December 05, 2024
By Our Correspondent
Hong Kong has proposed to exempt billionaires’ investment vehicles, hedge funds, and private equity firms from paying taxes on their private credit investments, cryptocurrency gains, and other assets. In order to compete with rivals like Singapore and Switzerland, the strategy seeks to establish the city as a major center for offshore finance. The idea, which aims to increase investment by providing advantageous tax circumstances for asset managers and family offices, is currently undergoing a six-week consultation period by the Chinese territory’s administration.
In the 20-page proposal, Hong Kong’s government emphasised that taxation is a key consideration for asset managers when deciding where to base their operations. The move is seen as part of a broader effort to solidify the city’s status as a center for crypto businesses and financial innovation.
According to Patrick Yip, vice chair and international tax partner at Deloitte China, the changes would provide much-needed certainty to family offices and investors, particularly those looking to allocate a portion of their wealth to digital assets. He noted that family offices in Hong Kong already invest up to 20% of their portfolios in cryptocurrencies, reflecting the growing appeal of the sector.
Hong Kong’s efforts to attract investors come as regional competition intensifies. Singapore has been a favoured destination for billionaires and fund managers, thanks to its low-tax fund structures and supportive regulatory environment. However, Singapore’s recent crackdown on money laundering has introduced more stringent due diligence processes, slowing down the establishment of family offices. This has created an opportunity for Hong Kong to capture a larger share of the market.
The proposal also includes expanding tax exemptions to cover investments in overseas property, private credit, and carbon credits.
Darren Bowdern, head of asset management tax for Asia at KPMG, said the changes aim to align Hong Kong with other top destinations like Singapore and Luxembourg, ensuring that funds operating in the city are not subjected to local taxes. This would make Hong Kong more attractive for launching new funds, an area where it currently lags behind Singapore.
To support its ambitions, Hong Kong has been promoting the use of “open-ended fund companies,” a low-tax legal structure that allows investors to pool assets and manage multiple sub-funds. As of October, over 450 such funds had been launched in Hong Kong. By comparison, Singapore’s introduction of the “variable capital company” structure in 2020 has already attracted more than 1,000 funds..
The proposal demonstrates Hong Kong’s determination to become a global hub for traditional and digital finance. The city is promoting itself as a more flexible and business-friendly option to its regional competitors. Industry analysts say that if adopted, these tax breaks might significantly boost the city’s financial sector, notably in bitcoin trading and wealth management.
Anatoly Aksakov, Russian MP & Chair of Financial Market Committee expressed his views on Hong Kong’s tax breaks could trigger other global financial hubs to adopt similar policies, further legitimising the role of cryptocurrency in traditional finance and attracting crypto-related investments worldwide
Wealthy Chinese individuals seeking to diversify their assets outside mainland China may find Hong Kong increasingly appealing, especially as President Xi Jinping continues his crackdown on displays of excessive wealth. UBS CEO Sergio Ermotti recently noted that Hong Kong is making “great progress” in the wealth management sector and could soon challenge Switzerland’s position as a leading global financial center.
