Limited Partnership Fund (LPF) Hong Kong Guide

The Limited Partnership Fund Ordinance (Cap. 637) came into force on 31 August 2020 and created Hong Kong’s first dedicated onshore private fund vehicle. Designed to compete with established offshore structures such as the Cayman exempted limited partnership and the Delaware LP, the Hong Kong LPF gives sponsors a credible local alternative for private equity, venture capital, hedge fund and family office structures.

This guide explains what a Hong Kong LPF is, why sponsors choose it over offshore alternatives, the legal framework under the LPFO, the structure and roles of the parties, the registration process, the tax treatment, and how to migrate an existing offshore fund to a Hong Kong LPF.

A Hong Kong Limited Partnership Fund is a fund vehicle constituted as a limited partnership and registered with the Companies Registry under the Limited Partnership Fund Ordinance (Cap. 637). It consists of one general partner (GP), which holds unlimited liability for the debts and obligations of the fund, and one or more limited partners (LPs), whose liability is capped at their respective capital commitments.

An LPF does not have a separate legal personality. Contracts are entered into in the name of the GP acting on behalf of the partnership, and assets are held by the GP or a custodian on behalf of the partnership. This is consistent with the structure of equivalent offshore vehicles such as the Cayman exempted limited partnership.

The Hong Kong LPF was introduced to address a long-standing gap in the Asian fund domicile market. Several considerations drive sponsors to choose Hong Kong over Cayman, BVI or Singapore for new funds.

An LPF that meets the qualifying conditions for the unified fund exemption is exempt from Hong Kong Profits Tax on qualifying transactions. Hong Kong has a wide network of comprehensive double tax agreements, including with Mainland China, which can be useful for inbound investment into the PRC.

Funds focused on Mainland China or Greater China deals benefit from Hong Kong’s regulatory and banking infrastructure, the Stock Connect schemes, and the QFLP (Qualified Foreign Limited Partnership) and QDLP (Qualified Domestic Limited Partnership) programmes that facilitate cross-border investment.

Registration and annual maintenance costs for an LPF are competitive with Cayman exempted limited partnerships, and the absence of a separate offshore administrator can reduce ongoing costs for sponsors based in Hong Kong.

Funds managed from Hong Kong typically engage an SFC-licensed Type 9 investment manager. The combination of an onshore Hong Kong vehicle and an SFC-licensed manager presents well to LPs who value regulatory transparency.

The LPFO came into force on 31 August 2020. Its stated purpose is to establish a registration scheme for funds set up in the form of limited partnerships in Hong Kong, to facilitate the growth of Hong Kong as an international asset management centre.

The LPFO defines an LPF as a fund that is constituted in the form of a limited partnership for the purpose of managing investments for the benefit of its investors, and that is registered under the ordinance. The fund must have one GP and at least one LP at all times.

The OFC is Hong Kong’s open-ended corporate fund vehicle and is generally more suited to liquid strategies (hedge funds, mutual funds). The LPF is the natural vehicle for closed-ended private strategies (private equity, venture capital, real estate, infrastructure). Many sponsors operating across multiple strategies use both vehicles in parallel.

The GP manages the fund’s day-to-day affairs and has unlimited liability for the debts of the LPF. Under section 7 of the LPFO, the GP must be one of: a private company limited by shares incorporated in Hong Kong, a non-Hong Kong company registered with the Companies Registry, a Hong Kong limited partnership, a limited partnership fund, a non-Hong Kong limited partnership, or a natural person aged at least 18. In market practice, the GP is most often a Hong Kong-incorporated private limited company set up as a special purpose vehicle, so that the GP’s own corporate liability is capped under company law.

LPs commit a defined amount of capital and are not liable for the debts of the partnership beyond their commitment, provided they do not take part in the management of the LPF. The LPFO contains a ‘safe harbour’ list of activities that do not amount to participation in management (for example, sitting on an advisory committee or voting on certain reserved matters).

Most LPFs delegate investment management to a separately incorporated investment manager. Where that manager carries on a business of asset management in Hong Kong, it must hold a Type 9 (asset management) licence from the Securities and Futures Commission.

Where the GP itself has no separate legal personality (for example, where the GP is another limited partnership or a non-Hong Kong limited partnership without legal personality), the LPF must appoint an authorised representative responsible for the management and control of the LPF. Where the GP is a Hong Kong private limited company or a registered non-Hong Kong company, no separate authorised representative is required.

In addition, every LPF must appoint a responsible person to carry out anti-money laundering and counter-terrorist financing measures. The responsible person must be a Hong Kong authorised institution, a licensed corporation, an accounting professional or a legal professional.

The LPFO does not require the appointment of a fund administrator, but most LPs expect one to be in place for governance and operational reasons. Audited financial statements must be prepared annually.

The fund must be constituted as a limited partnership, have one GP and at least one LP, be set up for the purpose of managing investments for the benefit of its investors, and have a registered office in Hong Kong.

Under section 11 of the LPFO, the application for registration must be filed with the Companies Registry by a registered Hong Kong law firm or a solicitor admitted to practise Hong Kong law, acting on behalf of the proposed GP. The application uses the prescribed Form LPF1 and includes the proposed name of the LPF, the GP’s details, the registered office address, the name of the responsible person, the name of the investment manager (if not the GP), and, where applicable, the authorised representative.

The Companies Registry application fee for registering a Hong Kong LPF is HK$3,034 (subject to revision by the Registry). A Business Registration Certificate is issued separately by the Inland Revenue Department under the Business Registration Ordinance.

Once the application is filed and complete, registration is typically granted within a few working days. The end-to-end project (from initial structuring instructions to a fully registered LPF) usually takes four to six weeks, depending on the speed of GP incorporation, bank account opening and adviser engagement.

The LPF must maintain a register of partners, a register of investments, audited financial statements and AML records. Changes to the GP, the registered office or the authorised representative must be filed with the Companies Registry.

Tax treatment is one of the principal drivers behind the choice of an LPF as a Hong Kong fund vehicle. Three separate regimes interact at the fund, manager and carry levels.

An LPF that meets the conditions of the unified fund exemption regime is exempt from Hong Kong Profits Tax on qualifying transactions (securities, futures contracts, OTC derivative products, certain private company investments) and on incidental transactions within prescribed limits. The unified regime applies regardless of the residence of the LPs.

Under Schedule 16D of the Inland Revenue Ordinance, eligible carried interest received from a certified investment fund (which may be an LPF) qualifies for a 0% concessional Profits Tax rate for the qualifying person, and a 100% deduction against assessable income for Salaries Tax purposes for the qualifying employee. Fund certification is currently administered by the Hong Kong Monetary Authority, though the certification requirement is subject to a 2024 consultation proposing simplification.

Transfers of LP interests in an LPF are exempt from Hong Kong stamp duty. Stamp duty may still apply to transfers of underlying assets (for example, Hong Kong shares held by the LPF) on disposal.

Where the GP is itself a Hong Kong-incorporated SPV and receives carried interest, the analysis depends on the certification status of the fund, the substance of the GP’s activities in Hong Kong, and the contractual mechanics of the waterfall. Advance planning is recommended.

The Limited Partnership Fund and Business Registration Legislation (Amendment) Ordinance 2021 introduced a mechanism for an existing non-Hong Kong limited partnership fund (for example, a Cayman exempted limited partnership) to re-domicile to Hong Kong as an LPF without dissolving and re-establishing. The process involves filing an application with the Companies Registry through a Hong Kong law firm, providing evidence that the fund is in good standing in its original jurisdiction, and deregistering from the original jurisdiction within 60 days of the Hong Kong LPF registration (extendable on application). The re-domiciliation preserves the identity, property, rights and obligations of the fund.

Re-domiciliation has become more attractive as the carried interest concession and the unified fund exemption have made Hong Kong commercially competitive with traditional offshore domiciles for funds with an Asian focus.

Sponsors evaluating fund domiciles for Asia-focused strategies typically compare the Hong Kong LPF with the Cayman exempted limited partnership and the Singapore Variable Capital Company. The table below summarises the main distinguishing features.