Hong Kong ‘losing out’ to jurisdictions such as Singapore, should exempt private credit assets from tax: industry body
- The funds industry has been lobbying for the inclusion of private credit and debt investment in the UFE regime
- ‘We must encourage fund managers to come to the city and manage their funds, so that Hong Kong gets to collect tax on these management fees,’ KPMG executive says
Hong Kong’s funds industry is calling for a profit tax exemption for private credit assets, as the city is failing to attract a booming business and is losing out to Singapore because of its existing tax regime.
The Unified Fund Exemption (UFE) regime allows most private-equity funds operating in Hong Kong to enjoy profit tax exemption provided that certain conditions are met, a move that is aimed at promoting Hong Kong as an asset-management centre. However, interest income on private credit in the form of debt instruments is not exempt under the rule, meaning investment funds could be subject to a profit tax of 16.5 per cent if such transactions are made.
“Hong Kong is losing out at the moment,” said Darren Bowdern, vice-chair of the Hong Kong Venture Capital and Private Equity Association’s technical committee. “We want to bring that business back to Hong Kong, and we will benefit greatly. All the professional services, bankers, administrators and talent pool are here. That is what we do well.”
“If we want to promote Hong Kong as an asset-management and private-equity hub for Asia, we must encourage fund managers to come to the city and manage their funds, so that Hong Kong gets to collect tax on these management fees,” said Bowdern, who is also the head of asset-management tax in Asia-Pacific at KPMG China.
The industry has been lobbying for the inclusion of private credit and debt investment in the UFE regime in recent years, and the city’s government has said it is reviewing the existing tax concessions applicable to funds.