Key Insights on Establishing a Limited Partnership Fund in Hong Kong

The Limited Partnership Fund Ordinance (LPFO) represents a significant advancement in Hong Kong's regulatory landscape, coming into effect on August 31, 2020. Designed to establish Hong Kong as a leading asset and wealth management center, the LPFO introduces a modern framework for private investment funds, particularly appealing to private equity and venture capital firms. By providing a flexible and efficient structure for fund formation, the LPFO aims to attract both local and international investors, facilitating the flow of capital into various sectors, including innovation and technology. By the end of December 2024, there were 944 LPFs registered.

Structure:

• An LPF is a limited partnership consisting of at least one general partner (GP) and one limited partner (LP).

• The GP is responsible for managing the fund and has unlimited liability, while the LPs enjoy limited liability up to the amount of their capital contributions.

• An investment manager must be appointed to oversee daily management. This manager can be the GP or another qualified individual or entity.

• The LPF is governed by a written limited partnership agreement (LPA) that complies with the LPFO and other applicable laws. The LPA outlines the partners' rights and obligations, investment strategies, profit distribution, and more.

• The GP must appoint an independent auditor based in Hong Kong.

• There is no requirement to appoint a custodian, but the GP is responsible for ensuring the proper custody of the LPF’s assets.

Advantages of Establishing an LPF in Hong Kong:

• Flexibility:

  - No minimum capital requirements.
  - No investment restrictions.

  - Flexibility in structuring the fund through contractual freedom.

  - Investment targets can be determined flexibly by the limited partnership agreement.

  - LPFs can adopt a variety of investment strategies, including liquid investments, feeder structures, or asset-holding structures.

  Cost-Effectiveness:

• Registration and maintenance fees for an LPF in Hong Kong are highly competitive, with initial registration fees around US$390 and annual return fees around US$14.

• Tax Benefits:

  - LPFs can benefit from profits tax exemptions on qualifying transactions.

  - Management fees sourced outside Hong Kong may be exempt from taxation.

  - Carried interest earned by qualifying persons is taxed at 0% in Hong Kong.

  - Transfers or assignments of interests in LPFs are not subject to Hong Kong stamp duty.

If you're considering whether an LPF is the right investment solution for you, our company is here to assist. We offer expert, tailored advice and can guide you through the entire process of setting up your LPF.

To register an LPF, the fund must have a registered office in Hong Kong and submit an application through a Hong Kong law firm or solicitor. Our services include partnering with experienced lawyers to facilitate this process and helping you identify the right partners in Hong Kong.

Contact us today to leverage our expertise in helping clients successfully establish their businesses!