HK to settle Islamic finance tax issues in 2-3 mths

Reuters - Hong Kong said on Wednesday it aims to resolve tax issues relating to the issue of Islamic bonds within two to three months, potentially paving the way for the first issue in the territory as soon as October.

The city is positioning itself as a centre for the rapidly expanding global Islamic finance market, hoping to attract Middle East investors keen to invest in mainland China.

But it faces stiff competition from established centres such as Malaysia -- home to two-thirds of the estimated $100 billion Islamic bond market -- the Middle East and a new market in London.

Hong Kong's Airport Authority, which is government owned, said it wants to issue an Islamic bond, or sukuk, by the end of the year but did not give details about the size of the issue.

Under existing tax laws, it could be subject to stamp duty twice. Because sharia law forbids investments involving interest payments, many products require the financier to buy the product and then sell it to the borrower on a cost-plus basis, so that the lender gets a profit rather than interest.

A spokesman for Hong Kong's Treasury Secretary said the city aimed to resolve the issue of double taxation within two to three months to provide a level playing field between Islamic bonds and other bonds.

Initially it will look at enabling issuers to avoid double taxation on a case-by-case basis. Tax issues surrounding the Airport Authority's planned bond could possibly be resolved by October, the spokesman said.

'In the long run, we'll review the tax laws to facilitate Islamic finance but that will take time,' the spokesman said.