not apply to carried interest accrued before 1 April 2020, even if it is only received after 1 April 2020. Form of the tax concession. For profits tax purposes, the concession will take the form of a 0% profits tax rate on the net eligible carried interest received or accrued. For salaries tax purposes, remuneration paid by qualifying fund managers to their employees for work performed in securing the eligible carried interest received will also not be subject to salaries tax. Eligible carried interest. In addition to the requirements that the carried interest must be profit-linked and must only be payable subject to fulfillment of the hurdle rate under the terms of the agreement governing operation of the fund, the Bill additionally provides that to the extent there is no significant risk that the amount would not be received or accrued, such amount is not to be regarded as eligible carried interest. Any risk that the amount would be prevented from being received or accrued (by reason of insolvency or otherwise) will for this purpose be ignored. Qualifying person. Under the Bill, fund managers may only qualify for the tax concession if they carry out investment management services, or arrange for such services to be carried out, in Hong Kong from the day they start providing such services to the fund, to the day when they receive the carried interest (“Applicable Period”). The investment management services must also not be partially carried on through a permanent establishment which the fund manager has outside of Hong Kong. Employees, on the other hand, may only qualify for the concession if they are employed by a qualifying fund manager or an associate of such qualifying fund manager who carries on a business in Hong Kong. The employee himself must also provide investment management services in Hong Kong to qualify for the tax concession. The salaries tax concession only applies to the extent that the amount received by the employee is paid out of eligible carried interest that is exempt from profits tax under the concession. Fund managers and employees wishing to take advantage of the tax concession should take care to ensure that the terms of employment are appropriately drafted and relevant documentation is maintained to establish the nexus between payments to employees and the carried interest.Substantial activities requirement. Under the discussion paper, it was suggested that the fund manager must have on average two full-time employees in Hong Kong who carry out investment management services, and incur expenditures of HKD 2 million in Hong Kong in providing the investment management services for each year of assessment in which the concession is sought to be claimed. The Bill clarifies that these conditions must be satisfied during the entire Applicable Period. In addition, even if the conditions are satisfied, the Inland Revenue Department (IRD) may still disallow the concession if it considers that the average number of full-time employees and the total amount of operating expenditure incurred are inadequate. Detailed information and record retention requirements. The Bill contains detailed information and record retention requirements. Qualifying fund managers must, for instance, provide information relating to any eligible carried interest which it receives, and details regarding employees who receive eligible carried interest, to the IRD, and retain sufficient records to enable the accuracy and completeness of payments or accruals of carried interest to be ascertained for a seven-year period. Qualifying payers (i.e., certified investment funds and other qualifying payers) are also subject to similar record retention requirements. Failure by qualifying payers to do so may render any carried interest which they pay ineligible for the tax concession. Anti-avoidance provision. The Bill also includes a new specific anti-avoidance provision which applies to arrangements that have as one of their main purposes the obtaining of a tax benefit under the carried interest tax concession, whether for the person or any other person. This intends to serve as a catch-all to prevent abuse of the rules, such as where an arrangement has been disguised as an eligible carried interest scheme that satisfies all of the specified conditions. The need for this rule is questionable given the scope of this specific anti-avoidance rule appears to overlap with the general anti-avoidance provision. Right to seek advice from the HKMA. We also note that under the Bill, the IRD is expressly empowered to seek advice from the Hong Kong Monetary Authority in respect of any matter relevant to a person’s entitlement to the tax concession.

Financial Regulatory and Enforcement Content Hub

0
Join Baker McKenzie regulatory and enforcement practitioners as we navigate this uncertain time and work together through the challenges ahead. We offer practical advice...

US – OFAC issues Hong Kong Sanctions Regulations

0
On January 15, 2021, the Office of Foreign Assets Control (OFAC) published in the Federal Register a final rule  adding regulations (31 C.F.R. Part...

China and Hong Kong: Cyber Fraud Recovery

0
Hong Kong and Mainland China are common destinations for embezzled funds In today’s global marketplace, disputes are growing in number and complexity. Businesses are facing...

Hong Kong: Gazettal of bill providing tax concessions for carried interest

0
The Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021 (“Bill”) was published in the Gazette today. The Bill sets forth the legislative framework for granting concessionary tax treatment to carried interest received by or accrued to fund managers and their employees, and is in line with the proposals put forward by the government in its August 2020 consultation paper as well as in the discussion paper issued by the Legislative Council Panel on Financial Affairs earlier this month.Further to our client alerts published in August 2020 and January 2021 detailing the parameters and eligibility criteria of the concession, we set forth in this alert other features newly introduced in the Bill, which are worthy of note. We will provide a more detailed alert summarizing the features of the Bill at a later date.

Hong Kong: Proposed carried interest tax concession rate set at 0%

0
A tax concession is proposed for carried interest issued by private entity (PE) funds operating in Hong Kong. Following the government's consultation paper issued in August 2020 and the industry consultation on the initial proposals, the Legislative Council ("LegCo") Panel on Financial Affairs released a discussion paper on 4 January 2021 on the proposed tax concession regime, with a view to introducing the amendment bill into LegCo in late January 2021. Subject to the passage of the amendment bill, the concessionary tax treatment will take retrospective effect in respect of eligible carried interest received or accrued on or after 1 April 2020. Under the latest proposal, eligible carried interest will be charged at a concessionary profits tax rate of 0%, and 100% of eligible carried interest will be excluded from employment income for salaries tax purposes.

Hong Kong: COVID-19 – Vaccinating the workforce – Key considerations for employers

0
The Hong Kong government recently announced that three types of COVID-19 vaccines will be available for the city's residents, raising hopes of things returning to business-as-usual in the not too distant future. While the specifics of the vaccine rollout are still unknown, employers have many questions on what this means in practice. Issues include how the vaccine can be used to protect workforces as well as an understanding of employer responsibilities in relation to the offering of vaccines to employees.

United Kingdom: The Future of the Corporation

0
Insurtech (Part 2) Taking off from the recent publication, Insurtech: Opportunities and Legal Challenges for the Insurance Industry, Chris Murrer and Iris Barsan walk through observations...
Send this to a friend