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Alternative Market Briefing

Other Voices: How new rules clarification will affect Hong Kong-based advisors of Cayman funds

Thursday, July 01, 2010

This article was written by David Lyons of Caymans and Ireland-based hedge fund service provider dms Management, and by Dawn Cummings of Offshore Business Solutions, also located in the Caymans.

A recent clarification of the rules for interpreting “central management and control” as it relates to offshore funds in Hong Kong has sought to make this grey area of tax exemption a bit clearer. The clarification, which addresses the issue of residency of directors, arguably provides investment managers and advisors with a greater perspective on the issues they must address in achieving a successful application for a profits tax exemption for offshore vehicles. Dawn Cummings and David Lyons explore the finer points of what this will mean for Hong Kong based advisors of Cayman domiciled funds.

The Hong Kong Internal Revenue Department (“IRD”) clarification that came into play on 24 February, 2010, was announced in March during the Budget Speech by the Financial Secretary, the Honorable John Tsang. Since the offer of exemption was introduced in 2006, there has been some confusion over what role, if any, the residence of individual directors played in determining a company’s central management and control. The IRD clarification now maintains that residency is not generally a criterion in assessing the locus of ‘central management and control.’

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