Registration of Private Open-Ended Fund Company
The SFC and Hong Kong Government has introduced a number of incentives to encourage local fund managers to set up onshore funds in Hong Kong. Please note our firm has successfully set up OFCs and would welcome the opportunity to work with your firm.
Overview of Open-Ended
Fund Company Regime
The Open-Ended Fund Company regime was launched on 30 July 2018 after four years of market consultation to further enhance and diversify the fund platform in Hong Kong. It outlines the recent regulatory enhancement to amplify the regulatory environment for the OFCs. The Hong Kong OFCs must be registered with the Securities and Futures Commission and the Companies Registry. The legal capacity of an OFC is similar to that of a company under the Companies Ordinance.
Advantages
Hong Kong OFCs offer five major advantages over offshore jurisdictions:
Preferential Tax Treatment
It enables fund owners to enjoy preferential tax treatment. There is no cap on relief for transactions incidental to qualifying transactions.
No Minimum Capital Requirement
When an OFC uses the professional investor exemption, there is no minimum amount that each investor must invest.
Lower Operation Costs
Fund owner can dispense with the entire layer of Cayman service providers and pay lesser amount of government fees.
Lighten Compliance Burden
Private OFCs do not have to file their prospectus or marketing materials with the SFC. Compliance with anti-money laundering regulations is easier.
Legal Segregation of Assets Liabilities of Sub-Fund
It offers greater legal certainty through asset and liability segregation as well. The assets and liabilities of each sub-fund will be legally segregated from each other.
Restrictions
Notwithstanding the advantages, some restrictions are imposed on Hong Kong OFCs which are absent in offshore jurisdictions:
Custodian must be Appointed
The appointee must fulfill SFC-imposed eligibility requirements. Custodians must be either eligible under the UT Code or be the SFC Type 1 licensee fulfilling the OFC Code.
Requirements for Director
To become a director of an OFC, one must satisfy relevant requirements in order to receive approval from the SFC. There is also a lack of flexibility in management power distribution.
Approval for Post-Registration Changes
Certain post-registration changes require approval from the SFC. The change of name and material change to an instrument of incorporation requires the SFC approval.
Investment Manager must be Appointed
The OFCs must appoint an investment manager. The manager must hold a Type 9 license and the appointment is subject to SFC’s approval.
Launch of Grant Scheme for
OFCs and REITs
On 10 May 2021, the Securities and Futures Commission announced the implementation of the Government’s grant scheme to subsidize the setting up of open-ended fund companies and real estate investment trusts in Hong Kong. We have successfully secured this grant for our clients’ and would welcome the opportunity to assist your firm with the same.