Unified Funds
Tax Exemption Ordinance ) and sets outs intended IRD
practice in administering the Unified Funds Tax Exemption which
came into effect on April 1, 2019.
The Unified Funds Tax Exemption
The Unified Funds Tax Exemption seeks to exempt hedge funds,
including OFCs and LPFs, from Hong Kong profits tax. This exemption
may apply regardless of the fund structure, location of the
fund s central management and control, fund size or fund
purpose provided that prescribed conditions are satisfied.
Unlike the Offshore Funds Exemption, there is no longer a bias
against Hong Kong. Firstly, there is no longer any need to
artificially maintain fund management and control overseas.
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Traditionally, for Hong Kong based managers, the preferred hedge
fund structure has tended to be an offshore company, typically
domiciled in the Cayman Islands. Recent enhancements to Hong
Kong s open-ended fund company
(
OFC ) regime in September 2020 as well
as an increasing number of challenges arising from changes in the
Cayman Islands, however, make an OFC a compelling alternative for
hedge funds.
There are a number of key advantages for a Hong Kong hedge fund
manager in using a Hong Kong OFC compared to using an exempted
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Following its proposal to introduce a concessionary tax rate for
carried interest earned from Hong Kong private equity funds, on
January 4, 2021, the Hong Kong Government announced that eligible
carried interest will be charged at a profits tax rate of 0% and
that 100% of eligible carried interest will be excluded from
employment income for the calculation of salaries tax. In this
article, we provide an overview of the latest developments. In our
earlier article, Hong Kong Private Equity Funds: Carried Interest
Tax Concession Proposal, we outline the initial proposal