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Taxation of Investment Funds in Hong Kong

Taxation of Investment Funds in Hong Kong

Hong Kong is an attractive international asset management hub and the growing number of domiciled funds strengthen its position in the regional Asian market. The city already has an attractive taxation regime but special policies and tax exemptions for offshore funds are helping the city maintain its competitiveness.

Our team of Hong Kong company registration agents highlights the main taxation issues to take into consideration when opening an investment fund.

Taxes for Hong Kong investment funds

Hong Kong is a leading financial center in Asia and also an asset management hub on the rise. Some recent Governmental changes have aimed to improve the fund exemption regimes in as far as to extend them to some types of businesses. For example, the tax exemption for offshore funds was extended to offshore private equity funds in 2015 – a move that was welcomed by private equity investors.

Income from investment funds in Hong Kong can be tax exempt in Hong Kong when certain criteria are met. For example, retail funds are exempt from the profits tax but they are subject to a 0.2% stamp duty tax paid when the Hong Kong stock is transferred.

Resident investors in Hong Kong (holders of investment funds) are generally not subject to any taxes on income from the distribution from the fund (capital gains). Taxation may be imposed when the transaction is part of a business or when the profits are not capital or are being sourced in Hong Kong. 

Investment fund taxation exemption 

The list below summarizes the main conditions that need to be fulfilled by investment funds in order to benefit from the applicable profits tax exemption in Hong Kong:

  • • Non-resident: to qualify for the exemption, the applicant must be a non-resident in Hong Kong, applicable both to companies and individuals. 
  • • Qualifiable fund: the profits tax exemption only applies when the transactions are carried out through a qualifying fund.
  • • The applicant does not carry out other transactions: examples of activities that are not allowed include insurance, finance, construction and property development, namely property holding. 
  • • Scope: the exemption applies for the profits tax in Hong Kong in respect to those profits derived from the permitted or specified transactions.

For the purpose of offshore funds, the permitted transactions include those in securities, futures, foreign exchange contracts, transactions in foreign currencies or in exchange-traded commodities and others.

One of our Hong Kong company formation agents can give you more details on these exemptions and the taxation regime in general.

Contact us for personalized investment assistance in Hong Kong.