| HKVCA Tax Consultation Report | | | At the end of May, the IRD issued a practice note (DIPN 51) on its interpretation of the Extension of the Offshore Funds Tax Exemption to include Private Equity investments. The practice note also included a statement from IRD on how they believe carried interest should be taxed in Hong Kong. The importance of these two topics – and the impact of IRD’s interpretation – meant that we organized two consultative sessions for members: one in August for full members (firms that manage capital) and in September with a mixed group of members. In between these two large meetings, we met privately with the Financial Services and Treasury Bureau and separately with the IRD.
We are very grateful for the feedback we have received – the attendees of the two meetings accounted for 36% of HKVCA’s GP members – and the strong views expressed have allowed us to make a clear statement of HKVCA’s disappointment with DIPN 51.
Summarising the responses, the IRD’s practice note leaves areas with uncertainty and it could be unworkable for most PE firms. 64% of private equity fund managers will not adopt the “Extended Offshore Funds Exemption Regime” under IRD’s interpretation. 55% of participants are likely to apply it if the rules provided greater certainty.
89% of members expressed concern regarding the IRD’s proposed treatment of tax on Carried Interest, putting Hong Kong into a very small group of jurisdictions which treated Carried Interest as an income for tax purposes. 31% of members are unconfident that their current treatment of tax on carried interest is correct in relation to the DIPN, compared to less than one-fourth expressing confidence.
64% of participants believe that the DIPN 51 increases the merits of using Singapore as a domicile for fund management in Asia. In addition, 67% of them are pessimistic about the government’s commitment to assisting the PE sector.
The IRD practice severely limits the usefulness of the Extension – and IRD’s views on carried interest are very extreme. There is a little room for negotiation and HKVCA will be seeking to take this forward with FSTB and IRD.
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New Members Welcome
Overseas Full Members
Shenzhen Joy Yield Investment Ltd
Joy Yield Investment is a newly founded investment company focusing on venture capital investment and real estate financing opportunities in China. Its founding partners have years of experience in providing financing solutions to China's property developers. With its own capital, Joy Yield is now focused on urban renewal projects in 1-tier cities. Joy Yield also engages in private equity investment opportunities with deal sourcing from partners' abundant networks in China. The firm is in the process of obtaining a private fund license in China, and will act as GP to deliver PE products. The firm also engages in M&A and private placement of listed companies on the Shanghai and Shenzhen stock exchanges.
Sunrise Capital Partners
Sunrise Capital Partners is a growth equity firm based out of the US with a focus on healthcare, technology and business services. Sunrise takes an operationally enabled approach in their investment strategy with heavy focus on growth, improving efficiency and technology enablement of service offerings.
Corporate Associate Members
Global Green Economic Consulting Pte Ltd
Global Green Economic Consulting (GGEC) was founded in 2012 with a focus on providing disruptive business and brand advisory services to companies in Asia. Its subsidiary, Global Green Economic Forum (GGEF), is a one of a kind business conference that operates as a social enterprise in the region. GGEC provides a holistic approach to promoting sustainability in business and helping enterprises find “gold” in “green”.
Panamasia Financial Services
Panamasia was established in 2010 by Dominique Getrey, previously head of Corporate & Investment Banking Asia for a European bank in Hong Kong. Panamasia has since developed its business using its networks in Hong Kong, Europe, mainland China and Latin America. Panamasia serves as a financial adviser for investors and companies looking for financial or strategic partners, helping to raise capital and working across the full range of entitites from start-up financing to M&A deals.
SS&C Private Equity Services
Overseas Associate Member
Magellan Capital Advisors
Magellan Capital Advisors Ltd was set up by Richard Burton, ex-CEO for Asia Pacific for a specialized trade credit insurer, to help early stage tech and fintech companies raise finance and develop. Based in Paris and with strong links to Hong Kong, Magellan bridges Europe and Asia. Current mandates are in mobile telecoms, Wifi, anti-counterfeit detection and animated film clips.
Recent Events Report
Global Venture Capital Congress in Vancouver
22 - 23 September 2016
HKVCA Seminar with Cocktail - EY Outbound Investment Cocktail
19 September 2016
The HKVCA held another very successful cocktail event on September 19, 2016. The evening featured a seminar presentation by a team of EY partners specializing in private equity and with extensive experience advising on outbound investment. The event proved to be extremely popular, with over 90 persons in attendance. Welcoming remarks were delivered by Jay Nibbe, Global Vice Chair – Tax, which were followed by Alan Li, Partner, Transaction Advisory Services, who discussed the latest trends in outbound investment. David Chen, Managing Partner & Head of Transaction Tax - Greater China, acted as moderator and led an outstanding panel comprised of Peter Chen, Senior Managing Director of ZZ Capital; Robert Bibow, Managing Director/Partner of Sailing Capital; and Eva Ip, Partner - Head of Private Equity Greater China at EY. The panel had a lively discussion on the qualitative challenges involved in cross-border transactions and the different perspectives applied in terms of advisors and different types of deals. Finally, Jesse Lv, EY Partner & Leader of China Tax Outbound Center, summarized the various tax structures for outbound investments. The evening ended with a lively cocktail session, offering attendees an excellent opportunity for networking.
HKVCA Real Assets Luncheon Talk
8 September 2016
A luncheon talk with speakers from AMCG Partners and KPMG was held on 8 September 2016 at the Hong Kong Club. Over 50 attendees participated in the event, which featured a full and very informative discussion of the Belt and Road (BnR) initiative. Joseph Ferrigno, Managing Partner of AMCG Partners and a member of the HKVCA’s Research, Education and Real Assets committees, shared his views on BnR, and in particular how investors can take full advantage of the opportunities the initiative is sure to create. Likewise, Julian Vella, Asia Pacific Regional Leader - Global Infrastructure Practice at KPMG, offered his thoughts on how BnR represents a comprehensive vision for the future development of China in the 21st century, with innumerable opportunities for the creation of public-private partnerships.
Industry News
HK-based FountainVest Partners closes $2.1b China-focussed PE fund
23 September 2016
FountainVest China Capital Partners Fund III was oversubscribed, with existing LPs accounting for the bulk of commitments. Formal marketing began in early April and a first close of $1.7 billion followed in early July.
The largest anchor investors in the previous two funds - Ontario Teachers' Pension Plan (OTPP) and Canada Pension Plan Investment Board (CPPIB) - both re-upped, according to a source familiar with the situation. Pension funds, sovereign wealth funds, insurance companies and other institutional investors from North America, Europe, Australia, Middle East and Asia make up most of the LP base.
View full article here
If India makes the right moves, Hong Kong tycoons could open up their purse strings
13 September 2016
India has not really been among the top investment destinations for Hong Kong based companies these last few years for various reasons. But now, when India's status as one of the best investment bets in Asia is indisputable thanks to its robust economic growth, a treacle of fresh investments from Hong Kong could begin flowing in. This means instead of looking increasingly to countries like Singapore, Indian businesses – especially startups and those needing large investments – could also tap Hong Kong’s moneybags.
Nicholas Kwan, Director of Research at Hong Kong Trade Development Council (HKTDC), says India is already the fourth largest trading partner for his country with $24 billion worth of bilateral trade last year, when his country's exports to India grew 8%. At a time when overall Hong Kong exports were down 3%, this kind of growth will force any country to look at the huge potential Indian economy and its steady growth offers.
View full article here
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