ETF Taxation Report for Investors 2019 (Hong Kong)

29 Apr, 2020 06:13

Singularity Financial Hong Kong April 29, 2020 – by Zohar Lee

HKEX collaborated with EY to bring to you the ETF Taxation Report 2019 – an easy-to-understand primer to help ETF investors generate location alpha in Asia.

The reports – tailored for the Hong Kong, Japan, Mainland China, Singapore, South Korea, Taiwan and Thailand markets – compare the tax impact of investing in Asia and beyond through ETFs listed in different jurisdictions.

The reports highlight that Hong Kong ETFs are one of the most tax-efficient channels to invest in Asia equities and indices.

Introduction

Exchange Traded Funds (ETFs) continue to gain popularity by investors as an efficient mechanism to gain a broad array of desired market access. Whilst return on investment (ROI) is a key priority, costs play an important role in maximizing ROI. One significant yet lesser understood cost with investing in ETFs is taxation. This is especially true for any crossborder investment which are normally subject to multiple instances of taxation.

In this report we will examine the impact of different types of ETFs on Hong Kong based investor returns across key markets, ETF types and domiciles.

Types of ETFs compared

Common forms of ETFs compared in this report include the following:
• Hong Kong domiciled fund, listed on the HKEX
• Irish Collective Asset-management Vehicle (ICAV) authorized as an Undertaking for Collective Investment in Transferable Securities (UCIT)
• Luxembourg Société d’Investissement à Capital Variable (SICAV) / Société d’Investissement à Capital Fixe (SICAF)
• US Regulated Investment Company (RIC)

Basis of analysis

1. General in nature
2. Only consider the impact of tax on dividend and interest income
3. Also important to consider the impact of tax on exit giving rise to capital gains and the availability of foreign tax credits

Conclusion

Hong Kong domiciled ETFs have traditionally been recognized for their unique access to the domestic market of Mainland China. However, with the HKEX now carrying
over 130 ETFs1 representing a wide range of global markets, investors now have an enhanced ability to use Hong Kong ETFs to achieve their desired market exposures.

Furthermore, Hong Kong’s expanding treaty network and domestic tax rules offer significant benefits for Hong Kong based investors seeking to invest via Hong Kong ETFs to gain exposure to other Asian and global markets.

Hong Kong investors should however be aware of the potential costs of investing into certain markets through a Hong Kong domiciled fund, such as the US.

To download the original report, please click here.