Category Archives: Updates & Publications

香港有限合伙基金架构

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香港立法会于2020年7月9日通过了新的法例，引入了香港有限合伙基金（LPF）制架构，为另类投资基金提供了一种新的香港基金类型，特别是针对私募股权基金，因其典型的架构为有限合伙制。

由2020年8月31日起，LPF架构可按《有限合伙基金条例》(LPFO)建立，申请人可根据LPFO的适用要求向香港公司注册处申请设立LPF，确定拟议的地址、营业地点和投资范围、拟议的普通合伙人和拟议的投资经理以及拟议的“负责人”，负责人必须是认可机构、持牌法团、会计或法律专业人士，来履行LPF的反洗黑钱/反恐融资职能。注册LPF的申请必须由已注册的香港律师事务所或可在香港执业的香港律师提交。如果公司注册处接受申请书已包含必要的文件和信息及申请人已支付有关申请费，便可成功注册LPF。

由于LPF本身不是独立的法人，因此LPF的普通合伙人将代表LPF行事和行使职权。普通合伙人最终负责LPF的管理和控制，并对LPF的所有债项和义务承担无限法律责任，但假如普通合伙人任命了授权代表，则普通合伙人和授权代表共同承担连带责任，并共同对LPF承担最终义务。有限合伙人则只须承担有限责任，对LPF的债项及义务所承担的法律责任，并不超过该合伙人所协议注资的款额，前提是有限责任合伙人并不涉及参与该基金的管理。LPFO特别列出若干活动或行为，有限合伙人进行该等活动或行为不会被视为参与该基金的管理，例如参与涉及实际或潜在的利益冲突的决策，尽管所列出的活动或行为并非详尽无遗地列出所有有限合伙人参与而不被视为参与基金管理的活动或行为。

牌照要求

值得注意的是，LPF与香港开放式基金型公司架构不同，LPF并不受香港主要的证券和期货市场监管机构，即证券及期货事务监察委员会（SFC）的（直接）监管，亦无需其事先批准。LPF必须具有合乎要求的普通合伙人和投资经理，以及上述“负责人”。投资经理必须是年满18岁的香港居民、在香港注册成立的香港公司或在香港注册的非香港成立公司。普通合伙人可以属其中任何一种类别，甚或是香港或非香港有限合伙。如果普通合伙人是香港或非香港有限合伙，该LPF必须拥有一位授权代表，该授权代表可以是18岁以上的香港居民，香港公司或香港注册的非香港成立公司。另外，LPF必须任命一名独立审计师对LPF的财务报表进行年度审计。

根据《香港证券及期货条例》（SFO），从事与证券及期货市场有关的受规管活动的业务须符合SFC的牌照要求。于2020年1月，SFC发出通函就本地受规管活动牌照要求该如何适用于私募股权基金经理提供指引及释疑，并指出其将考虑投资组合的组成，若私募股权基金经理所管理的私募股权基金所成立的特定目的公司或所持有的投资属于“证券”的定义，则可能触发牌照要求。

任何人士或实体从事“私募股权”或“风险投资”投资组合的交易、提供意见或管理，视乎投资组合是否涉及证券，可能有潜在的牌照要求（注：“证券”的定义不包括《公司条例》第 11 条所指的私人公司的股票或债权证）。如果LPF的普通合伙人，投资经理或顾问在香港开展业务及从事有关不属于《公司条例》所指的“私人公司”定义的离岸私人公司的股份或债券的交易、提供意见或管理，则很有可能须持有相关牌照，除非有特定豁免。

同时，在香港从事LPF募集业务的人士可能需获得SFC发牌以进行第1类受规管活动（证券交易），除非有特定豁免。获SFC发牌从事第9类受规管活动（提供资产管理）的香港管理人可依赖一项附带豁免以销售其基金，即其销售基金的活动完全附带于其资产管理业务而获得豁免。

税务优惠框架

本地规定并没有限制香港管理人只能设立香港投资基金，SFO 也没有在持牌人士从事受规管活动或证券销售方面对本地基金和离岸基金进行区分。对于香港管理人来说，以有限合伙基金形式在开曼群岛等离岸司法管辖区设立私募股权基金是很常见的，从税收角度来看亦是较为有利及具灵活性。

自2019年4月1日起，香港实行新的利得税豁免政策，所有投资基金无论其中央管理和控制的地点、架构、基金规模或投资目标如何，就特定资产的交易只要满足一定条件均可享有税务豁免。基金对海外和本地私人公司的投资均可享受免税优惠。上述利得税豁免要求合格的免税交易是通过“指定人士”进行的或由“指定人士”安排的，指定人士是指根据SFO已获发牌或注册以进行指定受规管活动的法团，包括香港持牌基金经理。因此，自2019年4月起，新的利得税豁免政策为私募股权基金在香港设立或管理提供了更有利和更具吸引力的税务框架。

另一个关键问题是关于可能须缴香港利得税或薪俸税的LPF的业绩表现费或附带权益以及基金管理层报酬的税收待遇。香港税务局（IRD）过去曾多次重申，在香港运营的基金应确保就香港基金经理和/或顾问所承担的风险和履行的职能向其支付真实公平的费用。此外，税务局指出，如果在考虑了归属于基金在香港的运营的职能、资产和风险后认为香港投资经理或顾问所提供的服务没有得到足够的报酬，税务局会仔细审视任何业绩表现费或附带利益的安排，并且如果所收到的分配并非真实的投资收益的话，可能会引用一般反避税规定。

但是，随着LPF制度将从2020年8月31日起生效，香港计划为在本港运营的私募股权基金所分发的附带权益提供税务宽免优惠政策，并于稍后公布有关细节。业界预计将会有针对私募股权基金经理的附带权益提供的税务宽免，以鼓励私募股权基金管理人选择在香港设立LPF，并在香港开展业务。

我们乐见香港推出LPF，为私募股权基金的发起人和管理人提供额外的架构选择，这将巩固香港作为资产管理中心在私募股权基金和投资领域的地位，并将进一步发展香港的基金管理行业。

与拟设立香港有限合伙基金的相关询问，请联系：

张慧雯律师（邮箱：vivien.teu@vteu.co）/ 何琄律师 （邮箱：sarah.he@vteu.co）

香港有限合夥基金架構

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香港立法會於2020年7月9日通過了新的法例，引入了香港有限合夥基金（LPF）制架構，為另類投資基金提供了一種新的香港基金類型，特別是針對私募股權基金，因其典型的架構為有限合夥制。

由2020年8月31日起，LPF架構可按《有限合夥基金條例》(LPFO)建立，申請人可根據LPFO的適用要求向香港公司註冊處申請設立LPF，確定擬議的地址、營業地點和投資範圍、擬議的普通合夥人和擬議的投資經理以及擬議的“負責人”，負責人必須是認可機構、持牌法團、會計或法律專業人士，來履行LPF的反洗黑錢/反恐融資職能。註冊LPF的申請必須由已註冊的香港律師事務所或可在香港執業的香港律師提交。如果公司註冊處接受申請書已包含必要的文件和信息及申請人已支付有關申請費，便可成功註冊LPF。

由於LPF本身不是獨立的法人，因此LPF的普通合夥人將代表LPF行事及行使職權。普通合夥人最終負責LPF的管理和控制，並對LPF的所有債項和義務承擔無限法律責任，但假如普通合夥人任命了授權代表，則普通合夥人和授權代表共同承擔連帶責任，並共同對LPF承擔最終義務。有限合夥人則只須承擔有限責任，對LPF的債項及義務所承擔的法律責任，並不超過該合夥人所協定注資的款額，前提是有限責任合夥人並不涉及參與該基金的管理。LPFO特別列出若干活動或行為，有限合夥人進行該等活動或行為不會被視為參與該基金的管理，例如參與涉及實際或潛在的利益衝突的決策，儘管所列出的活動或行為並非詳盡無遺地列出所有有限合夥人參與而不被視為參與基金管理的活動或行為。

牌照要求

值得注意的是，LPF與香港開放式基金型公司架構不同，LPF並不受香港主要的證券和期貨市場監管機構，即證券及期貨事務監察委員會（SFC）的（直接）監管，亦無需其事先批准。LPF必須具有合乎要求的普通合夥人和投資經理，以及上述“負責人”。投資經理必須是年滿18歲的香港居民、在香港註冊成立的香港公司或在香港註冊的非香港成立公司。普通合夥人可以屬其中任何一種類別，甚或是香港或非香港有限合夥。如果普通合夥人是香港或非香港有限合夥，該LPF必須擁有一位授權代表，該授權代表可以是18歲以上的香港居民，香港公司或香港註冊的非香港成立公司。另外，LPF必須任命一名獨立審計師對LPF的財務報表進行年度審計。

根據《香港證券及期貨條例》（SFO），從事與證券及期貨市場有關的受規管活動的業務須符合SFC的牌照要求。於2020年1月，SFC發出通函就本地受規管活動牌照要求該如何適用於私募股權基金經理提供指引及釋疑，並指出其將考慮投資組合的組成，若私募股權基金經理所管理的私募股權基金所成立的特定目的公司或所持有的投資屬於“證券”的定義，則可能觸發牌照要求。

任何人士或實體從事“私募股權”或“風險投資”投資組合的交易、提供意見或管理，視乎投資組合是否涉及證券，可能有潛在的牌照要求（注：“證券”的定義不包括《公司條例》第 11 條所指的私人公司的股票或債權證）。如果LPF的普通合夥人，投資經理或顧問在香港開展業務及從事有關不屬於《公司條例》所指的“私人公司”定義的離岸私人公司的股份或債券的交易、提供意見或管理，則很有可能須持有相關牌照，除非有特定豁免。

同時，在香港從事LPF募集業務的人士可能需獲得SFC發牌以進行第1類受規管活動（證券交易），除非有特定豁免。獲SFC發牌從事第9類受規管活動（提供資產管理）的香港管理人可依賴一項附帶豁免以銷售其基金，即其銷售基金的活動完全附帶於其資產管理業務而獲得豁免。

稅務優惠框架

本地規定並沒有限制香港管理人只能設立香港投資基金，SFO 也沒有在持牌人士從事受規管活動或證券銷售方面對本地基金和離岸基金進行區分。對於香港管理人來說，以有限合夥基金形式在開曼群島等離岸司法管轄區設立私募股權基金是很常見的，從稅收角度來看亦是較為有利及具靈活性。

自2019年4月1日起，香港實行新的利得稅豁免政策，所有投資基金無論其中央管理和控制的地點、架構、基金規模或投資目標如何，就特定資產的交易只要滿足一定條件均可享有稅務豁免。基金對海外和本地私人公司的投資均可享受免稅優惠。上述利得稅豁免要求合格的免稅交易是通過“指定人士”進行的或由“指定人士”安排的，指定人士是指根據SFO已獲發牌或註冊以進行指定受規管活動的法團，包括香港持牌基金經理。因此，自2019年4月起，新的利得稅豁免政策為私募股權基金在香港設立或管理提供了更有利和更具吸引力的稅務框架。

另一個關鍵問題是關於可能須繳香港利得稅或薪俸稅的LPF的業績表現費或附帶權益以及基金管理層報酬的稅收待遇。香港稅務局（IRD）過去曾多次重申，在香港運營的基金應確保就香港基金經理和/或顧問所承擔的風險和履行的職能向其支付真實公平的費用。此外，稅務局指出，如果在考慮了歸屬於基金在香港的運營的職能、資產和風險後認為香港投資經理或顧問所提供的服務沒有得到足夠的報酬，稅務局會仔細審視任何業績表現費或附帶利益的安排，並且如果所收到的分配並非真實的投資收益的話，可能會引用一般反避稅規定。

但是，隨著LPF制度將從2020年8月31日起生效，香港計畫為在本港運營的私募股權基金所分發的附帶權益提供稅務寬免優惠政策，並於稍後公佈有關細節。業界預計將會有針對私募股權基金經理的附帶權益提供的稅務寬免，以鼓勵私募股權基金管理人選擇在香港設立LPF，並在香港開展業務。

我們樂見香港推出LPF，為私募股權基金的發起人和管理人提供額外的架構選擇，這將鞏固香港作為資產管理中心在私募股權基金和投資領域的地位，並將進一步發展香港的基金管理行業。

有關設立香港有限合夥基金，請聯繫：

張慧雯律師（郵箱：vivien.teu@vteu.co） / 何琄律師（郵箱：sarah.he@vteu.co）

Hong Kong Green or ESG Investing & SFC Authorised Funds

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The Hong Kong Securities and Futures Commission (SFC) issued its Strategic Framework for Green Finance (the Framework) on 21 September 2018, aiming to develop green finance in Hong Kong, and considering that Hong Kong is well positioned to complement Mainland China’s green development ambitions and to connect green finance flows between Mainland and the rest of the world.

Pursuant to the Framework, the SFC has the following action agenda, in summary: 

  • Enhance listed companies’ environmental and climate-related disclosures;
  • Conduct a survey on integrating environmental, social and governance (ESG) factors, in particular environmental, in investment and risk analysis process; 
  • Facilitate the development of a wide range of green-related investments and financial products;
  • Support investor awareness, education and capacity building in green finance and investment-related matters;
  • Promote Hong Kong as an international green finance center.

With respect to the fund management industry in particular, subsequent to the issue of the Framework, on 11 April 2019[1] the SFC issued its “Circular to management companies of SFC-authorised unit trusts and mutual funds – Green or ESG funds” (the Circular).  The purpose of the Circular is to enhance disclosure comparability between similar types of SFC-authorised green or ESG funds, and their transparency and visibility in order to facilitate investors making informed investment decisions.

The SFC also conducted an industry-wide survey (the ESG Survey) from March to September 2019, intended to understand how and to what extent licensed asset management firms and leading institutional asset owners consider ESG in investment decisions and risk management, particularly those relating to climate change. The SFC issued the key findings of the ESG Survey in December 2019.  

Separately, last year a public consultation was conducted by the Hong Kong Stock Exchange (HKEX) and in December 2019 the consultation conclusions was issued on the review to the ESG Reporting Guide and Related Listing Rules for companies listed on HKEX.  This introduced enhanced requirements on the reporting and disclosure by listed companies on ESG, in particular on board governance, requiring mandatory disclosure of board engagement on a corporation’s consideration and reporting of ESG issues in its business activities, including materiality and quantitative assessment, risk management and strategy.  On climate, there is now a new requirement for disclosure on the policies and measures to identify and mitigate climate-related issues which have impacted or may significantly impact the listed issuer, and which reflects the Recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD)[2].  The disclosure obligation on all social issues have been upgraded from recommended or voluntary disclosures to mandatory “comply or explain” disclosures.   The new requirements apply for financial years commencing on or after July 2020, and are expected to enhance the availability and quality of ESG data on HKEX-listed companies.   

In this synopsis, we focus specifically on green or ESG investing of Hong Kong licensed investment managers, including a reflection on the results of the SFC ESG Survey, and also provide a detailed overview on the current range of SFC authorised funds green of ESG funds available for public offer, with reference to the SFC requirements on green or ESG funds under the Circular, from the commonly adopted ESG or green principles or criteria, to the range of investment strategies (thematic, screening, ESG integration and active ownership) being adopted.   

The SFC’s current regulatory approach has significantly enhanced product disclosures, while not being overly prescriptive, narrow or final in what may be accepted as green or ESG investments.  This gives room for flexibility in the growing field, as the approaches and principles of ESG and green investing are still evolving globally, with hundreds of existing as well as growing numbers of ESG or green investing framework, policies, principles, standards and ratings, besides proprietary approaches.  

Undeniably green finance is becoming more and more prominent in the financial and investment industry. The SFC is expected to issue more regulatory policies or guidance on green or ESG investment products or approaches, which will be key to further develop and encourage considered and sustainable development of the field.  The investment industry, including all asset managers and asset owners being institutional investors or agents of the investing public, has an important and necessary role to lead broader impact and further engagement to meet goals in line with green or ESG principles. 

We hope this synopsis will be beneficial to fund managers in considering their green or ESG investment strategies, and also their product development plans, which may contribute to the further development of green or ESG investing and related fund products in Hong Kong.

Hong Kong Green or ESG Investing & SFC Authorised Funds (July 2020)Download

For further information or discussion regarding the SFC requirements on green or ESG funds, SFC authorisation of investment funds, or related legal or regulatory considerations, please contact Vivien Teu, Managing Partner (Email: vivien.teu@vteu.co), Christina Suen, Counsel (Email: christina.suen@vteu.co) or any lawyer who is your usual contact at our firm.

[1] Please refer to our update and publication in April 2019 on the issue of the Circular: http://www.vteu.co/2019/04/14/green-or-esg-funds-hong-kong-regulator-issues-guidelines/

[2] The TCFD Recommendations were issued in June 2017 under an initiative of the Financial Stability Board, to develop climate-related financial disclosures that would provide the information needed by investors, lenders and insurance underwriters to appropriately assess and price climate-related risks and opportunities.  

Hong Kong Limited Partnership Fund Structure

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Hong Kong Legislative Council has on 9 July 2020 passed the new legislation which introduced the Hong Kong limited partnership fund (LPF) structure, making available a new Hong Kong domiciled fund type for alternative investment funds, in particular private equity funds which are typically structured as limited partnerships.

With effect from 31 August 2020, the LPF structure may be established pursuant to the new Hong Kong Limited Partnership Fund Ordinance (LPFO). Application may be made to the Hong Kong Registrar of Companies to establish the LPF subject to the applicable requirements under the LPFO, identifying the proposed address, place of business and investment scope, the proposed general partner and proposed investment manager, as well as a proposed “Responsible Person”, which must be an authorised institution, licensed corporation, accounting person or legal professional, with responsibility to carry out anti-money laundering/counter-terrorist financing functions for the LPF.  The application to register an LPF must be submitted on behalf of the fund by a registered Hong Kong law firm or a solicitor in Hong Kong admitted to practise Hong Kong law.  The LPF will be registered if the Registrar of Companies is satisfied the application contains the necessary documents and information and the requisite application fee is paid.

As the LPF is not a separate legal person, the general partner of the LPF exercises authority and acts on behalf of the LPF. The general partner has ultimate responsibility for the management and control of the LPF and has unlimited liability for all the debts and obligations of the LPF, whereas if an authorised representative has been appointed by the general partner, the general partner and the authorised representative are jointly and severally liable and share ultimate responsibility for the LPF.  A limited partner has the benefit of limited liability under the LPF, and is not liable for debts and obligations of the LPF beyond the amount of the limited partner’s agreed contribution, but this is provided the limited partner does not take part in the management of the fund.  The LPFO specifically outlines certain activities or conduct that a limited partner may engage in that will not be regarded as taking part in the management of the fund, such as involving decisions around actual or potential conflict of interest, although those activities are not intended to be exhaustive circumstances through the exercise of which a limited partner may not be regarded as taking part in the management of the fund.

Licensing Requirements

Notably, unlike the Hong Kong open-ended fund company structure, the LPF is not subject to prior approval or (direct) regulation by the Securities & Futures Commission (SFC), Hong Kong’s primary regulatory body for the securities and futures market. The LPF must have a general partner and an investment manager that meet the respective requirements, as well as a proposed “Responsible Person” as noted above. The investment manager must be a Hong Kong resident over the age of 18 years, a Hong Kong company or a non-Hong Kong company registered with the Hong Kong Companies Registry, whereas the general partner may be one of those categories of persons, or, notably, may be a domestic or foreign limited partnership.  Where the general partner is a domestic or foreign limited partnership, the LPF must have an authorised representative that is a Hong Kong resident who is at least 18 years old, a Hong Kong company or a registered non-Hong Kong company.  There is also the requirement that an independent auditor be appointed to audit the financial statements of the LPF annually.

The conduct of business in regulated activities relating to securities and futures market is subject to potential licensing requirements by the SFC under the Hong Kong Securities & Futures Ordinance (SFO).  In January 2020, the SFC issued a Circular to stamp out previous doubts as to the applicability of licensing requirements to private equity fund managers, noting it will consider the composition of the investment portfolio, which may trigger licensing requirements if the underlying specific purpose vehicles or underlying investments of the private equity fund under management fall within the definition of “securities”.

Where a person or entity deals in, advises on or manages a portfolio of “private equity” or “venture capital”, depending on whether the portfolio involves securities (the definition of which excludes shares or debentures of a company that is a private company within the meaning of section 11 of the Companies Ordinance), there may be potential licensing requirement.  In cases where the general partner, the manager or the adviser of the LPF conducts business in Hong Kong and deals in, advises on or manages shares or debentures of private offshore companies that fall outside the definition of a “private company” under the Companies Ordinance, it is likely that the firm in question will be required to be licensed, unless any relevant exemption applies. 

It should also be noted that persons engaged in the business of offering an LPF in Hong Kong may be required to be licensed by the SFC to carry on the Type 1 regulated activity of dealing in securities, unless any relevant exemption applies.  Hong Kong managers licensed by the SFC to conduct Type 9 regulated activity of asset management may rely on an exemption to market its fund as being incidental to its conduct of asset management business.

Favourable Tax Framework

Hong Kong managers are not restricted under any local requirements to form or establish Hong Kong-domiciled investment funds, and the SFO does not differentiate between local funds or offshore funds in the conduct of regulated activities of licensed persons or offers of securities. It has been common for Hong Kong managers to establish private equity funds in the form of limited partnership funds in offshore jurisdictions such as the Cayman Islands, considered to be favourable from tax perspectives in a flexible regime. 

As of 1 April 2019, Hong Kong has a new profits tax exemption regime for investment funds, regardless of the location of central management and control, their structure, size or investment objectives, to enjoy tax exemption for transactions in specified assets subject to meeting certain conditions.  A fund may enjoy the tax exemption in connection with its investment in both overseas and local private companies. The said profits tax exemption requires that qualifying transactions for the tax exemption are carried out through or arranged by a “specified person”, meaning a corporation licensed or registered for carrying out specified regulated activity under the SFO and which would include Hong Kong licensed managers.  Hence, since April 2019 the new profits tax exemption provides a more favourable and attractive tax framework for private equity funds to be established or managed in Hong Kong.

Another key issue is the tax treatment on performance fees or carried interest from the LPF and also the remuneration of fund executives, which may become subject to Hong Kong profits tax or salaries tax.  The Hong Kong Inland Revenue Department (IRD) has in the past reiterated that funds operating in Hong Kong should ensure that true arm’s length fees are paid to the Hong Kong manager and/or advisor for the risks and functions performed.  Furthermore, the IRD noted that any performance fee or carried interest arrangement would be closely examined by the IRD if it considers that the Hong Kong investment manager or advisor is not adequately remunerated for its level of services, after considering the functions, assets and risks attributable to the operations in Hong Kong, and that general anti-avoidance provisions may be applied if the distributions received are not genuine investment returns. 

However, with the LPF structure available from 31 August 2020, Hong Kong is looking at introducing tax concessions for carried interest for private equity funds that operate in Hong Kong, the details of which are to be further issued. The industry anticipates that there would be tax concessions for carried interest of private equity fund managers to further encourage private equity fund operators to establish Hong Kong domiciled LPFs and to operate in Hong Kong.

We welcome the introduction and availability of the Hong Kong LPF to offer an additional structuring choice to sponsors and managers of private equity funds, which would enhance Hong Kong’s position as an asset management centre in private equity funds and investments, further developing Hong Kong’s dynamic fund management industry.

For further information regarding the set up of a Hong Kong limited partnership fund structure which can be established from 31 August 2020, and related licensing or tax considerations for private equity funds, please contact Vivien Teu, Managing Partner (Email: vivien.teu@vteu.co), Sarah He, Associate (Email: sarah.he@vteu.co) or any lawyer who is your usual contact at our firm.

Tax in the transparent world: a review and update on automatic exchange of information

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Traditionally, business owners and investors have tended to diversify wealth and investments outside of their home jurisdictions, and the use of holding structures, with offshore companies, offshore accounts and/or trusts, or a combination thereof, is relatively common place, across many jurisdictions and has been existing for a long time.  It is usual to involve handing over legal ownership and responsibility for the assets and delegating control or investments to a third party trustee. The reasons for setting up a trust varies but with growing global wealth, there continues to be ever-growing needs for such arrangements for maintaining and protecting wealth for future generations, and as succession planning.  In a wealth management centre like Hong Kong, for instance, we continually see increasing demands for trust set-up among high-net-worth individuals and families in China and the rest of Asia, amongst others.

Meantime, the Organisation for Economic Cooperation and Development (“OECD”) has in recent years doubled up efforts of (non-US) tax authorities globally towards chasing taxpayers who are flying under the radar of their home countries’ tax authorities and who do not declare their income or gains arising from assets or investments held overseas.   As a responsible member of the international community and in keeping up its international reputation and competitiveness as an international financial centre, Hong Kong has also adopted automatic exchange of information between tax authorities, moving from its previous position of providing information only upon request. 

In this synopsis, we provide an outline of the global changes that have driven the enhancement of tax transparency – more specifically, the international standard on automatic exchange of financial account information in tax matters, which has now been implemented by many jurisdictions globally including Hong Kong and China.

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Lexology GTDT Fund Management

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The Lexology Getting the Deal Through Guide for Fund Management is now published. Access this link for all the chapters across 15 jurisdictions and a comparison tool: https://www.lexology.com/gtdt/workareas/fund-management

We are pleased to have contributed the Hong Kong chapter alongside many distinguished firms focused on fund management areas, and to have worked with Lexology GTDT team on this publication.

Please access our Hong Kong chapter here.

Chambers Private Wealth 2019

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Our firm is pleased to have been invited by Chambers and Partners to contribute the Hong Kong Trends & Developments Chapter for Private Wealth 2019.

Access the following link for the online version:
https://practiceguides.chambers.com/practice-guides/private-wealth-2019/hong-kong/trends-and-developments

Or download the copy here:

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Abolition of Quota Requirements for QFII/RQFII

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Although this was indicated as being on the cards, China has surprised the global investment community with an unexpected formal announcement to abolish the quota requirements under the QFII and RQFII regimes.   The China Statement Administration of Foreign Exchange (SAFE) published its statement on 10 September 2019 referring to this strategic policy decision as a measure of further opening up.

The framework for qualified foreign institutional investors (QFII) is the program first introduced in 2002 to allow foreign investment (and foreign exchange) into the onshore equities market in China for China A Shares listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange, and to-date other domestic securities and investment instruments, under China’s strict foreign exchange controls.  RQFII is the corresponding framework for offshore Renminbi in place since 2011.   

Since the first implementations of the frameworks, foreign institutional investors including asset managers, pension funds, foundations, banks, securities firms and insurance companies as well as foreign sovereign wealth funds have to apply for specific quota limits on the amount of investment allowed into China, besides obtaining a QFII or RQFII licence subject to meeting relevant eligibility requirements.   The quota requirements adopted under QFII and RQFII programs have been under SAFE’s management and oversight as part of foreign exchange controls and balance of payments.  

According to SAFE’s statement, going forward, qualifying QFIIs and RQFIIs would only need to undergo a registration process to freely remit funds into China for investment in the domestic securities markets.  This is intended to enable international investors to more easily and more broadly participate in the China bonds and stock markets.  

The abolition of quota is certainly a significant event in the evolution of the frameworks since its first implementations.   Over the years and having been through several key milestone initiatives, we have seen the changes from the earlier days when the QFII program was highly restricted in terms of eligibility conditions and availability of quota, as well as questions around custody and ownership that are now considerably established.  The global investment community who have invested in the China market under QFII and RQFII has lived through challenges on quota management, tax compliance, repatriation limits and related liquidity risks.   Many of these issues have now been largely liberalised or addressed under both QFII and RQFII programs.

This should be an interesting prospect for investment managers and other global investors who wish to further allocate into China A Shares and other domestic securities, perhaps in line with the inclusion and increase in weightage in global indices such as MSCI.   We believe the removal of quota limits could spur development of index-tracking exchange-traded fund products and also more investment by such products into China A Shares, with flexibility to operate without quota constraints.

More details are required, however, and SAFE states that it is in the process of seeking the approval of the China State Council regarding the administrative measures and further announcement.     

Global managers and institutional investors should closely watch this space for updates on the timing and manner in which existing quota system would transition, the proposed registration system that would replace the quota requirements, any corresponding changes regarding repatriation, or other account management issues.

Vivien Teu & Co LLP is experienced in advising investment managers on offshore investment products (such as retail funds authorised by the Hong Kong Securities & Futures Commission or private funds) that invest in China A Shares or domestic market through QFII / RQFII programs (or other cross-market channels such as stock connect or accessing China Inter-bank Bond Market). We would be happy to assist if you have any questions or wish to discuss the subject matter of this update. 

ICLG Alternative Investment Funds 2019 – Hong Kong

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Vivien Teu & Co LLP is pleased to continue our contribution of the Hong Kong Chapter this year to the International Comparative Legal Guide (ICLG) on Alternative Investments Funds 2019, published by Global Legal Group.

Our authors Vivien Teu and Sarah He provide an overview of recent changes and updates to available legal structures, regulatory developments and market trends shaping private investment products and distribution issues in Hong Kong, as well as new legislation this year that expanded the Hong Kong profits tax exemption for private funds while the global tax environment increases emphasis on operational substance.

The chapter is available online at: https://iclg.com/practice-areas/alternative-investment-funds-laws-and-regulations/hong-kong

For a print version of the chapter:

ICLG-AIF19-Hong-KongDownload

Remote onboarding

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On 28 June 2019, the Securities and Futures Commission of Hong Kong (“SFC”) issued (i) a circular to intermediaries on ‘Remote onboarding of overseas individual clients’ (“the Circular”), and also (ii) a circular on corresponding amendments to paragraph 5.1 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“Code of Conduct”). The amendments to the Code of Conduct took effect on 5 July 2019. As technology advances, more and more business activities take place online. As such, SFC set out new approaches for opening accounts under such development.

In this publication, we refer to the SFC’s current published list of acceptable approaches, with an outline of the required steps for remote onboarding of overseas individual clients when licensed or registered persons engage in providing services online in securities or futures business.

 

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