The Securities and Futures Commission (SFC) sets out the basic principle underlying the Mutual Recognition of Funds (MRF), which is that funds that have been authorised or registered with the relevant authority in one jurisdiction (the Home Jurisdiction) will be able to seek authorisation or approval for retail distribution in the other jurisdiction (the Host Jurisdiction).

Key Features

Generally, if a Mainland fund complies with the relevant Mainland laws and regulations, it will be deemed to comply in substance with the relevant SFC requirements for authorisation for offering to the Hong Kong public and a streamlined authorisation process will apply.

The following fund types are eligible for MRF authorisation:

  1. general equity funds;
  2. bond funds;
  3. mixed funds;
  4. unlisted index funds; and
  5. physical index-tracking ETFs.

The eligibility and other requirements for SFC authorisation include:

  • it must be established and managed and operate in compliance with relevant Mainland laws and regulations and its constitutive documents;
  • it must be a publicly offered securities investment fund registered with the CSRC under the Securities Investment Fund Law of the People’s Republic of China;
  • it must have been established for at least 1 year;
  • it must have a minimum fund size of not less than RMB 200 million or its foreign currency equivalent;
  • it must not primarily invest in the Hong Kong market; and
  • the value of the fund’s shares/units which are sold to investors in Hong Kong must be 50% or less of the value of the fund’s total assets.

Legal Requirements

Requirements

Description

General

  • Corporate  vehicle permitted

Company, Unit trust, Limited Partnership

  • Local physical office required

No

Share capital or equivalent

  • Minimum subscription

None

  • Minimum investors

None

Directors

  • Minimum number

1

  • Corporate directorship allowed

Yes

  • Local director required

No

Service Providers Required

  • Custodian

Yes

  • Fund manager/Investment manager

Yes

  • Fund administrator

No

  • Auditors

Yes

Tax Treatment

  • The profits tax exemption will apply to publicly offered fund entities and to privately offered fund entities whose central management and control is located outside Hong Kong.
  • Onshore privately offered entities remain subject to profits tax at the rate of 16.5% for income derived from Hong Kong.
  • Profits derived from outside Hong Kong is tax exempt. There is no withholding tax on interest or dividends and no capital gains tax.

Duration to Set Up

About 3 months

Distinctive Benefits of Licence

  • Hong Kong imposes no restrictions on foreign investments and has no foreign exchange controls
  • Ease of business establishment and licensing
  • Favourable tax regime
  • Conducive regulatory environment with formidable anti-money-laundering legislation

The Valsen Advantage

  • End to end comprehensive service
  • Speedy and efficient service
  • Expert advice on structuring options
  • Dedicated ongoing compliance support
  • Extensive network pool of service providers