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Top 4 reasons to domicile a VC fund in Hong Kong
FUND MANAGEMENT
October 2022
Andrew Macintosh
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Last Updated on June 22, 2023
Hong Kong is an exceptional choice when choosing the best place to domicile a venture capital fund. With its strategic location, robust legal framework, and vibrant financial ecosystem, the country offers numerous advantages for setting up and operating a successful venture capital fund.
Let's explore the top four reasons why Hong Kong is an attractive domicile for venture capital funds. We will also look into the advantages of Hong Kong and the step-by-step process of how to set up a venture capital fund in this dynamic city.
By understanding these key factors, you'll be equipped to make an informed decision and effectively navigate the establishment of your venture capital fund in Hong Kong.
First, why Hong Kong? Net fund inflows for the asset and wealth management business reached HKD2,152 billion in 2021, according to a
Here are other reasons why you should consider Hong Kong to domicile your venture capital fund:
One reason to domicile your venture capital fund in the country is because of the availability of the
An OFC in Hong Kong can be public or private. Public OFCs can be offered to the public, while private OFCs are offered privately. The
A minimum of two directors;
an investment manager, and;
a custodian tasked to safekeep the OFC’s assets.
Here are some of the strengths of an OFC:
It’s in a corporate structure with a separate legal personality
Shareholders can have limited liability
Private OFCs have no investment restrictions.
OFC shares may be issued or cancelled to meet shareholder subscriptions and redemption requests. Conventional companies incorporated in Hong Kong do not have this flexibility.
Provided the statutory solvency and disclosure requirements are met, distribution of assets out of share capital is allowable
In addition, Hong Kong’s
Inspired by the known offshore limited partnership fund vehicles, Hong Kong established the
The LPF regime was primarily proposed to attract private investment funds - including private equity and venture capital funds. A qualifying fund for registration under the LPF regime must consist of one general partner (GP) taking on an unlimited liability of the debts and liabilities of the fund, and at least one limited partner (LP) with limited liability. Here are the strengths of an LPF:
No capital gains tax
No stamp duty is imposed on any contribution or withdrawal by any LP. The same goes for any transfer of partnership interest.
The LPF is exempted from profits tax if they meet certain conditions
It is not required to publicly disclose the identity of the LP
The LPF is not subject to investment restrictions.
Are you interested in forming a venture capital fund in Hong Kong? Want to know more about the difference between setting up as an OFC or an LPF? Our
The Inland Revenue Department (IRD) published the
For OFCs, profits may be exempt from tax even if those profits are not from qualified transactions provided specific conditions are met. If an LPF is able to meet the conditions of the
Curious if you are able to qualify for the tax exemption and tax concessions in Hong Kong? Our Hong Kong fund services representative can answer your questions on the
Family Offices were still optimistic about investing in venture capital funds despite the pandemic. A
This year the Hong Kong government has initiated a formal consultation proposing a profits tax exemption for family office businesses in the country. The subjects of the proposed exemption are family-owned investment holding vehicles (FIHV) managed by single-family offices (SFO) in Hong Kong.
Under this proposal,an FIHV managed by an SFO in Hong Kong would be exempt from Hong Kong profits tax for its profits derived from certain qualifying transactions and incidental transactions (subject to the 5% threshold). This new tax exemption is expected to apply from the year of assessment 2022/23.
Despite challenging times ahead, Hong Kong is bent on solidifying its reputation as a premier international financial and wealth management centre. Just as development is constant in the fund industry, digitalisation has become a continuous growing companion to fund management.
Are you interested in catching one of the opportunities in Hong Kong’s fund industry? Do you wish to set up a fund in the bustling market or are you a fund manager looking for a companion in assisting you as you raise your portfolio in Hong Kong?Let us help you get started!
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