Grounded Ingenuity | Refined Results

August 3 2022
By Gavin Cumming
Hong Kong limited partnership fund ("LPF") and open ended fund company ("OFC") structures offer advantages for private equity fund and hedge fund sponsors looking to establish a fund vehicle under a single set of laws in a single time zone with a single tax system. In this article, originally published in the IFC Review, our Gavin Cumming takes a closer look at how these structures may benefit fund operators. For more information, contact one of our private equityor hedge fund lawyers.

Due largely to historical reasons, including perceived tax advantages and the availability of appropriate structures, the Cayman Islands remains a location where many fund managers choose to domicile their funds. However, with Hong Kong now having attractive tax arrangements coupled with modern and flexible fund structures, more and more fund managers are choosing to either domicile or re-domicile their funds in Hong Kong.

Those fund managers are also realising that, with an increasingly fractured economic and regulatory landscape, there are many advantages to having both the fund manager and the fund domiciled in the same jurisdiction, including dealing with a single regulator, a single set of regulatory requirements, a single tax system, and a single time zone. Fund managers domiciling their funds in Hong Kong are also able to take advantage of significant annual compliance cost savings, with there being no director registration fees in Hong Kong, and no need to incur additional fees for offshore legal counsel or offshore auditors.

New Hong Kong Fund Structures

Historically, Hong Kong did not have appropriate domestic entities or structures which could be readily used as fund vehicles and that led to the widespread use of Cayman Islands’ domiciled vehicles being used by fund managers, including those based in Hong Kong. However, following the establishment of the open ended fund company (OFC) regime in July 2018 and the limited partnership fund (LPF) regime in August 2020, Hong Kong now has modern structures specifically designed to be used for open-ended corporate funds and closed-ended limited partnership funds.


An OFC is a Hong Kong domiciled fund structure that is perfect for hedge funds and other funds trading liquid assets and allowing redemptions. Fund managers with existing offshore hedge funds will find the OFC structure very familiar. Hedge funds structured as OFCs have wide flexibility in their investment choices but, perhaps more importantly, enhanced eligibility for exemptive relief from Hong Kong profits tax and are uniquely positioned to be exempt from Hong Kong profits tax in a way that non-OFC hedge funds are not. OFCs are able to choose both brokerage firms and banks to act as custodians, allowing them to use their prime brokers as custodians. More than 240 OFCs have been established or redomiciled in Hong Kong since 2018.


An LPF is the perfect Hong Kong domiciled fund structure for private equity funds and other closed ended private capital funds that wish to adopt a limited partnership structure. Fund managers with existing offshore private capital funds will find the LPF structure very similar. The LPF structure imposes almost no restrictions on a fund’s investment scope and is flexible in terms of capital contributions and profit distributions. Both how an LPF operates, and the structure of its documents, will be familiar to both fund managers and fund investors who have previously used offshore limited partnership structures.

The LPF structure itself is flexible and can be used as both a fund vehicle and as an investment structuring vehicle. In Hong Kong there is also a 0 per cent tax rate on the eligible carried interest of privately offered funds such as LPFs, and 100 per cent of that eligible carried interest will be excluded from the employment income of relevant individuals for the calculation of Hong Kong salaries tax. As a result, payments of carried interest, if structured correctly, are now tax neutral in Hong Kong. More than 400 LPFs have been registered since August 2020.


On 1 November 2021, the Securities and Futures (Amendment) Ordinance 2021 and the Limited Partnership Fund and Business Registration Legislation (Amendment) Ordinance 2021 (Re-Domiciliation Ordinances) came into effect. The Re-Domiciliation Ordinances enable foreign investment funds to be re-domiciled and registered in Hong Kong as OFCs or LPFs depending on their structure.

The Re-Domiciliation Ordinances set out the re-domiciliation procedures and provide certainty on the continuity of non-Hong Kong investment funds upon their registration in Hong Kong. In particular, a re-domiciliation does not (a) create a new legal identity or prejudice or affect the identity or continuity of the offshore fund as a corporation registered in its place of incorporation; (b) affect any contract made, resolution passed or any other thing done by or in relation to the offshore fund; (c) affect any function, property, right, privilege, obligation or liability acquired, accrued or incurred by or to the offshore fund; or (d) render defective any legal proceedings commenced or continued by or against the offshore fund.

In addition, to provide certainty in tax treatment, the Re-Domiciliation Ordinances provide that the registration of offshore funds in Hong Kong as OFCs or LPFs does not amount to a transfer or change in beneficial ownership of the assets of the re-domiciling offshore funds, with the result that no additional Hong Kong stamp duty will be incurred.

Re-domiciliation Of Offshore Corporate Funds As OFCs

An investment fund with a corporate structure established outside of Hong Kong can re-domicile and register in Hong Kong as an OFC. The re-domiciliation process is a fairly straightforward multi step process:

  • The constitutive documents of the offshore fund and the laws of its place of incorporation must not prohibit the proposed re-domiciliation and the intended de-registration of the fund in its place of incorporation. The approval of existing shareholders will typically be required.

  • An application must then be made to the SFC for the re-domiciliation by submitting the required forms and confirmations together with the proposed Instrument of Incorporation for the OFC upon re-domiciliation. Basic information on key operators (the directors, the fund manager and the custodian) must also be submitted to the SFC together with additional documents and confirmations. If the SFC approves the application, it will then register the offshore fund as an OFC and will notify the Companies Registry, which will then issue a certificate of re-domiciliation and the Inland Revenue Department will issue a business registration certificate. The de-registration process in the fund’s original place of incorporation must be completed within 60 days of the re-domiciliation, subject to any extension which may be granted by the SFC.

  • The offering documents of the fund must be updated and issued to shareholders, both to reflect the OFC structure and to comply with disclosure requirements under the applicable laws, rules, and codes. A copy of the offering documents must be filed with the SFC as soon as reasonably practicable following issuance.

Re-domiciliation Of Offshore Limited Partnerships As LPFs

An investment fund with a limited partnership structure established outside of Hong Kong can re-domicile and register in Hong Kong as an LPF. The application itself must be submitted to the Companies Registry by a Hong Kong law firm on behalf of the proposed general partner with a statement confirming that:

  • any consent to or approval for the proposed registration as an LPF and the intended de-registration in the place of establishment of the fund as required by any contract or undertaking has been obtained or waived;

  • the intended de-registration in the fund’s place of establishment is not prohibited under the law of that place or by any agreement between the fund’s partners; and

  • the proposed general partner understands that if the fund is not de-registered in its place of establishment within 60 days after the registration date, its name may be struck off the LPF Register.

On registration, the Companies Registry will issue a certificate of registration. Separately, if the original fund does not have a valid business registration certificate immediately before it is registered as an LPF, the general partner of the re-domiciled LPF should apply for such certificate with the Business Registration Office within one month after the registration date. However, if the original fund holds a valid business registration certificate immediately before it is registered as an LPF, the general partner of the re-domiciled LPF should notify the Business Registration Office of the relevant particulars of the fund within one month after the registration date.

The offering documents of the fund should also be updated to reflect the new LPF structure if those offering documents will continue to be distributed following the re-domiciliation.

Government Subsidy

In addition to the advantages outlined above, a fund manager considering either establishing an OFC in Hong Kong or redomiciling an existing offshore fund in Hong Kong as an OFC, is currently able to apply for a grant to cover 70 per cent of the eligible expenses of such establishment or redomiciliation, subject to a cap of HK$1 million per OFC and a maximum of 3 OFCs per fund manager. Eligible expenses include fees charged by law firms and other service providers based in Hong Kong in respect of the services they provide in relation to the incorporation or re-domiciliation of an OFC. The grant scheme is currently accepting applications until 9 May 2024 and details, including the eligibility criteria and application process, can be found on the SFC’s website.


We expect that the current trend of domiciling and re-domiciling funds in Hong Kong will continue to gain momentum, as the new fund regimes in Hong Kong provide a very competitive framework and are coupled with attractive tax incentives and the advantage of operating within one regulatory framework and time zone.

With international tax authorities increasing their scrutiny of substance issues in offshore jurisdictions, whilst the Cayman Islands may not yet be under imminent threat as the leading fund domicile, as familiarity with the new structures in Hong Kong grows, it will likely make more sense for funds managed from Hong Kong or predominantly targeting Asian based investors to be domiciled in Hong Kong where there are real operations and personnel.

We use cookies to enhance your experience of our websites and to enable you to register when necessary. By continuing to use this website, you agree to the use of these cookies. For more information and to learn how you can change your cookie settings, please see our Cookie Policy and our Privacy Notice.