Asset and Wealth Management Tax Highlights – Asia Pacific

January to March 2016In this edition’s asset and wealth management tax highlights for the Asia Pacific region, we highlight industry and tax developments from Australia, China, Hong Kong, India, Korea, Malaysia, and Singapore, which may impact your asset and wealth management business. We hope you find these updates of interest, and will be pleased to discuss these developments and issues with you further.

AustraliaNew tax system for Managed Investment Trusts

The Bills implementing the new tax regime for managed investment trusts (MITs) and a number of related amendments have not yet been enacted due to certain matters being referred to the Senate Committee. The Senate Committee recommended the Bills be passed.

It remains to be seen whether the Bill is passed in the additional sittings of Parliament in April or the winter sessions with the Federal Budget legislation. At this stage no changes have been made to the proposed start dates.

(Refer Sept – Dec 2015 edition [http://pwchk.com/home/eng/am_tax_highlights_q42015.html] for a summary of the proposed rules)

OECD Common Reporting Standard

Domestic legislation introducing the OECD’s Common Reporting Standard (CRS) for the automatic exchange of financial account

information received Royal Assent on 18 March 2016. CRS in Australia is to commence from 1 July 2017.

Capital gains tax withholding

A new regime now imposes a 10 per cent non-final withholding obligation on the purchaser of certain Australian assets where the asset is acquired from a relevant foreign resident. Broadly, the obligation will apply to a transaction involving the acquisition of an asset that is:

• taxable Australian real property (TARP)

• an indirect Australian real property interest

• an option or right to acquire such property or such an interest.

The amount to be withheld is broadly speaking, 10% of the purchase price and may be paid from the amount otherwise paid to the non-resident (or their intermediaries). The non-resident may file an Australian income tax return and apply the amount withheld as a credit against Australian tax payable on the taxable gain.

However, the withholding obligation does not apply if a specific exemption applies (e.g. property less than $2m, listed shares etc), where the Commissioner has provided a clearance certificate certifying that the entity is not a relevant foreign resident for these purposes, the vendor has made a declaration that they are an

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Australian resident for tax purposes, or where the asset acquired is a membership interest and the vendor has made a declaration that the interest is not an indirect Australian real property interest.

The withholding measures apply in relation to acquisitions on or after 1 July 2016. A purchaser is generally taken to have acquired a capital gains tax asset on the date they entered into the contract to acquire it. Therefore, the amendments will not apply to transfers that occur under a contract entered into prior to 1 July 2016.

Foreign investment requirements

The Treasurer announced on 22 February 2016, new requirements on foreign investment applications. Currently, foreign persons who are planning to acquire certain interests in Australia are required to notify the Treasurer. The Treasurer will consider whether the investment is contrary to the national interest. The Foreign Investment Review Board (FIRB) has released draft Guidance Notes for consultation, which sets out circumstances where the Treasurer will consider tax related conditions which can be imposed on foreign investors. Conditions imposed will depend on a case by case basis, but could include:

• complying with Australian tax laws in relation a transaction, operation or asset

• providing information or documents as requested by the Australian Taxation Office (ATO)

• advising the ATO of any transactions to which the transfer pricing or anti-avoidance rules may potentially apply

• paying any outstanding tax debt

• providing an annual report to FIRB regarding compliance of the conditions.

In addition, possible conditions for cases where there is a particular tax risk identified may include:

• engaging in good faith with the ATO to resolve any tax issues

• providing information as specified by the ATO on a periodic basis including a minimum forecast of tax payable.

Foreign currency hedging transactions

The ATO released on 16 March 2016 an Addendum to the Taxation Ruling TR 2014/7 dealing with foreign currency hedging transactions under portfolio hedging strategies following industry consultation on the “source” of foreign currency hedging gains (whether “domestic” or “foreign”) and when currency hedging losses reasonably relate to income for the purposes of determining the cap for claiming foreign income tax offsets.

The key points to note are as follows

• Source of FX gains depends on the particular facts and circumstances.

• Where each foreign currency hedging contract is formed is the most important element in determining source of the foreign currency hedging gain. This is typically where the communication of the acceptance is received.

• The ATO will issue guidance as to how proxy measures can be used to ascertain source without needing to review individual transactions.

• The term 'reasonably related' includes a relationship that may either be direct or indirect. A reasonable relationship between a deduction will exist where the deduction was incurred in connection with (disregarded) income and that connection is not remote or coincidental.

Please also refer to the April to June 2015 edition of our Asset & Wealth Management Highlights – Asia Pacific (http://www.pwchk.com/home/eng/am_tax_highlights_jul.html)

Tax incentives for early stage and venture capital investors

As part of the Government’s innovation agenda, a Bill has been introduced to Parliament on 16 March 2016 containing amendments to encourage new investment in Australian early stage innovation companies, and improve access to venture capital investment. The proposed new tax measures are follows:

1. Tax incentives for early stage investors

An investor can obtain a non-refundable carry forward tax offset equal to 20% of the amount paid for newly issued shares in an Australian early stage innovation company (ESIC) subject to a cap of $200,000 and other certain restrictions. For retail investors there is an annual investment limit of $50,000. There are also capital gains tax concessions for investors as follows:

• For shares held for between one year and ten years, the capital gain is disregarded.

• For shares held for at least ten years, the cost base is deemed to be market value determined on the tenth year.

Broadly, an Australian company will qualify as an ESIC if it is in early stage of its development and is developing new or significantly improved innovations with the purpose of commercialisation.

These rules are expected to apply from 1 July 2016.

2. Venture capital investment

Currently, tax concessions are provided to encourage Australian venture capital investments being, the early stage venture capital limited partnership (ESVCLP) and venture capital limited partnership

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(VCLP) regimes, with the aim to encourage both local and foreign investment and to develop venture capital management skills in Australia. In order to make the regimes more attractive to investors, the Bill contains the following amendments to the regimes:

• Providing a non-refundable carry-forward tax offset for limited partners of ESVCLP of up to 10% of the contribution during an income year.

• Increasing the maximum fund size for an ESVCLP from $100m to $200m.

• Removing the requirement that an ESVCLP divest an investment in an entity once the value of the entity’s assets exceeds $250m (but restricting tax concessions for such investments).

• Allowing investee entities of a VCLP, ESVCLP or an Australian venture capital fund of funds to invest in other entities subject to certain conditions.

New FIRPTA regulations reflect changes made by the PATH Act

The Treasury and IRS released temporary and final regulations on February 17, 2016, that generally confirm and update the prior regulations to changes made to the Foreign Investment in Real Property Tax Act (FIRPTA), enacted as ‘the PATH Act’ on December 18, 2015.

The PATH Act:

1. increased the general rate of withholding on dispositions of US Real Property Interests (USRPIs) from 10% to 15%,

2. exempted certain foreign retirement funds from the application of FIRPTA,

3. increased the amount of stock a foreign person may own in a publicly traded real estate investment trust (REIT) from 5% to 10%,

4. added a new exception for qualified shareholders in REITs, and

5. modified the ’cleansing rule’ and the definition of a ‘domestically controlled’ qualified investment entity.

In respect of (2) above, it is not yet clear whether Australian superannuation will qualify as exempt foreign retirement funds. The technical issue is not dissimilar to that which arose for Australian superannuation funds to qualify for exempt status under FATCA. Whereas the FATCA issue was resolved via Inter Governmental Agreements (IGAs), it also remains to be seen how the FIRPTA issue will be resolved as there are no similar associated agreements like IGAs under FIRPTA.

ChinaThe final stage of the B2V reform to be rolled out from 1 May 2016

Since 1 January 2012, the State Council has been launching the pilot programme for the transformation from Business Tax to Value Added Tax (VAT) (the B2V reform) to improve the input VAT credit mechanism, mitigate the multiple taxation issue and promote the economic upgrade in various stages. By the end of 2015, the B2V reform was completed for the transportation, certain modern services, postal services, and telecommunications industries, etc. On 5 March 2016, at the fourth session of the 12th National People Congress, Premier Li Keqiang announced in the government work report that the B2V Reform will be further rolled out to cover the remaining industries including financial services, real estate and construction sectors, as well as consumer services starting from 1 May 2016. This demonstrates the government’s strong determination to reduce the tax burden of taxpayers.

However, assessing the changes to the tax burdens of taxpayers in both the short and long term is quite complicated given the unique characteristics of the VAT regime, impact of the unfinished contracts, timing for claiming input VAT credit incurred for newly purchased assets, and business’ operation cycle. Based on the experience from previous pilot runs and official statistics, the tax burden of taxpayers as a whole has been reduced. However despite this, the tax burdens of certain taxpayers have inevitably increased, especially in the initial stages of the reform. In this connection, we recommend that enterprises in the above remaining industries should assess the potential changes to their tax burdens as the implications will differ from case to case. This is particularly important for the asset management industry as there are potential China tax implications on its investments in the real estate, construction, and consumer services sectors.

For further details of the potential China tax impact of the B2V reform on the remaining industries, please refer to: http://www.pwccn.com/home/eng/chinatax_news_mar2016_8.html

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The Bill on Hong Kong’s open-ended fund company regime was gazetted on 15 January 2016

The Securities and Futures (Amendment) Bill 2016 will introduce the legal, regulatory, and tax framework for an open-ended fund company (OFC) regime in Hong Kong but amending various ordinances – Securities and Futures Ordinances (SFO), the old Companies Ordinance, Inland Revenue Ordinance, Stamp Duty Ordinance. and Business Registration Ordinance. Currently, an open-ended investment fund can only be established in Hong Kong in the form of a unit trust. The Bill will provide an extra option for fund structure for investment funds domiciled in Hong Kong.

For further details, please refer to the following URL: http://www.pwchk.com.hk/home/eng/fstax_news_jan2016.html

Taxpayers can continue using the fair value basis for 2015/16 profits tax filings

Following the judgment of the Court of Final Appeal in the Nice Cheer case, the IRD has introduced an interim administrative measure for the filing of 2013/14 and 2014/15 profits tax returns – taxpayers can adopt either a fair value basis or realisation basis for computing the 2013/14 and 2014/15 assessable profits. As such, taxpayers filing 2015/16 profits tax returns can elect between fair value basis and realisation basis.

The 2016/17 Hong Kong Budget

No change in the profits tax rate but there are various profits tax proposals in the budget, as well as, various one-off relief measures (listed below):

• Profits tax rates for companies and unincorporated business remain unchanged at 16.5% and 15%

• Expand the scope of tax deduction for capital expenditure incurred for the purchase of intellectual property rights to layout-design of integrated circuits, plant varieties, and rights in performance

• Examine the use of tax concession to boost aircraft leasing business and explore business opportunities in aerospace financing

• Waive 75% of profits tax for 2015/16 (HK$20,000 ceiling) to be deducted from the taxpayer’s final tax payable for the year

In respect of the of financial services industry, the key proposals were as follows:

• Promote multinational enterprises to establish Corporate Treasury Centres (CTC) in Hong Kong by providing concessionary tax treatment

• The introduction of an open-ended fund company structure (OFC) — bill submitted to Legislative Council

• Bolster support for Financial Technology (FinTech) in Hong Kong

• BEPS – HK is obliged to implement; will conduct analysis and consultation in the coming year

For further details, please refer to the following URL: http://www.pwchk.com/home/eng/budget2016.html

Hong KongIRD’s news alert on the profits tax treatment of corporate amalgamations

The Inland Revenue Department (IRD) issued a news alert on 30 December 2015 to discuss its current assessing practice on the tax treatment of corporate amalgamations. An amalgamated company will generally be treated as the continuation of and the same person as the amalgamating company; while the amalgamating company is treated as having ceased its trade or business and realized its trading stock in the open market – section 61A and 61B will not be applicable.

The general condition for the treatment of losses is as follows: the tax losses must be those incurred after the amalgamating company and the amalgamated company have become wholly owned subsidiaries of the same group.

For losses carried forward for the amalgamating and amalgamated company:

• The losses can only be used to set off the profits of the amalgamated company derived from the same trade or business succeeded from the amalgamating company.

• The amalgamated company should have adequate finance (other than intra-group finance) to acquire the business of the amalgamating company.

The Bill on automatic exchange of information was gazetted on 8 January 2016

To further commit to the CRS and Automatic Exchange of Information (AEoI), the Bill seeks to put in place a legal framework for Hong Kong to implement AEoI and commence the first information exchanges by the end of 2018. The Bill covers the following five areas:

• Scope of Financial Institutions (FIs), non-reporting FIs and excluded accounts

• Due diligence and reporting requirements

• Scope of information to be furnished by FIs

• Scope of reportable jurisdictions

• Enforcement provisions – power of the IRD and sanctions

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IndiaRegulatory updates

• Regulatory initiatives for startups – The sixth bi-monthly policy of the Reserve Bank of India (RBI) highlighted the steps taken by the Government to promote ease of doing business. In line with this, the RBI has already issued notifications as set out below:

1. Online submission of Form A2 for outward remittances up to certain thresholds

2. Issue of shares without receipt of cash payments by the investor through sweat equity or against any legitimate payment owed by the company

3. Startups can now accept payment on behalf of their overseas subsidiaries subject to conditions

Notifications or guidelines in relation to (i) deferred payment through escrow/ indemnity arrangement for transfer of shares, (ii) enabling investment by foreign venture capital investors (FVCIs) in start-ups and (iii) overseas investment operations for start-ups will be issued soon.

On 17 February 2016, The Department of Industrial Policy and Promotion (DIPP) issued a notification providing a definition of ‘startup’ to bring uniformity in identifying enterprises which can take benefits of the initiatives taken by various Ministries of the Government of India.

The Notification also states the identified startups as per the definition shall obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification to obtain benefits available to startups.

• Union Budget 2016: Key Policy Announcements

1. Hybrid instruments now to be considered as eligible Foreign Direct Investment (FDI) instruments

2. Facilitate registration of companies in one day

3. A comprehensive Code on Resolution of Financial Firms to be introduced to deal with bankruptcy situations in banks, insurance companies and financial sector entities

The SAT’s interpretation of the Fourth Protocol to the China/HK CDTA

Further to the coming into effect of the Fourth Protocol to the China/HK CDTA on 29 December 2015, the SAT issued (1) Public Notice [2016] No.12 (PN 12) on 9 March 2016 announcing that the Fourth Protocol is now effective and (2) an interpretation on 16 March 2016 on the Fourth Protocol.

The interpretation by the SAT clarifies a tax exemption in China for gains derived by Hong Kong tax residents from disposal of shares of Chinese resident enterprises that are listed on recognised stock exchanges.

• The exemption only applies to transfer of shares where the shares are acquired and disposed of at the same stock exchange; in essence, the quantity and the price of the shares transferred are determined by the general transaction rules of an open stock market and not determined between the buyer and seller.

4. Measures to be introduced to rejuvenate the corporate bond market – dedicated fund to provide credit enhancement to infrastructure projects, guidelines for large borrowers to access alternative source for financing needs

5. No Foreign Investment Promotion Board (FIPB) permission to be required for foreign investment in regulated financial services activities outside of 18 specified Non-Banking Financial Companies (NBFC) activities

6. Allocation of INR 250,000 million towards recapitalisation of public sector banks

7. New derivative products to be developed by the Securities and Exchange Board of India in the commodity derivatives market

8. 100% FDI in Asset Reconstruction Company (ARCs) to be permitted under the automatic route

9. 15% FDI investment in Indian Stock Exchanges(presently 5%) to be permitted under the automatic route

10. 100% FDI in marketing of food products produced and manufactured in India shall now be permitted under the automatic route (presently not permitted)

11. RBI to facilitate their participation in the primary and secondary markets through stock exchanges and access to NDS-OM trading platform

12. 100% FPI investment now permitted (presently 74%) of each tranche in securities receipts issued by ARCs subject to sectoral caps

13. 49% FPI stake now permitted (presently 24%) in listed Central Public Sector Enterprises other than banks

14. Unlisted debt securities and pass through securities issued by Securitisation Special Purpose Vehicles(SPVs) to be permitted to be subscribed by FPIs

15. Listing of government-owned general insurance companies proposed

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• FDI in the insurance and pension sector – On 23 March 2016, the DIPP has issued Press Note No. 1 and No. 2 (2016 Series) liberalising the FDI policy in the insurance and pension sectors respectively. Investment in the insurance and pension sectors are now permitted up to 49% under Automatic route as opposed to up to 26% was under the automatic route and beyond 26% and up to 49% was under Government route. All other conditions specified in the Consolidated FDI Policy remain the same.

• Increase in Foreign Portfolio Investor (FPI) limits for investments in G-secs – On 29 March 2016, the RBI and Securities and Exchange Board of India (SEBI) increased the limit for FPI investment in Government Securities:

1. Limit for FPIs in Central Government securities shall be enhanced to INR 140,000 cr on April 04, 2016 and INR 144,000 cr on July 05, 2016 respectively from the existing limit of INR 135,400 cr

2. Limit for Long Term FPIs (Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks) in Central Government securities shall be enhanced to INR 50,000 cr and INR 56,000 cr on April 04, 2016 and July 05, 2016 respectively from the existing limit of INR 44,100 cr

3. The limit for investment by all FPIs in State Development Loans (SDL) shall be enhanced to INR 10,500 cr on April 04, 2016 and INR 14,000 cr on July 05, 2016 respectively from the existing limit of INR 7,000 cr

• FPIs allowed to invest in Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvIts) and Alternative Investment Funds (AIFs) – On 15 March 2016, SEBI decided to permit FPI to invest in units of REITs, InvITS and AIFs. A FPI shall not hold more than twenty five percent stake in a category III AIF.

Tax updates

Government issues procedures for e-hearing for paperless assessments

On 3 February 2016, the CBDT has issued notification no. 2/2016 issuing procedures for e-hearing for paperless assessments as well as procedures and the standards to be followed to ensure secured transmission of electronic communication.

CBDT clarification – FATCA and CRS

On 19 February 2016, the CBDT issued a clarification to provide guidance on certain aspects for implementation of FATCA and the CRS in India as follows:

1. Local sub-custodians are required to carry out due diligence of the accounts held by the global custodian’s end-clients. However, to carry out the due diligence, the local sub-custodian may rely on the KYC / FATCA / CRS documentation carried out by the global custodian for the account holders, including self-certification

2. An NBFC that accepts deposit in the course of a banking business, or a similar business as mentioned in the definition of depository institution, will be considered as a “depository institution”, and is required to report accordingly

Union Budget 2016: Key tax announcements

1. Residency test for non-resident companies based on Place of Effective Management (POEM) deferred to 1 April 2016

2. High Level Committee to oversee applicability of indirect transfer provisions to be chaired by the Revenue Secretary and to include Chairman, CBDT and a third party expert

3. For non-residents, any gain from the appreciation of rupee upon redemption of a rupee denominated bond of an Indian company to be ignored for the purpose of capital gains computation

4. Tax incentives – International Financial Services Centre (IFSC):

a. Long-term capital gains arising from a transaction undertaken on a recognised stock exchange located in IFSC to be exempt where the consideration is paid/payable in foreign currency

b. No Securities Transaction tax (STT) payable by any person for a transaction carried on a recognised stock exchange located in IFSC, where the consideration is paid/payable in foreign currency

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c. No Dividend Distribution Tax (DDT) in the hands of the company located in IFSC provided the income is derived solely in convertible foreign exchange

d. Minimum Alternate Tax (MAT) applicable for companies located in IFSC at the rate of 9% if the income is derived solely in convertible foreign exchange, otherwise taxable at the rate of 18.5%; surcharge and education cesses applicable separately

5. With effect from 1 June 2016, tax pass-through status accorded to trust set-up by ARCs and Securitisation trusts

6. Safe harbour provisions extended to funds established, incorporated or registered outside India in a country notified by the Central Government, irrespective of whether India has a Double Taxation Avoidance Agreement (DTAA) or a Tax Information Exchange Agreement with the country or not. Also, the restriction that the Fund shall not carry on or control and manage any business from India, is proposed to be removed

7. Registered Category I or II AIFs to withhold tax at 10% for income distributed to resident investors and as per ‘rates in force’ for non-resident investors with effect from 1 June 2016 – treaty provisions could now be considered

8. Tax holiday for eligible start-up companies for three consecutive years out of five years from their incorporation however MAT would be applicable

9. No DDT applicable on divided distributed by Special Purpose Vehicle (SPV) subject to certain conditions

10. No change in tax rates for others, except increase in surcharge from 12% to 15% for non-corporate entities having income exceeding 10million INR

11. MAT not to apply to corporate FPIs, with retrospective effect from 1 April 2001, if the assessee is:

a. a resident of a country with which India has a DTAA and assessee does not have a permanent establishment in India; or

b. A resident of a country with which India does not have a DTAA and is not required to seek registration under any law in respect of companies

12. Country by Country reporting (CbCR) introduced in line with Base Erosion Profit Sharing (BEPS) Action Plan 13:

a. Threshold at consolidated group turnover > 750 mn Euro at FY 2015-2016

b. Requirement to maintain and file three layered documentation (master file, local file and CbCR parameters)

c. India inbound companies, being a constituent entity of an international group, liable to file CbCR in certain cases

Fund management activities – Safe Harbour Rules prescribed

On 15 March 2016, the CBDT issued a notification prescribing Rules for application of section 9A of the Income-tax Act, 1961 (the Act) dealing with taxation of offshore funds in India. Section 9A of the Act provides safe harbour provisions whereby an ‘eligible investment fund’ shall not be regarded as a tax resident in India merely because an ‘eligible fund manager’ undertaking fund management activities on its behalf is located in India. The CBDT has issued detailed Rules for the application of such safe harbour provisions.

India – Indonesia DTAA

On 16 March 2016, the Government of India notified the new DTAA with Indonesia which was signed on 27 July 2012 and entered into force on 5 February 2016. The new DTAA contains a Limitation of Benefits clause and expands the scope of Exchange of Information.

Period of holding of debentures before conversion to be considered - Rule 8AA Notified

On 17 March 2016, the CBDT issued notification no 18/2016, inserting Rule 8 AA, which determines the holding period of capital assets in certain cases. The Notification provides that:

“In case of equity share or debentures issued / allotted pursuant to conversion of bonds, debenture, debenture stock, deposit certificate etc. as mentioned in section 47(x) of the Act, the period of holding of the bond, debenture etc. prior to conversion shall be included in the period of holding of the equity shares etc. issued pursuant to conversion.”

KoreaRelease of BEPS Combined Report of International Transactions

In accordance with the BEPS project, the Ministry of Strategy and Finance (MOSF) announced the amendments to the Law for Coordination of International Tax Affairs (LCITA). The amended LCITA strengthens the requirement for multinationals in Korea to submit the Combined Report of International Transactions (CRIT) on their cross-border transactions. The CRIT is comprised of a Master file and Local file. Affected taxpayers include Korean corporations and foreign corporations having a PE in Korea that meet all of the following conditions:

1. An entity with annual revenue exceeding KRW 100 billion; and

2. An entity with the international transactions with foreign related party exceeding KRW 50 billion per year

In determining the international related party transaction amount in 2), it is proposed to take into account the amount of goods and services transactions as well as the amount of loans and borrowings among related parties. Submission of the CRIT is required by the time of corporate tax return filing for the fiscal year beginning 1 January 2016. Taxpayers failing to submit the CRIT (in whole or in part) or found to submit incorrect information will be subject to penalties of KRW 30 million.

Whether a Cayman Island PEF constitutes an overseas investment vehicle and a tax treaty would be applicable to investors

Under Article 98(4) and Article 98(6) of the Corporate Income Tax Law (CITL), a foreign corporation wishing to claim an exemption or a reduced tax rate for Korean sourced income under a tax treaty needs to file an application for tax treaty exemption or tax treaty rate to a tax office. The application has to be made by the beneficial owner rather than the income recipient. The ruling request includes two inquiries involving a foreign private equity (PEF) established in a Cayman Island having no tax treaty with Korea: i) whether the Cayman Island PEF that is formed as a limited partnership for the purposes of soliciting funds from investors, making investments by purchasing shares and selling them and

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MalaysiaRenminbi Qualified Foreign Institutional Investor (QFII) licence open for application

The RQFII programme was first introduced in 2011 as part of China’s ongoing efforts to internationalise the Renminbi. It aims to provide greater market access for foreign investors to invest in the Chinese market. The RQFII programme is administered by the China Securities and Regulatory Commission (CSRC), the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE).

On 23 November 2015, the People’s Bank of China recognised Malaysia as an RQFII jurisdiction with an aggregate quota of RMB50 billion. With this, Malaysia-based institutions are now able to invest directly into the Chinese capital market using Renminbi funds. The RQFII programme creates opportunity for qualified Malaysian institutions to offer a wider range of Renminbi investment products and will serve as an avenue for greater utilisation of offshore Renminbi funds.

The RQFII recognition will allow qualified Malaysian institutions to issue Renminbi investment products to investors and provide an avenue for the utilisation of offshore Renminbi for investment in China’s capital market.

distributing profits to investors from such investments and also is classified as a foreign corporation as defined in Article 1 (3) of the CITL would constitute an overseas investment vehicle (OIV) under Article 98(4) and Article 98(6) of the CITL; and (ii) whether a tax treaty would be applicable to the investor of the Cayman Island PEF.

In response to the ruling request for theses inquiries, the MOSF answered that whether the Cayman Island PEF would constitutes an OIV should be determined based on all the facts. Also, it provided that a tax treaty shall apply to the investors of the Cayman Island PEF which is classified as an OIV according to Article 138(7) of the Presidential Decree of the CITL and a foreign corporation under Article 1(2) of the Presidential Decree of the CITL provided that the OIV is not the beneficial owner, but the investors are beneficial owners of the income (Jaegookjo-56, 2015.11.24)

In view of this, the Securities Commission Malaysia (SC) and Bank Negara Malaysia (BNM) have jointly issued a Guidance Note to facilitate applications to the CSRC for an RQFII license. The SC and BNM will facilitate requests from regulated institutions for confirmation on licencing status and regulatory records for respective RQFII applications to the CSRC.

Institutions under the purview of the SC and BNM which meet the following criteria are eligible to apply for the RQFII licence:

a. Malaysia incorporated institutions which are licensed by the SC for fund management activity;

b. Malaysia incorporated institutions which are licensed by the SC for dealing in securities and are registered with Bursa Malaysia as a Participating Organisation;

c. Malaysia incorporated institutions which are licensed by the SC for dealing in derivatives and are registered with Bursa Malaysia as a Trading Participant;

d. Specified person and registered person under paragraph 21 of Schedule 3 and item 4 of Schedule 4 to the CMSA; or

e. Any institutions that may be prescribed by the SC or BNM

In addition to the above, applicants should also be of good standing, possess sound management and have no adverse records of material regulatory breaches in the last 3 years.

Eligible applicants may submit an application for an RQFII licence to the CSRC through an RQFII approved custodian bank. Upon obtaining the RQFII licence, applicants should submit an application to SAFE for an RQFII investment quota and where necessary, to PBOC for access to the Chinese inter-bank bond market. Prior to submitting an RQFII application to the CSRC, eligible applicants are required to obtain confirmation from the SC and / or BNM (where applicable) on its licensing status and regulatory records for the past 3 years.

In the event where an institution is licenced by both the SC and BNM (e.g. investments banks), confirmation from both regulators should be obtained. Such institutions should write to the SC to obtain confirmation from both SC and BNM. The SC will co-ordinate with BNM on issuance of the confirmation letter.

Institutions requesting for confirmation would be required to furnish the following information:

a. Name of applicant;

b. Intended quota size;

c. Details of investment strategy for the proposed RQFII investments;

d. Details of internal approval for the proposed RQFII investments;

e. Approval date and name of Board / Board Committee / Senior Management;

f. Adequacy of risk management practices and controls;

g. Target clientele; and

h. Details of contact person.

Global body of capital market regulators to set up Asia Pacific hub in Kuala Lumpur

On 22 February 2016, the International Organisation of Securities Commissions (IOSCO), the global body of capital market regulators announced the approval of the establishment of its first ever regional office to be set up in Kuala Lumpur. IOSCO’s membership regulates more than 95% of the world’s capital markets worth approximately USD140 trillion, in more than 115 jurisdictions. The establishment of the IOSCO Regional Hub for the Asia-Pacific represents the first time that the international regulatory organisation will have a presence outside its headquarters in Madrid, Spain.

The Asia-Pacific Regional Hub will play a key role for IOSCO initiatives associated with building of regulatory capabilities within the Asia-Pacific region, which covers both developed and emerging markets. The Hub will also facilitate cross border regulatory cooperation and contribute to the development of the region’s capital markets through its initiatives. It is also expected to attract leading market and regulatory experts to Kuala Lumpur.

The decision by IOSCO is an important milestone in the history of the organisation in setting up its first ever regional location. Capital markets globally have now become a key driver of economic growth and financing, and the Asia-Pacific region has some of the world’s most significant economies and capital markets. The selection of Malaysia clearly demonstrates international recognition of Malaysia’s efforts towards building a high quality and well-regulated capital market and the role of the country in the region.

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SingaporeThe Singapore Budget Statement was delivered on 24 March 2016 by the Minister for Finance. The key budget announcements relating to the asset management industry are discussed below:

Exemption of gains on disposal of equity investments

The safe harbour rule on the exemption of gains on sale of ordinary shares provided certainty for many investors contemplating share disposals. Broadly speaking, to obtain the relief, the divesting company must hold a minimum of 20% of the ordinary shares in the investee company for at least 24 months prior to the disposal. However, these rules were scheduled to expire on 31 May 2017. Budget 2016 announced an extension of these rules up to 31 May 2022. All other features of the scheme remain unchanged.

Announcement of framework relating to Open Ended Investment Companies

The government announced on 16 March 2016 that it is studying the introduction of a new regulatory framework for open-ended investment companies (OEIC), and that it is working with a target timeline of introducing OEIC within a year. This is in fact one of the most exciting initiatives in the asset management industry this year.

The OEIC will facilitate the core activities of asset management, allow for easy subscription and redemptions, valuation, create umbrella funds with multiple sub-funds etc., which existing corporate law does not facilitate. The Monetary Authority of Singapore will be releasing more details on this soon.

For detailed commentary on Budget 2016, please refer to: http://www.pwc.com/sg/en/budget-commentary/assets/bc2016.pdf

The Regional Hub in Kuala Lumpur will take IOSCO to a new level and will play a significant role in developing and deepening regional capital markets. It is expected that the Regional Hub in Kuala Lumpur will be in operation by the end of 2016.

Extension of tax exemption on income from managing syariah compliant funds

Currently, a fund management company resident in Malaysia and licensed under the Capital Market and Services Act 2007, which provides Syariah-compliant fund management services to foreign or local investors in Malaysia is exempted from income tax on the following:

a. Statutory income derived from business of providing fund management services to foreign investors in Malaysia. The income tax exemption is effective from YAs 2007 to 2016;

b. Statutory income derived from business of providing fund management services to local investors in Malaysia. The income tax exemption is effective from YAs 2008 to 2016; and

c. Statutory income derived from business of providing fund management services to business trusts or real estate investment trusts in Malaysia. The income tax exemption is effective from YAs 2014 to 2016.

In order to obtain this tax incentive, the fund managers would have to submit the details of the funds being managed to the Securities Commission in Malaysia to be certified to qualify for this tax incentive on a yearly basis.

"Foreign investors" means:

a. Individuals who are not resident in Malaysia or not citizen of Malaysia;

b. Companies where the entire issued share capital is beneficially owned, directly or indirectly by persons who are not resident in Malaysia and not citizen of Malaysia; and

c. Trust funds where the entire interest in the fund is beneficially held, directly or indirectly by foreign investors, where –

i. the fund is created in Malaysia or outside Malaysia; and

ii. the trustees of the fund are not resident in Malaysia and not citizens of Malaysia

"Local investors" means:

a. Individuals who are citizen of Malaysia and resident in Malaysia;

b. Companies where the entire issued share capital is beneficially owned, directly or indirectly by any person who are citizen of Malaysia and resident in Malaysia; and

c. Trust funds where the entire interest in the fund is beneficially held, directly or indirectly by any person who are citizen of Malaysia and resident in Malaysia and where –

i. the fund is created in Malaysia; and

ii. the trustees of the fund are citizen of Malaysia and resident in Malaysia

To further promote business management activities of Shariah-compliant funds, it was proposed in the Budget 2016 that the above tax exemptions will be extended for another 4 years to YA 2020.

For more information, please contact the following territory partners:

Country Partner Telephone Email address

Australia Ken Woo +61 (2) 8266 2948 ken.woo@au.pwc.com

China Kenny Lam +86 (21) 2323 2595 kenny.lam@cn.pwc.com

Hong Kong Florence Yip +852 2289 1833 florence.kf.yip@hk.pwc.com

India Bhavin Shah +91 (22) 6689 1122 bhavin.shah@in.pwc.com

Indonesia Margie Margaret +62 (21) 5289 0862 margie.margaret@id.pwc.com

Japan Akemi Kitou +81 (3) 5251 2461 akemi.kitou@jp.pwc.com

Stuart Porter +81 (3) 5251 2944 stuart.porter@jp.pwc.com

Korea Kwang-Soo Kim +82 (0) 10 3370 9319 kwang-soo.tls.kim@kr.pwc.com

Malaysia Jennifer Chang +60 (3) 2173 1828 jennifer.chang@my.pwc.com

New Zealand Darry Eady +64 (9) 355 8215 darryl.b.eady@nz.pwc.com

Philippines Malou P. Lim +63 (2) 845 2728 malou.p.lim@ph.pwc.com

Singapore Anuj Kagalwala +65 6236 3822 anuj.kagalwala@sg.pwc.com

Taiwan Richard Watanabe +886 (0) 2 27296666 26704 richard.watanabe@tw.pwc.com

Thailand Prapasiri Kositthanakorn +66 (2) 344 1228 prapasiri.kositthanakorn@th.pwc.com

Vietnam Van Dinh Thi Quynh +84 (4) 3946 2231 dinh.quynh.van@vn.pwc.com

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2016 PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the Hong Kong member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. HK-20151028-3-C3