No Timetable For Offshore Funds Tax Exemption, Says Tang

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

15 March 2004

In the face of growing criticism over the government’s proposals regarding the taxation of offshore funds, Financial Secretary Henry Tang indicated last week that there is still no timetable in place for the new legislation.

Delivering his first budget in his current ministerial post last week, Tang explained that the government is still examining details surrounding the new rules, adding: “We are in discussion with the industry on the detailed arrangements and the necessary legislative amendments to exempt offshore funds from profits tax.”

According to a government statement earlier in the year, the proposed amendments "seek to exempt fund entities and non-fund entities resident outside Hong Kong from profits tax in respect of any income derived from transactions undertaken in Hong Kong through a broker or an approved investment adviser." In addition, "To prevent round-tripping by local funds, anti-avoidance measures are also proposed.”

However, there is growing concern within the business and fund management community in Hong Kong that the new proposals to exempt offshore funds from tax will come at the price of a high compliance and administrative burden.

For instance, ACCA HK (Association of Chartered Certified Accountants Hong Kong) has strong objections to a proposal in the government’s Consultation Paper which suggests that the interest of non-resident persons in the relevant entity should not be below 80%.

“We do not consider it as appropriate to include such stringent and unreasonable provision,” commented ACCA’s president, Leo Lee.

Others, such as accounting firm PricewaterhouseCoopers are arguing for a blanket exemption to “genuine and bona-fide offshore funds that are managed in Hong Kong or are advised by an Securities and Futures Commission approved investment adviser.”

The industry has warned that the Hong Kong authorities must take heed of these concerns, or business will continue to flock to nearby rivals such as Singapore, where all offshore funds are exempt from tax.

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