The Limited Partnership Fund Ordinance (Cap. 637) (LPFO) came into effect on August 31, 2020. The LPFO introduced a new domestic legal regime for private investment funds, including private equity funds and venture capital funds, to be established in Hong Kong in the form of limited partnership funds (LPFs).
Despite its positive reception by the industry, the LPFO nevertheless does not currently cater to the majority of limited partnership funds that have been established in foreign jurisdictions (Foreign Funds) and may wish to re-domicile to Hong Kong as LPFs. This prevents the LPF regime from being used to its full potential.
To address this key area in the LPF regime, the Limited Partnership Fund and Business Registration Legislation (Amendment) Bill 2021 (Bill), published in the Gazette on July 2, 2021, has been introduced with the aim of establishing a statutory mechanism for the re-domiciliation of Foreign Funds to Hong Kong as LPFs.
When does the new law commence?
The re-domiciliation portion of the Bill is expected to become law on November 1, 2021.
Why is this development so significant?
The majority of the private funds managed from Hong Kong have typically been established in foreign jurisdictions. In the absence of a mechanism for re-domiciliation, these Foreign Funds would need to transfer their assets and shareholders to a new fund vehicle in Hong Kong to effectively re-domicile under existing law. As a result, the investors’ existing rights and liabilities may be adversely affected. In addition, exposure to additional stamp duty may arise. This lack of a commercially viable re-domiciliation mechanism is a major deterrent for Foreign Funds to re-domicile to Hong Kong.
To address these issues, the Bill aims to introduce a statutory re-domiciliation mechanism into the LPFO that
- preserves the history and continuity of the Foreign Funds that re-domicile to Hong Kong as LPFs (Re-domiciling Funds) with legal certainty so that existing rights will not be adversely affected
- provides certainty in tax treatment to the effect that the registration of Foreign Funds as LPFs do not amount to a transfer, or a change in beneficial ownership, of the assets of the Re-domiciling Funds so that no additional stamp duty will be incurred
- is easy and convenient to apply
The Bill enhances the scope and use of the LPF regime and is expected to further sharpen the city’s competitiveness as a primary international asset and wealth management hub.
Key Features of the Bill
Set forth below is a high-level summary of the key features of the Bill.
| Key Features of the Bill | |
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Legal Certainty in Respect of Preserving the History and Continuity of the Re-domiciling Fund |
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Easy and Convenient Application Procedures |
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Certainty in Tax Treatment |
To provide certainty in tax treatment, the Bill provides that the registration of Foreign Funds as LPFs does not amount to a transfer, or change in beneficial ownership, of the assets of the Re-domiciling Funds so that no additional stamp duty will be incurred. |
| One-stop Application – Simultaneous Business Registration | The Business Registration Ordinance (Cap. 310) and the Business Registration Regulations (Cap. 310 sub. leg. A) will be amended to provide for, among other things, the simultaneous business registration application to be made by LPFs that do not have a valid business registration certificate in Hong Kong at the time of their application for LPF registration. |
| Applications for LPFs | |
| Effective Date of Commencement |
The re-domiciliation portion of the Bill is expected to become law on November 1, 2021. |
Sidley can assist you further as to
- the requirements of the new statutory re-domiciliation mechanism and the best manner in which to re-domicile your Foreign Fund to Hong Kong as an LPF
- the requirements of the Hong Kong LPF regime and other traditional fund structures commonly used in the Hong Kong market
- the fund structuring opportunities and benefits that exist
- the opportunities and benefits that exist for service providers to the private fund industry including custodians, administrators, and placement agents
- the AML and licensing requirements that will apply in respect of private funds that seek to use the Hong Kong LPF regime
Sidley Austin LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.
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