stamp duties legislation to accommodate for its Islamic finance development, emphasising the sukuk space.
envisaged as promising Islamic finance collaborations for sukuk in the long run.
Aside from the changes of its income tax and stamp duty ordinances in 2013 as well as its loans ordinance in the following year, Hong Kong further attempted to enhance its Islamic finance development in terms of regulatory and legal framework by issuing its nonbinding Departmental Interpretation Practice Note No. 50 on the Taxation of Specified Alternative Bond Schemes in July 2014. The practice note illustrates the Hong Kong tax authority’s views on the correct interpretation of the legislation enacted, that is allowing for more significant tax neutrality between conventional bond and sukuk arrangements. This helps boost Hong Kong as an excellent location for establishing special purpose vehicle (SPV) for sukuk issuance.
Conclusion Islamic finance taxation is a new area, challenges and opportunities co-exist and have their endogeneity. Nevertheless, the opportunities from this specific area are always available as long as the government, market players, practitioners, scholars and other relevant parties work hand in hand for a better tomorrow, and Hong Kong is a good example of this.
The practice note comprehensively provides the tax treatment of Ijarah, Murabaha, Musharaka and Mudaraba. It further increases the attractiveness of Hong Kong as a significant hub for Islamic finance activities. It clarifies Hong Kong’s approach to Islamic finance and the tax treatment of sukuk. It confirms the holistic approach to be adopted in Hong Kong in the coming future as the market flourishes, thereby facilitating the development of Shariah-compliant products and structures as well as ensuring clarity and security as to the tax treatment of sukuk, which is critical for Islamic finance operators and investors. The practice note also shows a definite commitment on the part of the Hong Kong government and its tax department to position Hong Kong as an essential hub for sukuk. Hong Kong’s double tax treaty network also makes the metropolitan an ideal place for sukuk SPVs. As of March 2018, 39 comprehensive double tax treaties, the majority of them Hong Kong’s trading partners, have already been signed. Among the tax jurisdictions, there are Muslim and non-muslim countries such as Brunei, Indonesia, Kuwait, Malaysia, Pakistan, Qatar, Saudi Arabia, United Arab Emirates, Japan and the United Kingdom, all keen on Islamic finance with sound potential to list their sukuk in Hong Kong. Furthermore, Hong Kong is having double tax treaty negotiations with Bahrain, Cambodia, Nigeria and Turkey. These are also
Wafee Yeung is the Managing Partner of Allalah Consulting (http://www.allalah.com), the leading international tax and Islamic finance advisory firm, based in Mainland China and Hong Kong. He is a qualified accountant and certified tax advisor, possessing over 20 years’ practical experience on international tax management, trust and estate planning, project financing, Islamic finance and Halal businesses. He can be contacted at wafee@allalah.com.
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