The Hong Kong government is expecting that legislation exempting offshore funds from profits tax will be approved during the first quarter of 2005, a move that is likely to give the city's asset management industry a significant boost and could lure many funds from competing financial centres in Europe, Asia and North America.
Secretary for Financial Services and the Treasury, Frederick Ma, told reporters on the sidelines of an investment conference in Hong Kong last week that the elimination of the 17.5% tax on funds' profits will be a "big attraction" for foreign investors and could help deepen the liquidity of the city's stock market.
"This will put us at par, if not more favourable, with some financial centres like the UK and the US," Mr Ma observed.
Currently, more than 60% of funds managed in Hong Kong are from foreign investors, according to Mr Ma.
First proposed by the Hong Kong government in the 2003/2004 Budget, the proposal to exempt offshore funds from profits tax is designed to reinforce the status of Hong Kong as an international financial centre, and bring the territory into line with other major financial centres across the globe.
Hong Kong is facing keen competition from other major IFCs in attracting foreign investments. Major financial centres such as New York, London and Singapore all exempt offshore funds from tax.
The financial services industry has long expressed the view that it is vital for Hong Kong to provide tax exemption for offshore funds to prevent an exodus of funds to other centres and a loss of market liquidity. Depletion of the fund industry in Hong Kong would also have a detrimental effect on financial services in the city, such as those provided by brokers, accountants, bankers and lawyers.
It is believed that the revenue loss to the Hong Kong treasury as a result of the abolition of the fund profit tax will be relatively slight, due to difficulties currently faced by the tax authorities in obtaining details of securities transactions involving non-resident persons.
A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, and hedge funds is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp
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