Let’s start 2019 with a look at Hong Kong innovation and technology.
Innovation and technology (“I&T”) would continue to be a key theme at the annual Asian Financial Forum (AFF). AFF 2019 – Creating a Sustainable and Inclusive Future, to be held on 14th and 15th January, would run a stream of events focused on I&T. Start Me Up HK Festival 2019 will also take place later this month.
Hong Kong has for a couple of years now introduced a government-funded scheme to encourage venture capital investments into the I&T industries here. In 2018-2019 Budget, the Hong Kong Financial Secretary announced that an additional amount of HK$50 billion (approximately US$ 6.37 billion) will be reserved to further support the I&T development in Hong Kong.
Broadly speaking, under the Innovation and Technology Venture Fund (“ITVF”) scheme, the Hong Kong government will co-invest (through its special purposes vehicle named the ITVF Corporation) at a 1:2 ratio in Hong Kong I&T start-ups. Each eligible venture capital fund may obtain a maximum aggregate amount of HK$ 400 million (approximately US$ 51 million), while each eligible investee company may receive up to HK$ 50 million (approximately US$ 6.4 million) in funding from ITVF.
Venture capital funds are welcome to apply to be selected for co-investment partnership with the ITVF Corporation, subject to meeting eligibility requirements – if it has an investment focus in I&T start-ups, has an investment coverage including Hong Kong, has a minimum remaining and committed capital of HK$ 120 million (approximately US$ 15 million), and has a remaining fund life of at least five years. Eligible VC funds may be incorporated in Hong Kong or overseas, and may be an existing fund or newly established. As at August 2018, there are 6 co-investment partners including BVCF IV, L.P. managed by BVCF IV GP, Ltd., and Hendale Fund, L.P., managed by Hendale GP Ltd.
In brief, the I&T start-up company has to satisfy the following conditions to be eligible for funding from the ITVF: it was incorporated in Hong Kong within the last seven years with one of its offices, its main business operation, or its key management or leadership being located in Hong Kong; it (including its subsidiaries, if any) have been engaged in an I&T business, covering any part of the R&D or production chain in Hong Kong; and it (and its subsidiaries, if any) have less than 250 employees (anywhere in the world) in total.
In November 2018, we published an article with a leading centre for cross-border tax information, IBFD, in which we discussed the ITVF scheme and tax issues relevant to operating investment funds and investments in I&T in Hong Kong, including some considerations from the perspective of European venture capital investors (https://www.ibfd.org/IBFD-Products/Journal-Articles/Derivatives-and-Financial-Instruments/collections/dfi/html/dfi_2018_06_hk_1.html). For a recent update relating to Hong Kong profits tax exemption regime for investment funds, please refer to our article published on 11 December 2018 (http://www.vteu.co/2018/12/11/international-tax-cooperation-spurs-key-development-of-the-hong-kong-asset-management-industry/).
For more see Conventus Law.