The New Capital Investment Entrant Scheme (New CIES)¹ was launched on 1 March 2024 aiming to attract high net worth investors (including foreign and Chinese nationals) to reside in Hong Kong with a permanent residency status through investment in certain approved investment assets (in particular, Hong Kong domiciled funds). This article outlines the scheme's key requirements and the potential opportunities for Hong Kong asset managers.

Eligible applicants under New CIES:

Under the New CIES, an applicant must demonstrate, amongst others, that:

1. He/she is 18 years or older, and is a foreign citizen, Chinese citizen with permanent residency abroad or resident of Taiwan or Macao SAR (note that Chinese nationals residing in Mainland China without any other residency or citizenship do not appear to be eligible).
2. He/she holds net assets that are worth not less than HKD$30 million throughout the two years preceding the application date.
3. He/she must invest not less than HKD$30 million in approved investment assets.²

In relation to limb (3), the HKD$30 million investment must comprise of: (i) not less than HKD$27 million in approved financial assets and (ii) not less than HKD$3 million in a New CIES Investment Portfolio managed by the Hong Kong Investment Corporation Limited.

Approved Investment Assets include³:

• Interests in eligible collective investment schemes authorized by the Securities and Futures Commission (SFC), including SFC-authorised funds, SFC-authorised real estate investment trusts and SFC-authorised Investment-Linked Assurance Schemes. open-ended fund companies (OFCs) registered under the Securities and Futures Ordinance (Cap. 571) (SFO) (note that interests in private OFCs are capped at HK$10 million).
• Ownership interest in limited partnership funds (LPFs) registered under the Limited Partnership Fund Ordinance (Cap.637) (capped at HKD$10 million).
• Subordinated debt in HKD or RMB.
• Equities listed on the Hong Kong Stock Exchange (SEHK) and traded in HKD or RMB.
• Certificates of deposits in HKD or RMB with a remaining term of 12 months or more at the time of acquisition (capped at HKD$3 million).
• Debt securities either (i) listed on the SEHK and traded in HKD or RMB, or (ii) denominated in HKD or RMB and issued or fully guaranteed by Hong Kong Government-related entities or SEHK-listed companies.
• Non-residential real estate (capped at HKD$10 million).

Requirement for Investment Portfolio⁴ Maintenance

Applicants for the New CIES are required to deposit their approved investment assets in a designated account managed by a suitable financial intermediary.⁵ This account, used exclusively for transacting approved investment assets, must be in the applicant's name, and only one account per financial intermediary is permitted. The assets deposited in this account must be segregated but investors have the right to withdraw cash dividends or interest income generated from these approved investment assets. Applicants have the flexibility to switch investments among different investment assets, provided that they comply with the relevant requirements on reporting, record keeping and reinvestment of trading proceeds.

Brief overview of application steps

Applicants are required to:

• Engage a certified public accountant at their own cost to assist in demonstrating the fulfillment of the net asset requirement.
• Prepare a net asset assessment application and submit to the New CIES Office for verification within 14 calendar days of the date the fulfillment document being issued.
• Apply to the Director of Immigration with the proof of satisfying the net asset requirement from the New CIES Office, which will issue an investment entry permit after an immigration assessment.
• Verify with the New CIES Office that the investment requirements are fulfilled.
• Provide the New CIES Office's certification to the Director of Immigration, who will then grant a 24-month stay permit, contingent on continuous compliance with the New CIES requirements.

Conclusion

Amid the challenging fund raising environment in Hong Kong, the New CIES is an alternative source of capital for Hong Kong asset managers who are looking to attract capital from high net worth individuals to invest in Hong Kong domiciled funds managed by them. Given the rapid increase in family offices in Asia in recent years, the New CIES represents a golden opportunity for both high net worth investors looking to reside in Hong Kong and Hong Kong asset managers looking to attract new capital and diversify their investor base.

Footnotes
1) https://www.newcies.gov.hk/en/index.html
2) Assets obtained prior to the Scheme's initiation date will not contribute towards meeting the minimum investment requirement.
3) https://www.newcies.gov.hk/assets/pdf/scheme-rule-en.pdf
4) The financial intermediary must be an authorized institution as defined in the Banking Ordinance, a licensed corporation licensed to perform Type 1, 4 or 9 regulated activities under the Securities and Futures Ordinance or an insurer authorized to carry on Class C business as specified in Part 2 of the First Schedule to the Insurance Companies Ordinance.
5) as defined in the Accounting and Financial Reporting Council Ordinance, Cap. 588 of the Laws of Hong Kong.