KPMG comments on the Hong Kong Financial Services Development Council's proposal to widen the tax exemption for private equity funds

KPMG comments on HKFSDC proposal to widen the tax ex...

We welcome the release of the FSDC’s report on a proposal designed to increase the attractiveness of Hong Kong to the Private Equity industry.

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The Hong Kong Government acknowledges and appreciates the importance of the asset management industry to the Hong Kong economy. Hong Kong is an international asset management and wealth management center, experiencing significant growth over the last few years.

Hong Kong introduced an offshore private equity fund exemption several years ago, which has helped Hong Kong establish itself as the leading Private Equity center in Asia. The Government remains focused on maintaining its competitiveness in the face of increasing competition from other financial centers, especially from Singapore within Asia.

Although Hong Kong has fiscal incentives designed to attract offshore funds to be based in Hong Kong, the current tax rules do not allow Private Equity funds to invest into Hong Kong private companies. These funds can invest into listed companies in Hong Kong, but not a private company in Hong Kong.  We see this as a lost opportunity to Hong Kong businesses needing capital for expansion and their operating needs.

There is a continuous need by Hong Kong private companies for new capital, and the Private Equity industry is perfectly positioned to fill this need.

Since the release of the offshore funds exemption, KPMG has been advocating for the need to update the exemption to allow Private Equity funds to invest into Hong Kong companies to satisfy the capital needs by Hong Kong firms.

Extending the current exemption to cover the investment in private companies should not result in any loss of revenue to the Hong Kong government. On the contrary, allowing private equity funds to invest into private companies would provide them the capital needed for investment and expand, as well as increasing employment which will contribute to Hong Kong’s economic growth.

KPMG strongly supports the FSDC’s initiatives to broaden the exemption for private equity funds as we view this is a real opportunity to enhance Hong Kong’s competitiveness. Moreover, the proposed measures also facilitate the development of startups in Hong Kong, as it promotes private equity funds and venture capital firms to invest in startups/fintech/high tech/biotech companies, which are already a key focus of the city’s development.

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About KPMG China

KPMG China operates in 16 cities across China, with around 10,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 152 countries and regions, and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.

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