Letters | Hong Kong tax law move good news for business, but there is more to be done
- Tax exemption on carried interest for eligible private funds will put Hong Kong on a par with fundraising centres like Luxembourg and Singapore
- In the interest of ensuring information flow, the government could also consider loosening its proposed restriction on public access to company information
I very much welcome the passage of the tax bill in the Legislative Council last week to exempt “carried interest” from taxation for eligible private equity funds – a good result of the hard work by the fund industry and the professional sectors for over a decade.
Carried interest are payments, often in shares or other equity-linked benefits, to reward the general partners and managers of private equity funds and venture capital funds for managing their portfolios.
The amendment exempts all genuine carried interest from tax. Coupled with the unique features of Hong Kong’s tax system, this will put us on a par with fundraising centres like Luxembourg and Singapore.
Venture capital funds (“VC funds”) and private equity funds (“PE funds”) are important funding sources for start-ups and unicorns. If Hong Kong were to become the leading choice for locating PE funds and VC funds in Asia, there will be synergy to attract other businesses to the city.
Private investors and family offices are often the key investors in these funds. Mergers and acquisition activities will increase when the funds invest in portfolio companies or when they exit. The bourse will also benefit when the portfolio companies mature and seek further funding from the public.
We can be optimistic but not complacent. A single piece of legislation cannot work magic. The rule of law and the free flow of information are the cornerstones of an international financial centre.
While there is no absolute quantitative measurement on the health of the rule of law in a society, how willing parties are to choose Hong Kong as the seat for arbitration and how often parties agree to use Hong Kong law as the governing law for commercial agreement can be the barometers to reflect on Hong Kong’s rule of law situation.
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Complete and timely information is vital to speed up business transactions and to protect the parties involved. Quite often, the free flow of information is also an issue of perception.
Kenneth Leung, chartered tax adviser, former member, Legislative Council
