Introduction
Unlike many other jurisdictions, Hong Kong operates a territorial tax system based on the concept of source where, in essence, the profits of a business or the salary and other emoluments earned from employment or a office have to arise in or be derived from Hong Kong. 

Therefore, for those persons whose employment does not give rise to a Hong Kong salaries tax liability, it is arguable that the benefits gained from the Fund should not be subject to tax in Hong Kong, but benefits derived from the Fund may be subject to tax in their home jurisdiction or country of residence. 

Consequently, members of the Fund who do not reside in Hong Kong should seek local advice in their home jurisdiction or country of residence.

Is the Fund or any member who pays Hong Kong salaries tax subject to tax in Hong Kong or contributions made to the Fund?
Broadly speaking, the Fund is not subject to tax on contributions made to the Fund by either the employer or the employee.  However, if the Fund holds shares in companies which themselves carry on a business in Hong Kong and which earn profits which arise in or are derived from Hong Kong, then those companies themselves will be subject to a Hong Kong profits tax charge.

Can a member of the Fund deduct his/her contributions to the Fund for Hong Kong salaries tax purposes?
A deduction is available for a contribution paid by an employee to a recognized retirement scheme during the relevant year of assessment.  The payment has to made a to a “recognized retirement scheme” which is defined as a provident fund scheme registered under the Mandatory Provident Schemes Ordinance.

In the case of a recognized retirement or occupational retirement scheme, the starting off point for determining the allowable deduction is the amount of contributions paid.  This is limited to the amount of the mandatory contributions which a period would have had to have paid to the scheme, subject to a limit of HK$12,000.00 per annum. 

What is the Hong Kong tax position of a Member of the Fund?
Broadly speaking, the tax position of a Member of the Fund depends upon whether he is subject to Hong Kong salaries tax.  If a member has not been subject to the Hong Kong salaries tax regime during the time when he has been a member of the Fund, then the member should not be subject to salaries tax on benefits which the member reclines from the Fund.

On the other hand, if the member is subject to Hong Kong salaries tax, then

1.         No salaries tax liability should arise on a lump sum attributable to the Employers contributions received on:-

            (a)        termination after at least 10 years service;

            (b)        retirement after a specified age of at least 45;

            (c)        reaching the age of 60 or later specified retirement age;

            (d)       death or incapacity.

2.         If a lump sum is attributable to the employers contributions is received on termination of service, retirement, death or incapacity before completion of 10 years service, a proportionate exemption from salaries tax is available.

3.         No salaries tax will arise on a lump sum received on termination of service, death, incapacity or retirement to the extent that the sum is not attributable to the employer’s contributions.

However, this advice does not cover the position of a Member (or his dependents) of the Fund who receive benefits from the Fund and who is resident or domiciled in a jurisdiction or territory outside Hong Kong.  Local advice should be obtained from advisors practicing in the jurisdiction or territory where a Member is resident or domiciled.

Is the Fund subject to Hong Kong taxation?
The Fund will not be subject to Hong Kong taxation provided that

(a)        the Fund does not carry on a trade profession or business in Hong Kong;

(b)        the Fund does not have any profits arising from that trade profession or business being carried on in Hong Kong; and

(c)        those profits do not arise in or are not derived from Hong Kong.                              

Moreover, a sub-fund may hold shares in private investment or holding companies.  The points outlined in paragraphs (a) to (c) above are equally applicable to underlying companies if they perform commercial activities in Hong Kong.