Hong Kong Legislative Council ( Legco) passed the Revenue (Profits Tax Exemption for Offshore Funds) Bill 2005 on Wednesday, which seeks to amend the Inland Revenue Ordinance.

Exempting offshore funds from profits tax is vital for Hong Kong to reinforce its status as an international financial center and enhance its competitiveness, Hong Kong Secretary for Financial Services and the Treasury Frederick Ma said.

Ma told lawmakers other international financial centers, such as New York and London, had exempted offshore funds from tax. This meant Hong Kong's fund industry is facing keen competition for foreign investments.

"The proposed exemption will strengthen Hong Kong's competitiveness in attracting new offshore funds and encourage existing funds to continue their investment," he said.

"It will lead to an increase in market liquidity and employment opportunities in the financial services and related sectors. Downstream service sectors such as brokers, accountants, bankers, lawyers, will also benefit from the proposal," Ma said.

Under the proposal, individuals', partnerships', corporations' and trust estate trustees' offshore funds will enjoy tax exemption by satisfying two conditions -- the entity that owns the fund is non-resident, and does not carry on any business in Hong Kong other than the fund-related qualifying transactions.

Source: Xinhua