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HONG KONG: Hong Kong made changes to Capital Investment Entrant Scheme (CIES)

The Hong Kong Capital Investment Entrant Scheme has been extremely popular. Successful applicants can benefit from one of the premier financial centers of the world with a robust economy and a low, simple and predictable tax regime. Initially launched by the Hong Kong Special Administrative Region (SAR) government in October 2003 to attract investments from qualifying individuals who wished to obtain Hong Kong residency through making a capital investment without the need to establish or join in a business in Hong Kong, as of the end of 2010, 16,600 applications had been received and 8,924 applicants had invested a total of $63.31 billion, representing an average of HKD $7.09 million per entrant.

On October 14, 2010, responding to Hong Kong's Chief Executive Donald Tsang's concerns about surging property prices n Hong Kong expressed in his annual policy address, the government temporarily removed real estate from the permissible investment asset classes under the CIES because 40% of the investments in the first half of 2010 had been in real estate.

More specifically, the amendments included the following changes:

i) The threshold of investment (and net assets/net equity requirement) for admission to Hong Kong under the CIES was raised from HK$6.5 million (USD $834,000) to HKD $10 million (USD $1.28M);

ii) Real estate was suspended temporarily as a class of Permissible Investment Assets (PIA) under the CIES; and

iii) An insurer authorized to carry on Class C business as specified in Part 2 of the First Schedule to the Hong Kong Insurance Companies Ordinance became eligible, in addition to banks, to act as a financial intermediary for the purpose of the CIES

The government believes that despite the amendments, the scheme remains competitive compared with the investment programs of other jurisdictions, and promised that the investment threshold (and net assets/net equity requirement) will be reviewed once every three years. With respect to the temporary suspension of real estate as a class of PIA, this decision will be assessed at the next regular review, or earlier as necessary.

In the short term, the beneficiary of these changes is the U.S. EB-5 program, which has become relatively "cheap" at USD $500,000, since Canada's investment threshold is currently CDN $800,000, while effective January 1, 2011, the Singapore Monetary Authority's Financial Investor Scheme (FIS) requires applicants to place S $10 million in assets for a continuous period of five years, up from a minimum of S $5 million previously, with a financial institution regulated by the Monetary Authority of Singapore, although a portion - up to $2 million - can be used to buy private residential properties.

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