In this blog we will be discussing some points on the topic of amendment in Inland Revenue Ordinance then we will discuss the interest and profits exemption from Renminbi Sovereign Bonds. We will also explore the alternative bond schemes and that these are accorded identical profits tax treatment to a traditional bond arrangement. And as the last part of the blog we will explore in details the terms such as qualifying bond arrangements and qualifying instrument arrangement.
Amendments (No. 2) in Inland Revenue Ordinance
A private fund of equity on offshore carrying out a ‘particular transaction’ can be eligible for exemption on tax by concerning the profits by that transaction of taxpayer having company setup in Hong Kong if any of the conditions given below is satisfied:
The definition of word ‘securities’ was reformed in the year of 2015 on June 17th, for helping taxpayer having HK company registration for their better understanding of the word in such a way that:
This is because due to this reason, offshore private fund of equity will not be subjected to the tax on profits obtained from the transaction in securities in an expected and eligible private company through the securities’ distribution in a special purpose vehicle (SPV).
As from the assessment year 2015 / 16, the payment of tax on profit is not applicable on the special purpose vehicle concerning the profits obtained from a proceeding in securities of taxpayer having HK company registration in:
An ‘expected private company’ is also termed as offshore private company if for all the times within a period of 3 years before a proceeding in securities in the offshore company incorporation it:
In order to be eligible for exemption of tax on profits and be a ‘qualifying fund’, the conditions given below required to be fulfill:
Considering the Allowances to prohibit the abuse via special purpose Vehicles
The already present considering allowances will be applicable equally to the offshore company incorporation private fund of equity. A person that is resident of Hong Kong (alone or jointly with his affiliates) holding an interest of beneficiary of greater than and equal to 30 percent in a private fund of equity for tax-exempt will be considered to have obtained attributable profits concerning the profits grossed by the fund from particular proceedings and same proceeding in Hong Kong. The reference for this statement is taken from the Section 20 AE of Inland Revenue Ordinance.
Other Funds Exemption
Enterprises owned by state of Hong Kong, funds of sovereign and funds of pension may keep on enjoying the exemptions from tax:
Exemption of the Profits and Interest being raised from the Renminbi Sovereign Bonds
According to order of profits tax on 2009 also known as Renminbi Sovereign Bonds, the payment of tax on profits after establishing a business in Hong Kong is not allowed on a person concerning the sums accumulated to or received by him as:
For the assessment year beginning on the 1 April 2009 and all following assessment years.
The meanings of the ‘Renminbi sovereign bonds’ is any kind of bonds:
Schemes of Alternative Bond
In order to ensure that alternative bond schemes are recorded to identical treatment of profits tax for traditional arrangement of bond, Sections 21 and 22 of Schedule 17A alter some of the allowances of the Inland Revenue Ordinance. The alterations are briefed in the table given below:
Allowances of the Inland Revenue Ordinance
Sections 14A and 26A
The tax exemption and concession for the qualifying debt instruments is applicable to the alternative bonds consignable by their delivery that are issued under the qualifying bond arrangements.
Section 15 (1) (j), (k) and (l)
These considering allowances are expanded to the alternative bond schemes under a qualifying bond arrangement that is consignable by their delivery.
Section 16 (2) (f)
The interest deduction on instruments and legal documents is expanded to the extra payments that are payable to the bond holders by the bond issuer on alternative bonds issued under a qualifying bond arrangements.
Section 16 (2) (f) (iii)
The return on the investment that is payable to the issuer of bond by the originator under an arrangement of qualified investment is deductible concerning to the conditions being met.
Section 20 (AC) (7) – dis-inclusion of certain profits from the tax
The disallowance for certain profits of non-resident that are applicable to the transactions in traditional bond transactions incurs alternative bonds issued under a qualifying bond arrangement.
Section 26A (4)
A qualifying bond arrangement is not considered as the unit trust, mutual fund or same investment schemes.
The meaning of Qualifying Bond Arrangement
The arrangement of bond in a particular alternative bond scheme is considered as the qualified bond arrangement or QBA at any time (material time) subject to certain events of disqualifications if at the that material time the scheme follows from, and with the beginning of the particular term of the scheme up to material time has always followed by the following conditions given in Section 13 (1), 13 (3), 13 (5) and 28 of Schedule 17 A:
The condition of reasonable commercial return
Must not overreach an amount that would be a logical return on the money debited of the amount of the bond transacts. The reference for this statement is taken from the Section 14.
The arrangement of bond as condition of financial liability
The arrangement of bond in a specified alternative bond scheme must be served as a financial liability of the bond issuer in accordance with either the
The condition of hong kong connection
The alternative bond issuer must be:
The condition of maximum term length
The period of the particular alternative bond scheme must not be more than 15 years. The secretary of Finance may alter the period, by notice published in Gazette. The reference for these statements is taken from the Section 17.
The arrangements performed in accordance with the terms condition
The particular alternative bond scheme must be executed according to the characteristics and features as advised in the Schedule 17 A of the Inland Revenue Ordinance. The reference for these statements is taken from the Section 18.
The meaning of Qualified Instrument Arrangements
The particular arrangement of investment in a specified alternative bond scheme is an arrangement of qualified investment subject to certain events of disqualification at any time (material time), if Sections (13 (2), 13 (4), 13 (5) of Schedule 17A: