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The new and improved Capital Investment Entrant Scheme (New CIES), introduced in the 2023-2024 Budget, aims to strengthen the talent pool and attract more new capital to Hong Kong. This is one of eight policy measures under the “Policy Statement on the Development of Family Office Businesses in Hong Kong” released by the Financial Services Authority and the Treasury Department in March 2023.
The new CIES started accepting applications from March 1, 2024. Detailed regulations (Regulations) for the new Capital Investment Entrant Scheme have been published.
As the first in a series of articles on the new CIES, this legal update provides an overview of the eligibility requirements and application procedures set out by the regulations. It also covers the types of investments that qualify as permissible investment assets under the new CIES, with a particular focus on non-residential real estate. Our next article will focus on how private fund sponsors can structure funds that qualify as permissible investment assets under the new CIES.
1. Eligibility Requirements
To be eligible to make an application under the new CIES, an applicant must be a natural person who meets the following criteria:
Unlike other immigration and admission systems, the new CIES focuses on capital investment and has minimal additional requirements. In contrast, other immigration routes (such as the Top Talent Pass scheme) take into account the applicant’s educational background, work history and annual income and will continue to be applied as a separate scheme alongside the new CIES.
2. Investment in non-residential real estate based on the new CIES
Regarding the new CIES, we received a number of inquiries related to the recognition of non-residential real estate as investment assets. The following paragraphs detail important aspects of the regulations regarding non-residential real estate.
2.1. Non-residential real estate
Under this regulation, investments in non-residential real estate are recognized as permissible investment assets up to a maximum of HK$10 million. In other words, although the applicant may acquire non-residential property of higher value, he will only have HK$10 million to count as an allowable investment asset under the new CIES.
The scope of non-residential real estate includes non-residential real estate that has not yet been completed and mixed commercial and commercial real estate. However, mixed-use real estate that is partially residential is not included.
2.2. Ownership Restrictions
Applicants must own non-residential real estate in one of the following ways:
- in the applicant’s own name;
- Through a sole proprietorship in the name of the applicant.or
- Through a company in which the applicant is the sole shareholder.
To meet the above requirements, the applicant or applicant’s company must be the sole owner of the non-residential property. Shared real estate does not count as an allowable investment asset.
2.3. Resale of real estate
Applicants may resell non-residential property, but must reinvest the entire proceeds into a new permissible investment asset. If the value of the non-residential property exceeds his HK$10 million, the applicant is free to withdraw the surplus equity paid for the non-residential property upon resale.
The regulations set deadlines for such reinvestment. For example, the period between the date of conclusion of the sales contract for non-residential real estate and the date of completion of the purchase of reinvested non-residential real estate may not exceed three months.
Under this Regulation, all material transactions relating to the acquisition, disposal and levy of non-residential property must be evidenced to the satisfaction of the HK Investment and Production Director-General (Director) by providing the relevant land registry records. It doesn’t have to be. A bank statement or professional valuation report to enable the Director-General to verify whether the applicant has reinvested the required minimum level of capital in permissible investment assets. The applicant shall notify the Director-General in writing within 7 business days after each disposal of non-residential real estate and acquisition of new permissible investment assets.
2.4. Mortgage
The new CIES allows applicants to take out a mortgage with a bank or financial institution licensed in Hong Kong to finance the acquisition of non-residential property. However, the amount of mortgage debt is excluded and only the amount of capital contributed directly by the applicant is taken into account.
2.5. Real estate investment trusts and real estate funds
Apart from the acquisition of non-residential real estate, if the Qualified Collective Investment Scheme or LPF qualifies as an allowable investment asset under the new CIES, the applicant may invest in other Qualified Collective Investment Schemes or LPFs that hold real estate. can be considered. However, the total investment in private LPFs and open-end fund companies is capped at HK$10 million.
3. Application procedure
The main stages of the application process are summarized below.
If an applicant meets the portfolio maintenance requirement for seven consecutive years, but does not meet the seven-year ordinary residence requirement, he or she may still apply for unconditional stay in Hong Kong.
4. Conclusion
The minimum threshold for allowable investment assets has increased from HK$10 million under the old CIES to HK$30 million under the new CIES, but the new CIES further widens the range of allowable investment assets (e.g. non-residential real estate, individual funds, private funds, etc.). Hong Kong-based fund).
The new CIES is expected to encourage more high-net-worth individuals to set foot in Hong Kong and, in some cases, set up family offices, strengthening Hong Kong’s position as an international asset and wealth management hub. .
Although it has been less than a month since the launch of the new CIES, we are already observing increased interest in the new CIES from a range of financial institutions, including banks, brokers, fund sponsors and real estate clients. Inquiries from high net worth individuals who wish to settle in Hong Kong or set up investment structures compatible with the new CIES.
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