Hong Kong Waives Stamp Duty for ETF Trading

Stamp duty on trading of all exchange-traded funds (ETFs) in Hong Kong will be waived while interest deductions in taxation of corporate treasury activities will be under review in the hope of attracting multinational corporations (MNCs), local daily the
Hong Kong Standard
reports.

Hong Kong’s financial secretary, John Tsang, said there were 116 ETFs listed in the city by the end of 2013, representing a 68% increase from three years earlier. Over the period the daily average turnover of ETFs increased from HK$2.4bn to HK$3.7bn (US$480m).

Government sources said that about HK$200m of stamp duty per annum is involved, although more active trading could counter the impact. In 2010, Tsang extended the stamp duty concession to cover ETFs that track indexes comprising not more than 40% of Hong Kong stocks.

Hong Kong Exchanges and Clearing (HKEx), operator of Hong Kong’s stock market and futures market, said 28 ETFs, including the Tracker Fund of Hong Kong (2800), could benefit from the waiver.

In a move aimed at attracting global and regional treasury management activities of MNCs to Hong Kong, Tsang said a task force will review the requirements under the Inland Revenue Ordinance for interest deductions in the taxation of corporate treasury activities, and proposals on the initiative will be made within a year.

Lilian Poon, tax services partner at local accounting and consulting firm RSM Nelson Wheeler, said that under current practice a corporate treasury company, which is responsible for obtaining funding within the corporate group, needs to pay a Hong Kong profits tax at 16.5% for the interest income.

The expense is now deductible only if such interest received by other group companies is subject to Hong Kong profits tax.

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