Possible changes in tax law to facilitate entry of Islamic fund market
By Chris Devonshire-Ellis
HONG KONG, Jan. 16 – Hong Kong’s Financial Secretary, Joseph Tsang, yesterday committed to the development of Hong Kong as an Islamic financial centre by seeking to attract more Muslim investors. The territory has just announced it has applied to join the Islamic Financial Services board, the international body established to develop standards for Islamic finance, and was looking at ways to modify its tax laws to attract Islamic finance to Hong Kong. The comments were made at yesterday’s Hong Kong Monetary Authority Islamic Finance Seminar.
Islamic law (Shariah) prohibits interest income but does permit profit sharing, meaning that international financial investments involving Muslim countries or investments are structured to show gains as profits rather than as interest. However, in Hong Kong, interest income is tax-exempt whereas profits are taxable. It is possible the government could waive tax on income on profits earned from Islamic bonds – a mechanism it already permits with government bonds and exchange fund debt papers. Malaysia also offers tax incentives in this manner to attract Islamic finance and to develop its Islamic financial services.
If implemented, the knock-on will also affect Mainland China, as it gives mainland debt issuers access to Shariah-compliant financial instruments – which would free up overseas capital to invest in border areas in China that are heavily Muslim, such as Xinjiang, Gansu and Ningxia, and further provides the government with opportunities to help further develop and stabilize these regions and keep them from external militant Islamic influences – a situation especially pertinent to parts of far Western Xinjiang, which shares a border with Afghanistan. China also has vested interests in Central Asia, Indonesia, and various African Islamic states, in particular over energy and other strategic resources, and the establishment of a healthy offshore trading market in Islamic bonds would suit its purposes well.
Useful further reading:
Hong Kong Government Islamic Finance Seminar Press Release
Islam & Muslims In China
History of Islam in China
Way Out West! (see July 2003 issue of China Briefing on the archives)
China Lays Its Stake On Central Asia
China Wants Stable Afghanistan
Previous Article « Indian Prime Minister Manmohan Singh visits Beijing
Next Article Battling rampant inflation, Beijing caps prices on food commodities »
Dezan Shira & Associates´ brochure offers a comprehensive overview of the services provided by the firm. With its team of lawyers, tax experts, auditors and...
As a legitimate tool for reasonable tax planning and cost saving, tax incentives play an important role. Companies also use tax incentives as a useful...
A firm understanding of China’s laws and regulations related to human resources and payroll management is absolutely necessary for foreign businesses in...
Over the last few months, China has been quickly expanding the pilot program on electronic special value-added tax (VAT) fapiao (hereafter special VAT...
An Introduction to Doing Business in Hong Kong 2021 is designed to introduce the fundamentals of investing in Hong Kong. Compiled by the professionals at Dezan...
Since the formulation of the GBA Initiative in 2017, business communities have placed high expectation on the coordinated development among GBA cities, as the...
Dezan Shira & Associates helps
businesses establish, maintain,
and grow their operations.
Stay Ahead of the curve in Emerging Asia. Our subscription service offers regular regulatory updates,
including the most recent legal, tax and accounting changes that affect your business.