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Hong Kong plans to exempt private funds, hedge funds and investment vehicles for the super-rich from paying taxes on profits from cryptocurrencies, private equity funds and other assets, as it aims to become a top offshore financial center.
In a 20-page opinion, which was published this week and seen by the Financial Times, the Chinese regional government said that taxes are “one of the most important factors” for property managers when they decide to start their careers and they want to create a “good environment” for them.
Hong Kong has wanted to position itself as a the capital of crypto businesses. Bitcoin has surged since Donald Trump won the US presidential election this month, with investors betting that his return to the White House will boost the crypto industry after his campaign victory.
The government wants to expand the range of tax-free income to include private loans, foreign assets and carbon credits, according to the proposal. It is holding a six-week consultation on the plans.
The decision comes as rivals Hong Kong and Singapore battle it out to boost their status as top offshore financial hubs. They have been fighting to attract billionaires and investors and have introduced new tax breaks that allow them to hold large amounts of money.
If enacted, Hong Kong’s new tax-free proposal will provide “reassurance” to family offices and investors, said Patrick Yip, vice chairman and global tax partner at Deloitte China who specializes in family offices.
“This is an important step to strengthen Hong Kong’s position as a financial and crypto trading center,” said Yip. Some family offices in the city are allocating about 20 percent of their assets to digital assets, which is “not insignificant”, he added.
Many wealthy Chinese have been setting up business vehicles outside of China as President Xi Jinping fights economic protests. But Singapore campaign against money laundering has made investors more wary of the city, as the steady check has slowed the opening of family offices, according to bankers and lawyers.
Hong Kong is also competing with Singapore to attract startup investors. The introduction of currency in the Chinese territory has been slower than in Singapore, according to the government.
“These changes are designed to put Hong Kong on par with Singapore or Luxembourg, because there is no risk to the tax fund,” said Darren Bowdern, head of tax management in Asia at KPMG, about the proposal.
The Chinese sector has been promoting “open-ended companies”, low-tax corporations that can hold more assets and less capital. By October, investors had launched more than 450 investments, according to the city government.
Meanwhile, Singapore in 2020 launched a large flexible company, a new group of investment funds. There are more than 1,000 currencies in the Southeast Asian country.
UBS chief executive Sergio Ermotti warned this year that Switzerland could lose its crown as the world’s leading financial institution to Hong Kong, which he said was “moving forward” alongside Singapore in the sector.
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