Executive SummaryHong Kong's asset and wealthmanagement(AWM)industry has prospered aver the past years thanks tothe city's urparalleled advantages as an international financial centre, and the collective efforts of theindustry and the HKSAR Government. However, the econarmic and geopolitical changes that have takenplace reminds us that Hong Kong should not rest onits laurels. lmprovements to theexisting tax laws andpalicies are needed for Hong Kong to retain its competitiveness and cement its position as a leadinginternational AWM hub.

This paper mainly focuses on the following areas, which are considered as (i) the most pressing issueshinder ing Hong Kang's further development in AWM, and (t) the areas which can be addressed quickly,simply , and easily with the largest beneficial effect. To this end, theFSDC has identified the foallawing threekey areas where tax can play a pivotal role to bring Hong Kong's AWM industry tb greater heights.This paper mainly focuses on the following areas, which are considered as (i) the most pressing issueshinder ing Hong Kang's further development in AWM, and (t) the areas which can be addressed quickly,simply , and easily with the largest beneficial effect. 

To this end, theFSDC has identified the foallawing threekey areas where tax can play a pivotal role to bring Hong Kong's AWM industry tb greater heights. Promoting asset classes that are currently underdeveloped in Hong Kong by providing incentives,clarity and operational efficiency.Attracting institutional investors by providing a level playing field in terms of tax to each type ofasset owners.Addres sing other deficiencies in the unified profits tax exemption for funds (uUTE) and theopen-ended fund company (OFCy regime.

Introduction and overviewHong Kong has long been regarded as a leading asset and wealth management centre in Asia andintermationally, managing a oombined AUMof USD4.5trillion at theend of 2020.1 Thesuccess it has seencan be attributed in part tb its strategically unique geographic position. Hong Kong is a port city and agateway toMainland China- consistently having been thelargest source of foreign direct inivestment intoand thelargest destination for outward direct investment out of Mainland China.3Recognising the strength of the industry, over the past few years, the Hong Kang SAR Government haslaunched several initiatives either specifically aimed at or related to the asset and wealth management(AWM) sector and its market players. 

The number of tax law developments are indicative of the commitmentby the Govermment to strengthen the industry.Nonatheless, the FSDC believes more can be done. Uncertainties in the geopolifical landscape, majormarkets and economies, and more recently the international tax envirarnmerit, aremaking businesses andindustry players more cautious in their decision making. This will continue to impact Hong Kang and itsposition as an AWM hub. 

TheFSDC calls for coordinated action from the HKSARGovernment, regulators,and theindustry tbo ensure Hong Kong remains internationally competitive as an AWM centre.The FSDC believes that an effective way of daing this is tbo review the existing tax laws and policies andloak for areas of improvement. In doing so,any tax palicies or measures introduced should cater to theentire AWM ecosysierm and develop the industry as a whcle.This means they should apply to and benefitasset classes, asset owners, and service providers alike.This paper mainly focuses an the bollowing areas which are onsidered as (i) the mast pressing issueshinder ing Hong Kang's further development in AWM, and (t) the areas which can be addressed quickly,simpty, and easily with the largest beneficial effect.l. 

Promoling asset classes that are cur rently undardeveloped in Hong Kong.ll. Attracting asset owner classes that are important institutianal investors to invest in or throughHang Kong to which the axation regime should apply on a fairand equitable basis, thus afferinga level playing field to each class af asset owners.lI.Addres sing other deficiences in the unified profits tax exemption far funds (UTEy and theopen-ended fund oompany reg ime (OFC).The FSDC noes that in May 2021, the law to introduce a taxcancessian for carried interest der ived fromprivate equity funds aperating in Hang Kang was enacted with retraspective effect from 1April 2020." 

TheFSDC understands that since then, the HKSAR Government has been liaising cksely with the industry 'bokook for a practical approach to ensure the successhul implermentafan af the regime, or exarmple,etendingthe Hong Kong Manetary Autharity(HKMA)'s certihication application deadline. In vhew of the progressalready taking place, this paper doas nat include the discussion of the tax cancesson for carried nterest.I.Promoting asset classes that are currentlyunderdeveloped in Hong KongDebt capital marketHong Kang's thriving and strong equity capital market has long been recognised globally as one ofits for les.

The Slock Exchange of Hong Kong (SEHK) is Asia's fourth largest stock exchange intermsof market capitalisation and seventh largest in the world." While this is already down compared withprior periods, in comparison, Hong Kong's debt capital market(both public debt and private debt)has developed at a much slower pace. This trend is also true when compared to other leadingglobal (and regional) financial centre counterparts. According to data from the Bank of lnternationalsettlemenits, Hong Kong's outstanding internmationaldebt instruments totalled USD 564 billion, whichrepresents only 8%of the UK and 1% of the US' figures.

' Whether viewed in terms of localissuancesby gover nment and corporales, or in tems of volumes traded locally (regardless of issuer), HongKong's role in debt markets does not compare to its role inequity markets.And yet the debt rmarkets,along with the accompanying currency markets,are much lar ger globally.The stunted growth of Hong Kang's debt market can be attributed to various factars.Some of themrelate to features of the public debt markets in Asia that have been well documented, as well as thepolicies of those jurisdictions such as Hong Kong seeking to grow their stalus as a global financialcentre. In fact, the HKSAR Govermment has already taken some steps to boost the growth of thedebt market , initially geared towards public debt, and mare recently , owards bonds and marketabledebt instruments. 

In 2009, it established the Government Bond Programme to “promote further andsustainable development of the local bond market " , to “complement the equity and the bankingsector as an effective channel of financial initermediation." In the 2016-17Budget Speech, HongKong's Fnancial Secretary said that the Government Bond Programme " has successfully attractedlocal andoverseas inves tors and issuers to par ticipate in Hong Kong's bond market."The FinancialSecretary has time and again acknowledged the importance of the bond market as a key componentof the capital market. In the 2018-19 Budget Speech, the Financial Secreltary stressed again that theGovermment is committed to improving various facets of the financial services industry, in particular ,developing the bond market and green finance to enhance Hong Kong's campetifiveness and to“[attrac] corporate bond issuance, [lacilitate] irnvestors participation and [broaden] investment platorm.

"ln his 2022-23 Budget Speech, the Financial Secretary expressed that "develbping the bond marketin Hong Kong has been one of our key objectives in recent years."1 The Steering Commitlee onBond Market Development in Hong Kong set up under the Financial Secretary's purview, hasreviewed the current bond market situation and has put forward recommendations and look toimplement these.While the initiatives and etlorts to date to support and promote Hong Kong's debtmarket are good steps in the right direction, the FSDC believes that more can be done to furtherstimulate its growth.