Legislation to amend the Inland Revenue Ordinance and Stamp Duty Ordinance, and provide a comparable taxation framework in Hong Kong for some common types of Islamic bonds (sukuk) compared with conventional bonds, went into operation on July 19, 2013.
"The Amendment Ordinance represents the joint efforts of the Government and the market to remove a previous impediment to developing a sukuk market in Hong Kong," said the Secretary for Financial Services and the Treasury, Professor K C Chan.
"This will help establish a conducive platform for the development of Islamic finance in Hong Kong, thereby diversifying the types of products and services available to our financial markets, and consolidating Hong Kong's status as an international financial center and asset management center," he added.
The amendments will give tax and stamp duty relief for transactions underpinning the issuance of sukuk products, whose global volume is estimated, by the end of 2012, to have exceeded USD220bn. As sukuk, which cannot involve the payment or receipt of interest, have more complex product structures than their conventional bond counterparts (often using special purpose vehicles and multiple asset transfers), their issuance may attract additional profits or property tax exposures, or stamp duty charges.
The Government has observed that major jurisdictions such as Malaysia, the United Kingdom, Singapore, Japan and France, have amended their tax laws to facilitate sukuk issuance. Chan has stressed that the proposed legislation will not confer special tax favors on sukuk – classified as an "alternative bond scheme" – but should ensure that financial instruments of similar economic substance are afforded similar tax treatments.
To provide implementation guidance, the Inland Revenue Department will shortly publish the related Departmental Interpretation and Practice Notes and Stamp Office Interpretation and Practice Notes.
(Global Tax News / 23 July 2013)
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Islamic Investment Malaysia: www.islamic-invest-malaysia.com