Legal and regulatory frameworks will be offered to woo fund: Budget

The Hong Kong government will adopt several measures to facilitate the financial industry, including extending the offshore funds' profits tax exemption and 50 percent profits tax reduction on offshore insurance business of captive insurance companies to attract more financial institutions to the city and to increase local employment.

The financial secretary said, in order to strengthen Hong Kong's position as a premier international asset management center, the city will provide relevant legal and regulatory frameworks and a clear and competitive tax environment to attract various types of funds to establish their bases in city.

The government proposes to extend the profits tax exemption for offshore funds to include transactions in private companies which are incorporated or registered outside Hong Kong and do not hold any Hong Kong properties nor carry out any business in the city, allowing private equity funds to enjoy the same tax exemption as offshore funds.

Government sources said profits tax exemption is a crucial factor for private equity funds when they choose locations for a management base, and when they establish their base in Hong Kong, they will hire more local professionals like accountants, lawyers and legal administrative staff.

"We are delighted to hear that the financial secretary will allow private equity funds to enjoy the same tax exemption as offshore funds," Anthony Lau, deputy chairperson of Taxation Committee, Greater China, CPA Australia, told China Daily, adding that this is a positive move in promoting Hong Kong as an international asset management center.

Lau said that CPA Australia also suggests the government consider broadening the tax exemption for offshore funds to include investments in Hong Kong SMEs (with the exception of companies that hold Hong Kong real-estate), a move which will promote the local SMEs development and stimulate the economy.

The secretary also said that many large enterprises in Asia are keen to operate their own captive insurance companies to insure against their business risks. And to attract more such business, the government proposes to reduce the profits tax on the offshore insurance business of captive insurance companies by 50 percent.

Currently there are many mainland companies which are engaged in overseas businesses but few of them have their own captive insurance companies.

The central government announced in June 2012 that it supports mainland institutes to establish their captive insurers in Hong Kong to improve the risk-protection mechanism. More mainland companies are expected to be interested and it could also drive demand for professional services in the city, said the government sources.

The Hong Kong government will also continue its dialogue with the relevant mainland authorities to expedite the next stage of Renminbi Qualified Foreign Institutional Investors' (RQFII) expansion, which will include extending the pilot scheme to qualified Hong Kong financial institutions.

Meanwhile, the size of the Government Bond Program will be doubled to HK$200 billion to provide it adequate room to continue in the next five years and a further iBond issue of up to HK$10 billion will be launched.

sophiehe@chinadailyhk.com

(HK Edition 02/28/2013 page4)