The Hong Kong government is considering changing its tax rules to attract alternative investments, including private credit and infrastructure.
According to Bloomberg, the government plans to launch a consultation on a set of proposals, which would include offering tax exemptions on interest income to special purpose vehicles for alternative investments including private credit, hybrid securities, real estate and infrastructure.
Bloomberg’s sources expect the draft rules be published in full later this month.
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It is thought that the move has been motivated by Hong Kong’s increasing need to compete with financial centres such as Dubai and Singapore.
Meanwhile, the appetite for alternative funds, such as private credit, is increasing across the globe. The sector is expected to have seen assets under management grow an estimated 70 per cent between 2021 and 2027 to $23.3trn (£18.3trn), according to financial data firm Preqin.
Bloomberg highlighted that, while most alternative asset managers are in offshore jurisdictions like the Cayman Islands, they often set up numerous special purpose vehicles for specific investments.
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In Singapore, variable capital companies were introduced in 2020 to act as special purpose vehicles. Singapore has already broadened the scope for fund exemptions, enabling private credit funds to enjoy tax breaks on interest income.
Bloomberg cited a report from November 2023 by KPMG and the Alternative Investment Management Association, which found: “Hong Kong needs to take further steps to become a more attractive location of choice, including in the areas of tax and the overall regulatory environment.”
It continued: “Singapore’s success in growing the sector is a good demonstration of how targeted incentives with clear conditions can be effective in attracting funds and the entire ecosystem.”
A spokesman for the Hong Kong Financial Services and the Treasury Bureau told Bloomberg that it is liaising with the industry and regulators about the budget plan proposals and will consult them in due course.
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