(MENAFN - Khaleej Times) Hong Hong is mulling the introduction of profit tax exemption for offshore funds as part of a series of bold tax reforms being initiated to reinforce its position as Asia's largest financial hub, a top government official revealed on Wednesday at the opening of 4th Asia Private Equity Forum.
Financial Secretary John C. Tsang said the extension of profit tax exemption for private equity funds registered outside the city would help attract more private equity funds to domicile in Hong Kong, currently ranked among the top three financial centres in the world.
"We are working on the legislative proposals to provide a clear and certain tax environment for the industry. We hope to see the exemption implemented in good time," Tsang said.
He pointed out that over the past decade, the total size of assets under management in Hong Kong has risen from about 400 billion (all in US dollars) in 2003 to 1.6 trillion in 2012. Over 60 per cent of the assets are sourced from overseas investors. There are more than 370 private equity firms in Hong Kong with capital under management of about 100 billion as of September 2013, the finance secretary said.
He said the specially administered region's stock market, the second largest in Asia with market capitalisation of over 3 trillion, has listed more than 1,500 companies.
Hong Kong is also an international banking centre with over 260 banking institutions from 35 different jurisdictions. Assets held by banks exceeded 2 trillion at the end of last year, Tsang said.
Reaffirming Hong Kong's commitment to the internationalisation of the Renminbi (RMB), Tsang said the city would expand its role.
"In the year ahead, we shall continue to play a leading role in promoting offshore business using the Mainland currency, the Renminbi," he added.
He said Hong Kong's thriving commercialism and open economy made it a natural offshore hub for trading the currency. "With our city's free flow of capital, effective rule of law and robust regulatory environment, Hong Kong is a fertile testing ground for the internationalisation of the Renminbi."
Hong Kong is also planning another legislative proposal to help pave the way for the introduction of the open-ended investment company, the OEIC, as a vehicle for setting up investment funds in Hong Kong, Tsang said as he stressed the importance of creative capital for Hong Kong and Asia in powering world growth.
The city also introduced two important legislative amendments in 2013 that will further develop it as a platform for international finance, he said. These include modernising the Trust Law to strengthen the competitiveness of its trust services industry and attract settlers to set up trusts in Hong Kong. The other amendment was on tax laws to give Islamic bonds, or sukuk, equal tax treatment to conventional bonds.
"We plan to introduce further legislative amendments to enable the issuance of sukuk under the Government Bond Programme. This will help develop Hong Kong's bond market and expand our platform for Islamic finance," said Tsang.
"Going forward, financial market developments in Asia will be driven by three key factors: first, rapid wealth creation in this region and demand for high-quality financial services; second, the increase in portfolio allocation into Asia by global investors; and the third trend is the financial liberalisation of the Mainland, including the wider use of the renminbi as an international reserve currency," said Tsang.
Hong Kong is a key stakeholder in each one of these three trends, he added. "The government and our regulators also work hard to strengthen Hong Kong's competitive edge in an increasingly competitive environment."
"With a community of innovative and ambitious entrepreneurs on one side and a population of internationally travelled, wealthy tycoons on the other, Hong Kong could be a powder keg of a techonomy waiting to explode," he said quoting a Forbes magazine report ranking Hong Kong as the Number One "Top Tech Capital to Watch".
For Asia to power global growth, Tsang said, "we also need to harness the power of innovation in Hong Kong and in our region. Venture capitalists and equity fund managers have the experience to identify the best ideas as well as the skills and resources to manage the development of these ideas from drawing board to reality".