In September 2020, the Securities and Futures Commission (SFC) announced changes to the open-ended fund companies (OFC) regime. This provides interested parties with a new option in terms of company structure and could potentially contribute to the provision of a broader range of investment products in Hong Kong.
What is an OFC?An OFC is an investment fund established in corporate form with limited liability and variable share capital in Hong Kong. Its main purpose is to serve as an investment fund vehicle and manage investments for the benefit of its shareholders.
The SFC acts as the primary regulator for OFCs, responsible for processing registrations and overseeing them. The Code on Open-Ended Fund Companies can now be accessed via the SFC website. The Companies Registry (CR) is responsible for the incorporation and corporate filings of OFCs.
An OFC’s main purpose is to serve as an investment fund vehicle and manage investments for the benefit of its shareholders. OFCs are different from conventional companies which are incorporated under the Companies Ordinance; they are not designed to engage in activities of conventional companies, such as commercial trade and business.
An OFC can determine its subscription and redemption frequency and impose restrictions subject to clear disclosure. The OFC regime caters for public and private funds, including listed and unlisted funds, hedge funds and private equity funds.
BenefitsIn addition to the factors mentioned above, there are numerous benefits to operating under an OFC structure as opposed to that of a conventional company.
Since OFCs serve a different purpose from general commercial trade or business, they are exempted from certain requirements by the Companies Ordinance. OFCs are not required to report share capital information to the CR and do not need to have a company secretary. They need not report particulars of charges or deliver annual returns to the CR. There are no mandatory annual general meetings either.
The OFC system facilitates international fund distribution through a corporate structure familiar to overseas investors. It could save more costs compared to offshore structures as there is no duplication of service providers or fees. Moreover, OFCs benefit from Hong Kong profits tax exemptions.
For private companies, in particular, the OFC system offers administrative convenience. There are no annual fees, and approval is only needed for changes to name, appointment of key operator, sub-fund creation, as well as termination.
The application and registration fee for a single-fund private OFC in Hong Kong could be as low as HK$5,000. The application and authorisation fees for public OFCs start from HK$20,000 and HK$10,000 respectively.
There are three steps to establishing an OFC: registration by the SFC, obtaining a Certificate of Incorporation by the Registrar of Companies, and a Business Registration Certificate issued by the Registrar of Companies on behalf of the Inland Revenue Department. The SFC offers a one-stop approach by collecting all the application documents on behalf of the other bodies. Depending on the nature of the OFC, approvals are usually within three months.
Grant schemeIn addition, there is a new grant scheme for OFCs funded by the Hong Kong government. On 10 May 2021, the SFC announced the launch of the Grant Scheme for Open-ended Fund Companies and Real Estate Investment Trusts (Scheme) to subsidise the incorporation or re-domiciliation of OFCs. The Scheme covers 70% of eligible expenses paid to Hong Kong-based service providers, up to a maximum of HK$1 million per OFC.
Applications are now being processed on a first-come first-served basis, and the application period lasts until 9 May 2024. Interested investment managers should submit an application form along with the required supporting documents verifying the expenditure to be reimbursed. The application must be submitted to the SFC within three months from the date of the certificate of incorporation or redomiciliation issued by the CR for private OFCs, or the authorisation date for public OFCs.
The Scheme was first introduced by the Financial Secretary Paul Chan in the 2021-22 Budget Speech earlier this year, and the government set aside HK$270 million for the Scheme. The SFC’s Chief Executive Officer Ashley Alder expects that this Scheme will help cement Hong Kong’s role as a “leading capital raising venue” and an “international asset and wealth management centre.”
How we can helpJC Legal specialises in corporate and commercial law as well as regulatory compliance. We are able to assist you with the application documents including but not limited to the following:
If you are interested in learning more about how we may help in incorporating your OFC or making an application for the Scheme, you may contact us.
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