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Hong Kong group calls for tax changes to bolster financial services industry

FSDC
By Hui Ching-hoo   
May 27, 2022

Hong Kong should amend its tax laws to encourage foreign pension funds to set up offices in the city, and review the tax regime for the debt capital market to help foster underdeveloped asset classes, according to a government body which promotes the financial services industry.

It comes amid concerns that Hong Kong’s zero-Covid policy approach may hurt its status as a financial hub at a time when most countries have moved to treating the disease as endemic and relaxed restrictions.

A number of international asset managers are looking to relocate their Asia Pacific teams from Hong Kong to countries like Singapore after months of strict measures imposed to control the Omicron variant of Covid-19. Some measures have been eased but all in-bound travellers still have to undergo seven days of mandatory quarantine.

The Financial Services Development Council (FSDC) published a report on May 25 identifying areas where tax can play a “pivotal role to bring the financial service industry to greater heights”.

Among other things, it recommends changes to tax laws to encourage pension funds to set up offices in Hong Kong for their in-house fund management arms, including better defining qualified institutional investors for tax exemptions.

It also urges the government to address deficiencies in the drafting and interpretation of unified profit tax exemption for funds and the open-ended fund company regime, and reviewing the tax regime for the debt capital market to promote underdeveloped asset classes such as private debt.

FSDC Chairman Laurence Li says Hong Kong’s low and simple business-friendly tax regime is one of the factors contributing to the city’s success as an international financial centre.

“Nevertheless, to stay ahead of the race in the constantly evolving international tax landscape and asset management business, Hong Kong should continue to assess and enhance the competitiveness of its tax regime for the asset and wealth management industry,” Li says in a statement issued together with the report.

Established in 2013, the FSDC’s members include government officials and representatives from accounting firms, asset managers and banks.