"Hong Kong has established itself as one of the safest and best run places in Asia to keep assets," said the British Chamber of Commerce in a recent paper. "As a result of this, Hong Kong is now excellently positioned to evolve as the wealth management capital of Asia." 

Under the proposal in the Bill, offshore funds will be exempt from tax in respect of profits derived from leveraged foreign exchange trading and dealings in securities or futures contracts. If all goes smoothly, the proposal is expected to be law by next year.

"We believe Hong Kong has more to offer than our regional competitors when it comes to attracting overseas funds for management - for example, our free economy, our efficient and transparent market, our world-class financial infrastructure, and our close links with the Chinese mainland," said Clarie Lo, Deputy Secretary for Financial Services and the Treasury (Financial Services).  "Even so, we are mindful that tax is one of the factors in every fund manager's consideration, and we are committed to constantly reviewing our competitiveness."

Offshore incentives

The proposed exemption will help attract new offshore funds to Hong Kong and encourage existing ones to continue to invest here, Mrs Lo explained, addressing the Wealth Management Conference organised earlier in the summer by the Hong Kong Institute of Investment Planners.

It will bring Hong Kong into line with financial centres such as New York, London and Singapore, she pointed out.

"Anchoring offshore funds in Hong Kong markets could also help maintain international expertise, promote new products, and further develop the local fund management industry," noted a government spokesman. "The proposal would lead to an increase in market liquidity and employment opportunities in the financial services and related sectors."

The government also plans to reintroduce in the October legislation, shelved earlier, to scrap the tax on estate duty. Currently, the estates of people who die with assets worth HK$7.5 million (US$964,000) or more are taxed between 5 per cent and 15 per cent.

Abolition of estate duty

"Our proposal to abolish estate duty will encourage the further development of Hong Kong as an international financial centre," Financial Secretary Henry Tang said in his budget speech earlier this year.

"It will have a huge psychological effect on asset management - a deep and long-lasting effect," he went on. "We believe with its abolition, Hong Kong will become more attractive to investors."

Deborah Annells, an independent chartered tax adviser, agreed, pointing out that if the legislation is passed, Hong Kong "will be slightly better than Singapore", where local domiciles are still subject to estate duty.

Several countries including India, Malaysia, New Zealand and Australia have abolished estate duty over the past 20 years, as have Italy and Sweden. Singapore exempts estate duty on Singapore-based bank accounts belonging to non-Singapore domiciles.

"The abolition of estate duty will encourage people, including overseas investors, to hold assets in Hong Kong through a Hong Kong corporate vehicle or trust," Mrs Lo said. "It will also encourage those who make overseas investments or other arrangements to avoid estate duty, to transfer these back to Hong Kong. This will result in more overseas companies and professionals coming here, helping to develop our asset management industry."
 
Outstanding in Asia

Hong Kong's internationalisation already contributes a great deal towards distinguishing it from its regional rivals, added Mrs Lo.

"We are a strong magnet attracting foreign funds for management. The availability of a pool of professional financial planners and fund managers not only ensures investor protection but also greatly enhances investors' confidence."

The proposed changes will help further promote the asset management industry in Hong Kong by leveraging on the growing opportunities in the Chinese mainland.

"With the liberalisation of the mainland economy, Hong Kong is uniquely positioned to capitalise on these enormous opportunities, given our unique historical background and growing cross-boundary co-operation," Mrs Lo said. "This has given us a competitive edge over other hopefuls in the race to be Asia's wealth management hub. The huge savings in the mainland, and the policy to gradually expand investment channels, will generate big investment demands.

"It all adds up to unprecedented opportunities for Hong Kong wealth management business."