The Hong Kong (HK) Government passed the Limited Partnership Fund Bill, which took effect on 31st August, 2020. The Limited Partnership Fund (LPF) regime is a by-product of the collaboration between HK’s asset managers and the Government. This key objective of this new regime is to set up HK as Asia’s leading private equity hub. The hope is that HK will become a more attractive place for setting up LPFs through increased flexibility and becoming an alternative location for general partners to domicile their funds.
The Limited Partnership Fund bill contains provisions which
- Allow flexibility in capital contributions and distribution of profits,
- Allow the parties in a LPF to freely contract according to their commercial intention,
- Provide for a simple registration process with the Registrar of Companies; and
- Provide a straightforward and cost-efficient dissolution mechanism. Fund managers, in particular those who have an office and a team based in HK, now have a viable option to establish their funds in the form of limited partnership in HK as a viable alternative to other jurisdictions such as Luxembourg and the Cayman Islands.
Key Structure and Governance Elements in the New Limited Partnership Fund Regime
- Structure: LPFs will be traditional limited partnerships with a General Partner and a minimum of one Limited Partner, whereby the General Partner will assume unlimited liability for the debts and obligations of the partnership (nothing new here compared with other regimes globally). The General Partner must appoint an Investment Manager, and may appoint itself as Investment Manager if it meets certain criteria (more on the Investment Manager registration requirements below). The LPF will not have a legal personality, and the General Partner and Limited Partners will be afforded freedom to contract (e.g., negotiate partnership agreement terms and side letters).
- Legal Statute and Registration: The legal statute governing the LPFs will be the Limited Partnership Fund Ordinance (LPFO). LPFs will be required to register with the Registrar of Companies (RoC), an application to which must be submitted in person by a Hong Kong law firm or Hong Kong-qualified solicitor.
- Accounting Treatment: There will be no limitations on the use of certain accounting methods, which will promote continuity across funds for sponsors and streamline investor reporting.
- Dissolution: LPFs may be dissolved voluntarily. If the General Partner declares bankruptcy, dissolves, or otherwise ceases to be the General Partner of the LPF, if there is not a replacement designated within 30 days, the LPF will automatically dissolve. In each of the foregoing cases, the General Partner must provide notice to the RoC within 15 days of dissolution.
- Tax: Overall, the LPFs will be eligible to Hong Kong tax exemptions under the Unified Fund Exemption regime (“UFE”) in relation to profits from specified transactions.
A further benefit of establishing LPFs in Hong Kong is that this should help funds meet substance requirements that overseas jurisdictions typically require in order to grant tax treaty benefits, such as on dividends and capital gains. It is important to note that this will only be the case if the jurisdiction from which the GP operates classify an LPF as subject to HK tax residency. If an LPF is set up in Hong Kong with the intention of obtaining tax exemptions, it will only receive these exemptions depending on the jurisdiction it is based in.
How We can Help
Valsen Group is your reliable partner as your company seeks to accrue benefits from this new Limited Partnership Fund regime in Hong Kong. we are committed to being a constructive voice as we engage in legislative review. Please get in touch if you need any further information and/or clarification about the new Limited Partnership Fund regime in Hong Kong