#1SECURITIES AND FUTURES COMMISSION 證券及期貨事務監察委員會 Open-ended Fund Companies (OFC) - the Corporate Investment Fund Vehicle in Hong Kong Last updated - April 2023#2Contents 1. Legal and regulatory framework for OFC 2. OFC structure 3. Public OFCs and Private OFCs 4. Establishment of an OFC 5. Post-establishment of an OFC 6. Fees applicable to OFCS 7. Practical tips and common misconceptions 8. Appeal and benefits of the OFC regime 9. Re-domiciliation mechanism 10. Further information 11. Appendix SFC 證監會 2#31. Legal and regulatory framework for OFC The OFC regime came into effect on 30 July 2018 SFC 證監會 OFC Rules Securities and Futures (Open-ended Fund Company) Rules C(WUMP)O (Cap 32) (for court winding-up of OFCs) Inland Revenue Ordinance (granting profits tax exemption) Securities and Futures Ordinance (including Part IVA on OFCs) SFC Products Handbook including the UT Code (ONLY applicable to public OFCs) OFC Code Code on Open-ended Fund Companies OFC Fees Regulation Securities and Futures (Open-ended Fund Company) (Fees) Regulation • · Primary regulator: SFC Incorporation and corporate filings: Companies Registry (CR) • Winding up: Official Receiver's Office (ORO) 3#41. Legal and regulatory framework for OFC OFCs Publicly offered? YES Authorisation in accordance with existing requirements under Part IV of the SFO (unless a statutory exemption applies) NO AND SFC 證監會 SFO Securities and Futures (Amendment) Ordinance 2016 gazetted on 10 June 2016 New Part IVA created to provide legal framework for OFC regime OFC Rules Subsidiary legislation Relevant Companies Ordinance (Cap. 622) provisions directly set out in the OFC Rules Voluntary winding up of OFCs (note: court winding-up of OFCS falls under the C(WUMP)O) OFC Code A non-statutory code issued by the SFC • • Provides guidelines relating to the registration and post- registration matters of OFCs Section General principles and requirements applicable to all OFCS Section II: Requirements applicable to private OFCs only SFC Products Handbook • Code on Unit Trusts and Mutual Funds ("UT Code") and the Overarching Principles in the SFC Products Handbook 4#52. OFC structure SFC 證監會 Shareholders OFC Board Individual directors not required to be licensed by the SFC but they owe statutory and fiduciary duties to shareholders Custodian Safekeeping of assets OFC A collective investment scheme structured as a company with variable capital Assets I Mandatory delegation of investment management functions • Investment Manager licensed / registered for Type 9 regulated activity A new corporate structure (in addition to unit trust form) for investment funds in Hong Kong under the SFO Not subject to restrictions under Companies Ordinance ("CO") on (1) capital reduction; (2) distribution out of capital Can be used for both listed (e.g. ETFs) or unlisted funds Can be used for both public and private funds Can be used for closed-ended funds (i.e. can impose redemption terms and conditions subject to clear disclosure) 5#63. Public OFCs and Private OFCs Public OFCS: OFCs which are offered to the public - Compliance with essentially the same requirements under the UT Code as existing SFC-authorised unit trusts Private OFCS: OFCs which are privately offered - Key regulatory focus: SFC 證監會 Key operators - directors, custodian and investment manager meet basic eligibility requirements Investment Scope No investment restrictions - private OFCs can invest in all asset classes without any limit Compliance with basic principles and structural requirements No pre-vetting of offering documents nor SFC's approval required for changes to the OFC's instrument of incorporation, offering documents, investment strategy and assets SFC's approval required for change of name, appointment of key operators, establishment of sub-funds and termination of OFC or sub-fund only 6#74. Establishment of an OFC SFC 證監會 7#84.1 Establishment of an OFC: "one-stop" flowchart SFC 證監會 Applicant • Application documents for (i) registration (ii) incorporation Business registration documents • Fees payable to SFC, CR and IRD SFC . • Notice of registration* (if registration requirements are met) • Incorporation documents • Business registration documents • Fees CR • Certificate of incorporation (if incorporation requirements are met) ⚫ Business • registration certificate (issued on behalf of IRD) *In addition to registration, SFC's authorisation is required for publicly offered OFCs in accordance with existing requirements under Part IV of the SFO Registration takes effect on date of issuance of certificate of incorporation OFC established 8#9SFC 證監會 4.2 Application documents Registration of OFC / approval of establishment of sub-fund Application Form - separate forms to be used for public and private OFCs to be signed by proposed director/ senior executive of proposed investment manager, duly authorised by the applicant Information Checklist separate forms to be used for public and private OFCS Instrument of Incorporation - - to be signed by all of the first directors templates for both private and public OFCs available on SFC website for reference Cheque - - registration fee for private OFCs application for authorisation fee for public OFCs (no separate fee for registration of public OFCs) 6#104.2 Application documents For incorporation by CR and business registration by IRD Incorporation form (Form OFCNC1 (SFC)) (to be signed by any director of the OFC) A copy of the Instrument of Incorporation Notice to Business Registration Office (IRBR3) Cheque for incorporation fees, business registration fee and levy payable to CR "One-stop" workflow Documents to be submitted to SFC prior to issuance of notice of registration SFC to send to CR together with notice of registration SFC 證監會 10#114.3 Processing time Private OFC ■ Generally less than one month after application take-up by the SFC and where the registration requirements are met ■ Existing private OFCs were generally registered within 7-14 business days after application take-up by the SFC Public OFC Same as that for other SFC-authorised funds ■ Generally ranging between one and three months after application take-up by the SFC, depending on its complexity, i.e. whether it is a "standard" or "non-standard" application Applications Applications can be made by the proposed investment manager or proposed director SFC 證監會 11#124.4 Instrument of incorporation Contents - Must include the mandatory provisions under the SFO and comply with the OFC Rules and OFC Code, and SFC Products Handbook (for public OFCs), e.g. Objects of the OFC must include a statement on its operation as a collective investment scheme The kinds of properties in which the OFC invests Corporate administrative matters of the OFC, eg. procedures and notices for holding meetings, creation of shares and the rights attached to them A statement that the company is an open-ended fund company with variable share capital Indicative templates (including the mandatory and optional provisions) are available on SFC's website for reference The indicative template provides the baseline contents. An OFC may include other provisions provided that they do not contradict the required contents SFC 證監會 12#134.5 Key operators - Directors An OFC must have at least two directors, who must be - natural persons - - aged 18 or above not an undischarged bankrupt unless with the leave of the court At least one of the directors must be an independent director - OFC Code: independent director must not be a director or employee of the custodian Directors must delegate investment management functions to the investment manager by an investment management agreement A non-resident director (i.e. a director whose usual residential address is outside Hong Kong) must appoint a process agent to receive any process or notice - an individual whose usual residential address is in Hong Kong; a company; or a firm of solicitors or certified public accountants (practising) SFC 證監會 13#144.5 Key operators - Directors Eligibility: - - - - The experience and expertise of the persons appointed as directors, taken together, must be appropriate for carrying on the business of the OFC Each of the directors of an OFC must be of good repute, appropriately qualified, experienced and proper for the purpose of carrying out the business of the OFC Examples of factors considered: whether the person has relevant qualifications and/ or experience; and whether the person, or any business with which the person has been involved, has been held by any court or competent authority to have breached any company, securities or financial markets laws and regulations, have been held for fraud or other misfeasance; or has been disciplined by, or disqualified from, any professional body Applicant should submit proposed director's profile - e.g. qualifications and work experience, licensing status etc. SFC 證監會 14#154.6 Key operators - Investment manager Eligibility: - - Must be registered or licensed for Type 9 (asset management) regulated activity Must be and remain fit and proper, at and after the registration of the OFC The investment manager is expected to: - Have sufficient experience, expertise and competence in managing the asset types in which the OFC will invest Carry out investment management functions of the OFC in accordance with the instrument of incorporation and investment management agreement Fulfill the duties and functions in compliance with applicable laws and regulations (including the Fund Manager Code of Conduct the Code of Conduct for Persons Licensed by or Registered with the SFC, the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the Securities and Futures Commission, the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations) and the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Authorized Institutions)) Documents to support the appointment application: Information in relation to the applicant having registered or licensed for Type 9 (asset management) regulated activity Information in relation to the applicant who is in the process of applying for a registration or licence for Type 9 (asset management) regulated activity, for example when the application is made SFC 證監會 15#16SFC 4.7 Key operators - Custodian Eligibility For public OFCs, same requirements as to the type of entities and capital requirements as those under the UT Code; and 證監會 For private OFCs, (i) same requirements as to the type of entities and capital requirements as those under the UT Code; or (ii) a licensed corporation or registered institution licensed or registered for Type 1 regulated activity which meets eligibility criteria under 7.1(b)(ii) of the OFC Code Duties of custodian - - Statutory duty to take reasonable care, skill and diligence to ensure the safe keeping of the scheme property of the OFC that is entrusted to it (same for sub-custodian) Proper segregation of assets Safe-keeping and record keeping of assets Sufficient experience, expertise and competence in safekeeping the asset types in which the OFC invests Exercise due care in the selection, appointment and ongoing monitoring of its delegates, including sub-custodians Internal controls: Public OFC same as those under the UT Code - Private OFC OFC directors to review the adequacy of the custodian's internal controls which should be commensurate with the OFC's nature, scale, complexity and underlying investments - audit certificate not mandatory A non-Hong Kong custodian (i.e. a custodian incorporated outside Hong Kong) must have a process agent to receive any process or notice Exception: a non-Hong Kong custodian that is a "registered non-Hong Kong company" as defined in the CO, since the CO already provides for a local authorised representative for service of documents 16#174.8 Offering documents Public and private OFCS: Must comply with baseline disclosure requirements in the OFC Code, for example: General Principles: disclosure should be clear, concise and effective; ongoing disclosure of information shall be disseminated in a timely and efficient manner Whether the OFC is a private OFC or a public OFC Its nature as an OFC with variable capital with limited liability For an umbrella OFC, statement on the segregated liability between sub-funds and warning regarding the enforceability of such segregation in foreign courts Circumstances for cessation of office of key operators and removal procedures Custody arrangements of the OFC's property and associated material risks Termination: summary of circumstances for termination, party who may apply and any shareholders' approval required Manner in which shareholders may obtain the OFC's information and make enquiries Public OFCs Must also comply with the SFC Products Handbook Private OFCS: Must also disclose the investment scope and restrictions Must contain clear disclosures on all material risks specific to the type and nature of assets in which the OFC is invested, in particular where the OFC invests 10% or more of the GAV of the OFC in non-financial or other less common asset class(es) OFC to send the offering document to SFC for filing as soon as practicable following issuance by the OFC SFC 證監會 In the case of changes to the offering documents, should be filed with the SFC within 17 7 days from date of issuance of the revised offering documents#185. Post-establishment of an OFC SFC 證監會 18#195.1 Changes requiring SFC's approval All OFCs (A) Change of name of an OFC or its sub-fund (B) Appointment of key operators (directors, investment manager and custodian): - early consultation with SFC regarding change of key operators is encouraged for directors, early consultation is especially encouraged where a change may impact on the OFC's compliance with the requirement to have at least 2 directors including at least 1 independent director (C) Establishment of sub-funds (D) Termination of the OFC or its sub-fund Public OFCs Compliance with the Code on Unit Trusts and Mutual Funds as well SFC 證監會 19#20SFC 證監會 5.2 Alteration to instrument of incorporation Amendments may be made to the instrument of incorporation - - Public OFCS: comply with the SFC Products Handbook requirements on effecting changes to their constitutive documents Private OFCs: post-change filing with the SFC in respect of the alteration, no SFC's approval required Material changes: require shareholders' approval Immaterial changes: (1) shareholders' approval or (2) the board of directors certifies that the nature of the change falls within 12.2 (b) of the OFC Code and obtain the custodian's no objection confirmation 20 20#215.3 Corporate administration matters Share certificates: not required, share title to be evidenced by entry into the register of shareholders Instrument of transfer: to be lodged with OFC Register of shareholders: - Kept and maintained by the OFC - No requirement to provide to the CR - not public information. May be inspected by shareholder as to his/ her own shareholding - May be inspected by the custodian or investment manager May be inspected by the SFC and relevant public bodies or public officers Register of directors and information on process agent: - May be inspected by any person Meetings: - No mandatory annual general meetings Meeting quorum and notice period should comply with OFC Rules and OFC Code (private OFC) or UT Code (public OFC) SFC 證監會 21#22SFC 證監會 5.4 Auditor and financial reports ◉ Eligibility and cessation of office requirements: largely similar to those under the CO Only "practice unit" under the Professional Accountants Ordinance (Cap. 50) is eligible for appointment Outgoing auditor must give a statement of circumstances connected with the resignation that should be brought to the attention of shareholders or creditors, or if there are no such circumstances, a statement to that effect The OFC must prepare an audited annual report for each financial year - On application by an OFC, the SFC may exempt the directors of the OFC from such requirement if it has not been launched and has no investor (see OFC FAQs Question 21A) Accounting standards under the OFC Code: - All accounts must be prepared in a manner compliant with Hong Kong Financial Reporting Standards or International Financial Reporting Standards Other accounting standards may be considered on a case-by-case basis Guidance on contents required for financial reports of private OFCs are set out in the OFC Code (Note: public OFCs to comply with the UT Code) Interim report not a mandatory requirement for private OFCs 22 22#23SFC 證監會 5.5 Sub-funds- protected cell regime Part IVA of the SFO (section 112S) provides for the segregated liability of sub- funds of an OFC to limit the contagious effect of insolvency of a sub-fund within an umbrella OFC For an umbrella OFC, its instrument of incorporation and offering document must contain a statement on the segregated liability of its sub-funds To fortify the protected cell regime, certain terms are implied into the contracts and transactions entered into by an umbrella OFC under the OFC Rules: the counterparty agrees not to seek recourse to any assets of a sub-fund to discharge any liability not incurred on behalf of that sub-fund, if the counterparty succeeds to have such recourse to the sub-fund's assets, the counterparty will pay a sum to the OFC equal to the value of benefit it has obtained, and if the counterparty succeeds in seizing the assets of the sub-fund for unrelated liabilities, it will hold such assets or proceeds for sale of assets on trust for the OFC For an umbrella OFC, a standard warning statement must also be included in the offering document regarding the enforceability of section 112S in foreign courts 223#245.6 Termination by application to the SFC Key steps: Submit a termination proposal with explanation of the proposed arrangements with: a solvency statement approved by the board of directors confirming ability of OFC to meet liabilities within following 12 months OFC to issue a termination notice to shareholders (SFC's approval is only required for public OFC according to the UT Code), following which the OFC should no longer be marketed and shall not accept new subscriptions After realization of assets, settlement of liabilities and distribution of proceeds to shareholders, an OFC may make an application to the SFC for cancellation of registration enclosing: the final accounts of the OFC accompanied by the auditor's report; a declaration signed by the OFC board and the investment manager confirming completion of realization of assets and distribution of proceeds, and there are no outstanding liabilities Note: applicant should ensure that it has no outstanding tax liabilities by obtaining a tax clearance letter from the Inland Revenue Department or, in the case of termination of sub-fund(s) of an OFC, other similar confirmation from the Inland Revenue Department an application for withdrawal of authorisation (in the case of a public OFC) OFC to make written notification to investors prior to and upon cancellation of registration, with explanations as to the reasons for the termination and cancellation of registration Cancellation of registration with CR takes place automatically upon cancellation of registration with SFC, no separate application to CR by OFC will be required Application will lapse if no approval is granted within the applicable processing time period as indicated in the first requisition issued by the SFC SFC 證監會 24#25SFC 證監會 5.7 SFC filings Various filings have to be made with the SFC: ➤ Annual report Interim report (if any) Offering documents Details of process agent appointed by an overseas director or custodian Notice to SFC of a resolution to remove a director Cessation of investment manager or custodian Alteration of instrument of incorporation Statement of circumstances issued by auditor or custodian Winding up notifications Public OFCs have to comply with the requirements in the UT Code 25 25#265.8 Corporate filings Various changes of OFCs are required to be reported to the CR, for example: — Change of company name - Change of address of registered office - Change of directors (appointment / cessation of appointment / change in particulars) Alteration of instrument of incorporation CR has provided specified forms for OFC on its website - Link to the forms: https://www.cr.gov.hk/en/ofc/specified-forms.htm The following forms of CR should be submitted via SFC: - OFCNC1(SFC) - Incorporation Form - - - OFCN1(SFC) - Re-domiciliation Form OFCNC2(SFC) – Notice of Change of Company Name - OFCD1(SFC) – Notice of Appointment of Director All other forms should be submitted to CR directly SFC 證監會 26 26#27SFC 證監會 6. Fees applicable to OFCS Public OFCs: No new fees - only the existing fees for authorisation and post- authorisation annual fee for public funds apply to public OFCs Private OFCs: Basic registration and post-registration fees Umbrella OFC For the umbrella Single OFC For each sub-fund Public OFC Application fee: $ 20,000 Authorisation fee: $ 10,000 Post-authorisation Annual fee: $ 6,000 Application fee: $ 40,000 Authorisation fee: $ 20,000 Post-authorisation Annual fee: $ 7,500 Application fee: $ 5,000 Authorisation fee: $2,500 Post-authorisation Annual fee: $ 4,500 Private OFC Application and registration fee: $ 5,000 Post registration Per application for each item of change: $ 300 Application and registration fee: $ 10,000 Post registration Per application for each item of change: $ 300 Application and registration fee: $ 1,250 Post registration Per application for each item of change: $ 300 All OFC Application for a modification or waiver of requirements of OFC Rules: $ 6,000 27 27#287. Practical tips and common misconceptions Investment managers ■ Q: Can an OFC have an offshore investment manager which sub-delegates the investment management functions to a Type 9 licensed corporation? - - - The investment manager of an OFC must be an intermediary licensed/registered for Type 9 regulated activity The investment management functions can be further sub- delegated to an offshore investment manager The investment manager shall exercise due care in the selection, appointment and ongoing monitoring of its delegate SFC 證監會 28#29SFC 證監會 7. Practical tips and common misconceptions Investment managers ■ Q: Can the investment manager of an OFC be an OFC director? - - The OFC must have at least two individual directors, with at least one independent director, who must not be a director or employee of the custodian Directors/responsible officers of the investment manager can be OFC directors Q: Can the investment manager of an OFC also act as the custodian? - — The custodian must be a separate legal entity from the investment manager of an OFC for investor protection purposes If the custodian and the investment manager are bodies corporate having the same ultimate holding company, the custodian must be functionally independent of the investment manager Internal controls must be in place to ensure persons fulfilling the custodial function are functionally independent from those fulfilling the investment management functions 29 29#307. Practical tips and common misconceptions Investment managers Q: Is it more onerous for investment managers to operate private OFCs than offshore fund structures as private OFCs are regulated by the SFC? - - Investment managers of private OFCs are required to comply with the same conduct requirements in managing a private OFC as those that are applicable to them in managing an offshore fund structure in Hong Kong. Such requirements include meeting the relevant "fit and proper" requirements and complying with the Fund Manager Code of Conduct and other existing conduct requirements applicable to investment managers as is the case for managing all types of private funds. SFC 證監會 30#317. Practical tips and common misconceptions Custodians ■ Q: Can multiple custodians be appointed and what would be the rights and liabilities of each custodian? SFC 證監會 Appointment of multiple custodians is permitted, including by the appointment of a different custodian for each sub-fund Where multiple custodians are to be appointed, the instrument of incorporation and/or custodian agreement of the OFC should include relevant provisions - e.g. to ensure all scheme property must be duly entrusted to the custodian(s) of the OFC and demarcate the rights and liabilities of each custodian clearly Each custodian appointed by an OFC is subject to the duty to take reasonable care, skill and diligence to ensure the safe keeping of the scheme property of the OFC that is entrusted to it (section 112ZA(4) of the SFO) Each custodian should also observe the custody requirements in the OFC Code, including to: hold in its custody the scheme property that is entrusted to it which can be so held and maintain a proper record of all other scheme property entrusted to it; ensure it has sufficient experience, expertise and competence in safekeeping the asset types; and o maintain adequate internal controls and systems May refer to OFC FAQs Question 23 for more details 31#327. Practical tips and common misconceptions Custodians ■ Q: Can multiple sub-custodians be appointed? - - Custodians can delegate their custody tasks to one or more sub- custodians - i.e. appointment of multiple sub-custodians is permitted A custodian shall exercise due care in the selection, appointment and ongoing monitoring of its delegate(s) SFC 證監會 32 2#337. Practical tips and common misconceptions Custodians ■ Q: Can overseas prime brokers act as custodians for private OFCs? - These entities are already currently eligible to act as custodians for private OFCs if they meet the requirements in 4.2(d) of the UT Code Structure ■ Q: Can a public umbrella OFC house a private sub-fund? - A public umbrella OFC may have both publicly-offered and privately- offered sub-funds ■ Q: Can a closed-ended fund adopt an OFC structure? - - A "closed-ended" fund (ie funds which are subject to redemption restrictions) may use an OFC structure SFO enables an OFC to have variable capital and does not preclude an OFC from imposing redemption restrictions 33 33 SFC 證監會#347. Practical tips and common misconceptions Private OFC investment scope Q: Can private OFCs invest in virtual assets? - ― - There are no investment restrictions - private OFCs can invest in all asset classes The investment manager should ensure it has sufficient resources and experience for the proper performance of their duties having regard to the type and nature of assets under their management The custodian should also ensure it has sufficient experience and expertise in safekeeping the asset types in which the OFC invests maintain adequate internal controls and systems commensurate with the custodial risks specific to the type and nature of assets in which the OFC invests The OFC should make clear disclosures on all material risks specific to the type and nature of the assets in which the OFC invests The SFC has issued circulars regarding virtual asset portfolio managers, which may require terms and conditions to be imposed on the licence of such managers SFC 證監會 34#357. Practical tips and common misconceptions OFC application ■ Q: Whether an OFC application must be submitted by a solicitor or law firm? There is no requirement that an application for registration of OFC must be submitted by a solicitor or law firm 35 55 SFC 證監會#368. Appeal and benefits of the OFC regime ■ Cost-savings over offshore structure ― — - Saves management time and costs by dealing with one jurisdiction instead of two Avoid extra offshore layer of service providers Public OFCS: No new fees - only the existing fees for public funds Private OFCS: Basic registration and post-registration fees on per change basis ■ Caters for different types of funds The OFC can be used for public, private, open-ended, closed-ended, listed or unlisted funds Tax incentives - - Public OFCs: enjoy same profits tax exemption as other SFC-authorised public funds Private OFCs: enjoy profits tax exemption since roll out of the regime in July 2018, enhanced tax exemption regime commenced on 1 April 2019 (see Appendix) SFC 證監會 36#37SFC 證監會 8. Appeal and benefits of the OFC regime Facilitates international fund distribution - Corporate funds are more popular with investors internationally ■ Mutual recognition of funds - OFCs eligible under the scope of MRF arrangements with various overseas regulatory authorities: - FINMA (Switzerland), AMF (France), FCA (UK), CSSF (Lux) and AFM (Netherlands), SEC (Thailand) and SC (Malaysia) ■ Greater Bay Area (GBA) Wealth Management Connect Scheme - Hong Kong-domiciled SFC-authorized funds (including SFC- authorized OFCs) are eligible under the GBA Wealth Management Connect scheme 37 37#388. Appeal and benefits of the OFC regime Fast set-up - "One-stop" approach: submit establishment documents to SFC only, no need to submit separately to the CR or Inland Revenue Department Public OFCS - same as other public funds, ranging between 1-3 months depending on standard/ non-standard application, simultaneous authorisation and registration Private OFCs - generally less than one month, subject to general principles and basic requirements only - Template instrument of incorporation available May tap into Hong Kong's deep capital pool sourced from local and international investors 38 38 SFC 證監會#398. Appeal and benefits of the OFC regime ■ Easy management and administrative convenience - - - Private OFCs: flexibility in setting redemption terms and conditions, no annual fees, minimal approval for changes Public OFCs: approvals required on par with other SFC-authorised funds No annual returns nor mandatory annual general meetings ■ Protected-cell feature - Statutory segregation of liabilities of sub-funds increases investors' confidence ■ Investor protection and confidence in robust regime - - Funds in traditional offshore jurisdictions come under increasing international scrutiny Hong Kong's adherence to international standards promotes investors confidence in its investment products SFC 證監會 39#409. Re-domiciliation mechanism SFC 證監會 Background ■ To create a commercially viable and facilitating mechanism with legal and tax certainty for foreign corporate funds to re-locate to Hong Kong ■ Further develop fund administration and ancillary services - bring more jobs and business opportunities to the local fund and professional services industries - Conversion from unit trusts to OFCs already possible – no restriction on the restructuring of unit trusts into OFCS ■ The legislative framework for re-domiciliation came into operation in November 2021 40 40#419. Re-domiciliation mechanism Benefits of re-domiciliation to Hong Kong Existing corporate identity, continuity and track record can be preserved ■ OECD economic substance requirements - higher costs for offshore funds ■ Saves management time and costs - avoid extra offshore layer of service providers Stamp duty savings and profit tax treatment - - No stamp duty will arise Same profits tax position as newly formed OFCs Strong community of investors and professional service providers, proximity to Mainland China and active IPO market 41 SFC 證監會#429. Re-domiciliation mechanism Registration by way of re-domiciliation process ■ Same key registration requirements as those for registering a newly-established OFC under the SFO and the OFC Rules ■ All documents to be submitted to SFC, for example: - - - copy of certificate of incorporation constitutive document directors' confirmation of certain matters (eg solvency of fund) ■ The fund must de-register in its place of incorporation within 60 days after issue of the certificate of re-domiciliation SFC 證監會 42#4310. Further information Dedicated webpage for OFCs on SFC's website: https://www.sfc.hk/en/Regulatory-functions/Products/Open-ended- fund-companies SECURITIES AND FUTURES COMMISSION 證券及期貨事務監察委員會 -A A +A Eng 繁簡 Sitemap Contact us ? FAQS + Forms Lodge a complaint Media corner inf Q Search About the SFC Regulatory functions Rules and standards Published resources News and announcements Career Corporates Intermediaries Products • List of publicly offered investment products • List of ESG funds • Circulars • Open-ended fund companies - OFC Structure - Regulatory requirements - List of Registered OFCs - Post-registration matters - Useful materials • Consultations and conclusions • Forms & checklists • Real estate investment trusts • FAQs • Grant Scheme for Open-ended Fund Companies and Real Estate Investment Trusts Markets Enforcement Home > Regulatory functions > Products > Open-ended fund companies Open-ended fund companies The introduction of the open-ended fund companies (OFC) structure in Hong Kong is part of the SFC's initiatives to enhance market infrastructure to further develop Hong Kong as a full-service international asset management centre and a preferred fund domicile. Following completion of the public consultations and legislative process, the OFC regime came into effect on 30 July 2018. Overview QFC is an investment fund established in corporate form with limited liability and variable share capital in Hong Kong. As the primary regulator, the SFC processes registrations and oversees OFCs. The Companies Registry (CR) is responsible for the incorporation and corporate filings of OFCs. OFCs, whether publicly or privately offered, are required to be registered by the SFC. Same as other publicly offered funds, publicly offered OFCs are also required to obtain prior authorization from the SFC, unless an exemption applies. Key benefits • Cost-savings over offshore structure - no duplication of service providers or fees • Facilitate international fund distribution - corporate structure familiar to overseas investors ■ Cater for public and private funds - including listed and unlisted funds, hedge funds, private equity funds and closed-ended funds • Easy management - no annual returns nor mandatory annual general meetings • Grant Scheme for OFCS-a Government grant of up to HK$1 million per newly-incorporated or re-domiciled OFC ■ Tax incentives - OFCS benefit from Hong Kong profits tax exemptions How to apply One-stop establishment - Please submit the requisite documents to the SFC ([email protected]). SFC 證監會 43#4410. Further information Laws and Regulations - - - - SFO (see Part IVA on OFC) OFC Rules OFC Code Products Handbook (applicable to public OFCs only) Forms Forms & checklists ■ Template instrument of incorporation - Template for umbrella public OFC - Template for umbrella private OFC Guidance - FAQs Designated mailbox for OFC enquiries: [email protected] SFC 證監會 44#4511. Appendix: enhanced tax exemption conditions for private funds (effective since 1 April 2019) ■ Profits tax exemption available for onshore and offshore funds alike ■ Enhanced profits tax exemption for OFC: - - No more "non-closely held" test (i.e. minimum number of corporate and individual investors) Expanded classes of transactions that are exempted from profits tax Clearer conditions for exemption regarding investment in private companies ■ Major breakthrough: profits tax exemption applies regardless of the domicile, structure, capital and size of the private fund SFC 證監會 45#4611. Appendix: enhanced tax exemption conditions for private funds (effective since 1 April 2019)(cont'd) Profits tax exemption eligibility for profits generated from investment in private companies by private funds - broadbrush overview Does the private company hold ≤ 10% Yes Has the private Yes company been held by Tax-exempted of its assets in the fund for ≥2 years? immovable property in Hong Kong? No No Is the private company controlled by the fund? No Tax-exempted Yes Does the private company Yes hold 50% value of its Tax-exempted assets in short-term assets? No Not tax-exempted Not tax-exempted 46 SFC 證監會#47Thank you. www.sfc.hk