Budget Speech

Promoting Asset Management Business

72.      In the financial tsunami, the strong rebound of China's economy has spearheaded the overall economic recovery of Asia and created abundant investment opportunities in the region. Asia is now the bright spot in the eyes of global institutional investors. We believe that more institutional investors will give greater weight to Asia in their investment portfolios and choose to establish footholds in Asia as the platform for their investment. Equipped with world-class hardware and software, including a strong asset management foundation, and benefiting from a huge demand for wealth and asset management services in the Mainland, Hong Kong is well placed to become Asia's premier asset management centre.

73.      I propose to introduce a number of measures to strengthen the competitiveness of the industry and attract more talent, capital and products to Hong Kong. First, I propose to extend the stamp duty concession in respect of the trading of exchange traded funds (ETFs). Currently, we waive the stamp duty for the trading of ETFs with no Hong Kong stock in their portfolios. ETFs with Hong Kong stocks, regardless of the weightings, are not entitled to this concession. With further integration of the financial markets in Asia, ETFs that track a basket of stocks in the region will become increasingly popular. To facilitate the development of ETFs, I propose to extend the concession to cover ETFs that track indices comprising not more than 40 per cent of Hong Kong stocks. This will reduce the trading cost and promote the diversification and healthy growth of the ETF market.

74.      As for the local bond market, currently a concessionary profits tax rate at 50 per cent of the normal rate is applied to the interest income and profits derived from qualifying debt instruments with a maturity period of less than seven years but not less than three years. I propose to extend this concession to cover qualifying debt instruments with a maturity period of less than three years. To better meet market requirements, we also plan to amend the provisions under the Inland Revenue Ordinance that require such debt instruments to be issued to the public in Hong Kong.

75.      The Commissioner of Inland Revenue will further clarify the definition of "central management and control" to address the industry's concern about the residency requirement for directors of the management committee of offshore funds in their applications for profits tax exemption. This will help attract more fund managers to manage overseas funds in Hong Kong. I also propose to update the lists of recognised stock exchanges and futures exchanges under the Inland Revenue Ordinance so as to extend the application of tax exemption for offshore funds engaged in futures trading.

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