Our clients come to us for counsel at all stages of their private equity fund life cycle, including the making of investments, the ongoing management of investments and exits from investments. We assist clients in advising on deal risks and deal structure, negotiating investment terms, preparing term sheets, conducting due diligence, preparing shareholder agreements and co-investment arrangements, preparing purchase and sale agreements and ancillary documentation, attending to completion, advising on corporate governance issues and assisting with corporate matters at the portfolio company level. We advise on corporate, commercial, tax and regulatory issues arising in the context of transactions and in the context of steps to protect and enhance the value of portfolio investments.
With the gazetting on March 1, 2019 of the new Inland Revenue (Profits Tax Exemption for Funds) (Amendment) Ordinance 2019 (“Amendment Ordinance”), from April 1, 2019, the tax position of investment funds in Hong Kong will be governed by a new tax exemption (“Private Funds Exemption”). Though the new exemption is broadly similar to the exemption (“Offshore Funds Exemption”) previously relied upon, there are significant differences, including:
The Inland Revenue (Profits Tax Exemption Amendment) Bill represents a major step forward in allowing private funds, including hedge funds and private equity funds, managed from Hong Kong to obtain exemption from profits tax. Amongst other things, the Bill will provide bright line tax certainty for open-ended fund companies. At the same time, the Bill will allow funds to maintain their tax residency in Hong Kong, meaning that such funds will no longer be required to undertake board activities outside of Hong Kong and will no longer be required to maintain directors resident outside of Hong Kong to qualify for tax relief. Finally, the Bill will provide greater flexibility for tax relief in the context of private equity investments both in and out of Hong Kong. The Bill is on track to come into effect in April, 2019 and discussions with the IRD to date suggest that the IRD will be helpful in construing the legislation for the benefit of the asset management industry.
On December 4, 2018, the Hong Kong Government introduced legislation introducing a new exemption for hedge funds, private equity funds and other private investment funds. Under the proposed legislation, both onshore and offshore funds (i.e. both Hong Kong and non-Hong Kong resident funds) may now qualify for full exemption from profits tax on the same basis and may now invest in a wider range of investments. If passed, the legislation will provide bright line guidance to exempt Hong Kong incorporated open-ended fund companies from Hong Kong profits tax and will mark an important step towards reducing Hong Kong’s reliance on offshore jurisdictions for asset management activities.