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Limited Partnership Fund Ordinance commenced operation in August 2020. For the private equity industry and fund managers, the passage of the Ordinance marks a milestone in terms of the availability of a wide product range. This new investment vehicle has been described by many professionals and industry leaders as a “game changer”. As Limited Partnership Funds (LPF) is still a new fund structure in Hong Kong, CWK Global has summarized in this article, based on the structure, concept, taxation, as well as analyzed the pros and cons of LPFs for reference.

LPF Hong Kong at a glance

  • Partnerships;
  • As an unincorporated entity;
  • Managed by a General Partner or GP, while a Limited Partner or LP having limited liability up to the amount of its capital contribution and a corresponding income distribution;
  • Unlimited scope of investment;
  • Flexible capital contribution and profit sharing;
  • Partners are free to set contractual terms;
  • Confidentiality of limited partner status;
  • Simple cancellation and dissolution mechanisms, etc.

Hong Kong LPF Tax Benefits

1. Profits Tax

Similar to other funds operating in Hong Kong, LPF meets the definition of “fund” under section 20AM of the Inland Revenue Ordinance (Cap. 112), and certain exemption conditions from profits tax on transactions in qualifying assets, under Schedule 16C of Cap. 112 and on ancillary transactions engaged in qualifying transactions.

2. Capital Gains Tax (CGT)

Since Hong Kong does not tax capital gains, LPF or their partners are not subject to capital gains tax.

3. Stamp Duty

As LPF interests are not “Hong Kong securities”, no Hong Kong stamp duty is charged on capital contributions, transfers or withdrawals of LPF interests.

CWK Global Fund Advisory Services

With a strong international network and professional team, CWK Global now offers clients the following services:

  • Fund Tax Review;
  • Fund Audit;
  • Hong Kong Limited Partnership Funds;
  • Fund Structure Review;
  • Fund Structuring Advice.

Conclusion

The introduction of LPFs in Hong Kong has provided the private equity industry with a new imagination for onshore private equity funds. In addition to the simple communication framework, LPFs are eligible to be a tax residency in Hong Kong. These significant incentives undoubtedly attract fund managers to consider setting up and operating their funds in Hong Kong, and redeploying their existing funds in offshore jurisdictions back to Hong Kong.

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