The Financial Times published a report on November 28 that Hong Kong was moving to cement its position as a hub for financial services and cryptocurrency by offering tax exemptions to hedge funds, family offices with high net worth, and private equity funds.
The proposal, outlined in a 20-page government document, aims to bolster the city’s appeal to global asset managers and high-net-worth individuals.
The tax exemption for gains
The initiative is currently undergoing a consultation of six weeks. It would exempt taxes on cryptocurrency gains, private credits, foreign property and carbon credit.
Officials cited taxation as a key factor in asset managers’ decisions on where to base operations, emphasizing the need to create a “conducive environment.”
Patrick Yip is vice-chair and international tax partner for Deloitte China. He said that the exemption will boost the Hong Kong industry. The vice chair of Deloitte China, Patrick Yip, said that the exemption would boost the industry in Hong Kong.
Hong Kong and Singapore are in a heated competition to draw global investors. Both cities introduced fund structures that are lightly taxed to help manage large amounts of capital.
Hong Kong’s proposal mirrors Singapore’s 2020 launch of variable capital companies, which have gained traction with over 1,000 fund registrations. Hong Kong, on the other hand, has registered more than 450 closed-end fund companies.
Wider trend
Hong Kong’s move aligns with a broader trend of wealthy Chinese individuals establishing private investment vehicles outside mainland China, particularly as Beijing cracks down on conspicuous displays of wealth.
However, Singapore’s recent push to tighten money laundering regulations has complicated its appeal, slowing the establishment of new family offices due to increased due diligence.
Darren Bowdern of KPMG’s asset management tax team for Asia noted that tax exemption proposals aim to bring Hong Kong in line with offshore financial centers like Luxembourg and Singapore.
The proposal’s timing coincides with renewed optimism in the crypto sector following President Donald Trump’s recent electoral victory in the US, which has caused Bitcoin to surge to new highs as investors anticipate that Trump’s crypto-friendly stance could rejuvenate the industry.
UBS CEO Sergio Ermotti said earlier this year, Hong Kong would surpass Switzerland in terms of global wealth management. He cited its recent success alongside Singapore.
Hong Kong’s tax incentives and legal structure will play an important role as it strives to surpass regional rivals. It is also expected to strengthen its position in the financial industry and cryptocurrency hub.
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