Hong Kong's Ambitious Tax Exemption Plans to Strengthen as a Financial Hub

Hong Kong to exempt plants, private equity funds, hedge funds, and investment vehicles of the super-rich from taxes on gains from cryptocurrencies, private loans, and other assets. The goal: to establish itself as a leading offshore financial center. In a recently circulated 20-page proposal seen by the Financial Times, the government of the Chinese territory stated that taxes are "one of the critical factors" for wealth managers when choosing a location. Hong Kong aims to create a "conducive environment" for these managers. Since Donald Trump was elected as a US presidential candidate, Bitcoin has gained value as investors speculate that his return to the White House could boost the crypto industry. Furthermore, Hong Kong also seeks to include private loans, foreign real estate, and emission rights in the tax-exempt investments. Amid competition with Singapore for the status as a leading offshore financial destination, Hong Kong seeks to provide certainty for family offices and investors with these proposals, explains Patrick Yip from Deloitte China. Currently, some family offices in Hong Kong invest about 20 percent of their portfolio in digital assets. Entrepreneurial wealthy individuals from China are increasingly investing outside the mainland, while Singapore's stringent anti-money laundering measures have made investors more skeptical. Hong Kong sees itself as capable of attracting more funds given these opportunities, although fund establishments are proceeding slower than in Singapore. According to Darren Bowdern from KPMG, the changes are meant to align Hong Kong with Singapore or Luxembourg to eliminate the risk of fund taxation. The city has introduced over 450 "open-ended fund companies." In contrast, Singapore has successfully established the variable capital company, with over 1,000 such funds. UBS chief Sergio Ermotti warned that Switzerland could lose its position as the world's wealth management center to Hong Kong, as the recent developments alongside Singapore are impressive.