Open-Ended Fund Company (OFC) Application (Hong Kong)

An Open-Ended Fund Company (OFC) Application in Hong Kong supports an application to the relevant authority for the approval or registration sought.

The OFC regime was introduced in Hong Kong by the Securities and Futures (Amendment) Ordinance 2016 and became operational in July 2018 following the enactment of subsidiary legislation and the issuance by the SFC of the Code on Open-Ended Fund Companies (OFC Code) and the related SFC circulars. The OFC framework was designed to position Hong Kong as a competitive fund domicile jurisdiction in Asia, complementing the existing unit trust domicile structure and providing fund managers with a corporate vehicle that is familiar to international institutional investors accustomed to using corporate fund structures in jurisdictions such as Luxembourg (SICAV), Ireland (ICAV), and the Cayman Islands. The OFC's investment manager must hold a Type 9 (Asset Management) licence issued by the SFC under Schedule 5 to Cap. 571.

An OFC is incorporated under the Companies Ordinance (Cap. 622) as a new category of company with a variable capital structure. Unlike standard companies under Cap. 622, an OFC does not have a fixed share capital and its shares can be issued and cancelled continuously as part of the fund's normal dealing process. An OFC is governed by an instrument of incorporation (the constitutional document), a board of directors, a licensed investment manager, and a custodian. An OFC can create one or more sub-funds, each of which is a ring-fenced pool of assets with its own investment objectives and its own class or classes of shares. The statutory ring-fencing of sub-fund assets under Section 112ZU of the Companies Ordinance (Cap. 622) provides structural clarity and legal protection for investors in each sub-fund.

OFCs can be structured as public OFCs (offered to retail investors with SFC authorisation under the UT Code or the relevant SFC product codes) or private OFCs (offered exclusively to professional investors as defined in Schedule 1 to Cap. 571, registered with the SFC but not SFC-authorised for retail distribution). The flexible structure makes the OFC suitable for a broad range of investment strategies, including equity and bond funds, money market funds, hedge funds, real estate funds, private equity funds, and fund-of-funds.

The Inland Revenue Department (IRD) provides significant tax concessions for OFCs under section 20AM of the Inland Revenue Ordinance (Cap. 112), including the profits tax exemption for qualifying transactions. OFCs are also exempt from Hong Kong stamp duty on the issue and redemption of their shares under the Stamp Duty Ordinance (Cap. 117). The combination of Hong Kong domicile, regulatory recognition, tax efficiency, and access to the Mainland-Hong Kong Mutual Recognition of Funds (MRF) scheme and the Greater Bay Area Wealth Management Connect scheme makes the OFC an attractive fund vehicle for fund managers serving both Hong Kong and regional investors.

An OFC Application to the SFC is needed whenever an investment manager wishes to establish a new investment fund domiciled in Hong Kong using the corporate fund vehicle structure, rather than the traditional unit trust structure. Section 20AM of the Inland Revenue Ordinance (Cap. 112) provides the profits tax exemption for qualifying OFC transactions. Section 112ZU of the Companies Ordinance (Cap. 622) establishes the ring-fencing of sub-fund assets. Section 194 of Cap. 571 sets out the SFC's powers to refuse or revoke registration.

A Hong Kong-licensed fund management company seeking to establish a new fund for distribution to retail investors in Hong Kong — for example, an equity fund, a bond fund, or a multi-asset fund — can use the OFC structure as the domicile vehicle and submit a combined OFC registration application (to the SFC) and authorisation application (under the UT Code) for the retail sub-funds. The OFC structure allows the management company to add new sub-funds to the same corporate vehicle over time, reducing the administrative overhead compared to creating a new standalone unit trust for each new fund.

An asset management firm seeking to establish a private fund vehicle for professional investors in Hong Kong — for example, a private equity fund, a hedge fund, or a direct lending fund — can use the private OFC structure. A private OFC is registered with the SFC but is not authorised for retail distribution. The private OFC is eligible for the profits tax exemption under the Inland Revenue Ordinance (Cap. 112) and the stamp duty exemption under Cap. 117, making it a tax-efficient alternative to the Cayman Islands exempted company structure that is traditionally used for private funds.

A Mainland Chinese fund management company with an SFC-licensed subsidiary in Hong Kong that wishes to establish a Hong Kong-domiciled fund eligible for distribution in Mainland China under the Mainland-Hong Kong Mutual Recognition of Funds (MRF) scheme should consider using an OFC as the fund vehicle. An OFC can apply for both SFC authorisation in Hong Kong and MRF recognition by the China Securities Regulatory Commission (CSRC), enabling distribution to retail investors in both markets.

An existing fund management company with Hong Kong unit trusts that wishes to restructure its fund range — for example, to introduce a sub-fund architecture, to improve operational efficiency, or to qualify for the profits tax exemption — can migrate existing unit trusts to an OFC structure. The SFC and the IRD have issued guidance on the migration process to support such restructurings.

A family office or single-family office operating in Hong Kong that manages a substantial pool of assets and wishes to establish a regulated Hong Kong-domiciled vehicle for its investment activities may use a private OFC to benefit from Hong Kong's regulatory framework, the profits tax exemption, and the stamp duty exemption.

An OFC Application to the SFC under the Securities and Futures Ordinance (Cap. 571) and the Companies Ordinance (Cap. 622) must address the following key elements to enable the SFC to assess the proposed OFC's structure, governance, and regulatory compliance.

The proposed name of the OFC must be stated. The name must comply with the naming requirements under Cap. 622 (not misleading, not identical to an existing registered company name) and the SFC's OFC Code requirements on the use of names that could suggest a regulatory endorsement or affiliation with a government authority that does not exist.

The instrument of incorporation is the OFC's constitutional document. It must comply with the requirements of the OFC Code, including provisions governing: the variable capital structure and the mechanism for issuing and cancelling shares; the sub-fund architecture (if applicable), including the ring-fencing of sub-fund assets and liabilities under Section 112ZU of Cap. 622; the powers and duties of the board of directors; the investment manager's appointment and removal mechanism; the custodian's appointment and removal mechanism; the dealing and valuation procedures; the distribution policy; and the amendment process.

The investment manager details must include the full legal name and SFC Type 9 licence number of the proposed investment manager, confirmation of the investment manager's independence from the custodian (or disclosure of any relationship), and the investment manager's proposed fee arrangement (management fee, performance fee, and other remuneration).

The custodian details must include the full legal name of the proposed custodian, evidence of its eligibility as an OFC custodian under the OFC Code (for example, its Banking Ordinance (Cap. 155) authorisation with minimum paid-up capital and reserves of at least HK$100 million, or SFC licence details and minimum net tangible assets position), and the proposed custodian fee arrangement.

The sub-fund details must specify for each proposed sub-fund: the sub-fund name; the investment objectives and policies; the base currency; the classes of shares to be issued (including any fee differentials between share classes); whether the sub-fund is a public sub-fund (requiring SFC authorisation under the applicable product code) or a private sub-fund (for professional investors as defined in Schedule 1 to Cap. 571 only); and the proposed launch date and initial offering price.

For private OFCs qualifying for the profits tax exemption under section 20AM of the Inland Revenue Ordinance (Cap. 112), the application should include a tax analysis confirming that the proposed investment activities will constitute qualifying transactions under the IRD's published guidance and that the investment manager meets the substance requirements for managing the OFC from Hong Kong. The Stamp Duty Ordinance (Cap. 117) exemption on share issuance and redemption should also be confirmed.

The compliance and governance plan should describe the OFC's ongoing compliance arrangements, including: the board composition and meeting frequency; the appointment of a compliance officer; the AML/CFT policies and procedures under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615); the valuation policy; and the annual audit arrangements. The Personal Data (Privacy) Ordinance (Cap. 486) obligations for investor data must also be addressed. The SFC expects OFCs to demonstrate adequate governance arrangements before registration is granted. The forms-legal.com Open-Ended Fund Company (OFC) Application (Hong Kong) template covers the mandatory elements under Securities and Futures Ordinance (Cap. 571).