Hong Kong To Sort Out Taxation Of Hedge Funds

by Mary Swire, Tax-News.com, Hong Kong

24 May 2002

At a meeting of the Investment Funds Association in Hong Kong, Financial Secretary Antony Leung said a government task force is trying to sort out problems related to the taxation of offshore funds managed in Hong Kong. The tax authorities had recently caused outrage among fund managers by sending them tax demands when historically they had been exempt from tax on investments held outside the SAR.

Emphasising that the city is trying to promote itself as a center for the fund management industry, Leung said he was well aware of the concerns raised by offshore funds: "We'll soon identify appropriate measures to address the issues; we do not tax offshore income. These actions were triggered by availability of new information about the identity of fund management companies."

After a long period of consultation and much public soul-searching, Hong Kong's Securities and Futures Commission has just authorised retail access to hedge funds, which may be expected to increase demand.

Hong Kong is now the second Asian market after Singapore to offer hedge funds. Retail interest in such funds may be limited however due to the rules of the Mandatory Provident Fund Schemes Authority, which supervises private sector investment of social security contributions, and isn't yet prepared to change its rule against the use of hedge funds.

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