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Hong Kong Reportedly Plans Major Amendments to Carried Interest Laws; Asset Management Companies' Performance Fees May Be Fully Tax-Exempt
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According to the Financial Times, Hong Kong is planning to significantly amend laws related to carried interest, potentially allowing many asset management companies to earn performance fees without paying any taxes. The report states that a bill soon to be submitted to the Legislative Council will allow profits from a wide range of investment categories to qualify as carried interest for tax treatment, not just limited to private equity transactions. This change means that managers of hedge funds, private equity, venture capital, private credit, and even family offices can further reduce their already low Hong Kong tax bills through structured arrangements. The report, citing three informed sources, notes that Hong Kong aims to align itself with hubs like Dubai in the UAE, re-establishing its post-pandemic recovery as a global financial center. A person familiar with the proposal stated that this has the potential to be a "big bang" in tax reform. If everything goes through, it will have a significant impact. "Carried interest" refers to the portion of profits in a private equity fund distributed to the general partners managing the fund, after returns exceed a certain threshold (sometimes 20%). In many countries, carried interest is treated as capital gains rather than ordinary income, thus enjoying tax benefits. Hong Kong offers a 0% preferential tax rate on carried interest, but the conditions are restrictive, with industry experts describing the current regulations as "onerous." Under the proposal, fund profits generated from various assets, including securities, derivatives, cash, and deposits, could constitute carried interest, thereby qualifying for the zero-tax regime. A spokesperson for the Hong Kong Financial Services and the Treasury Bureau responded that the government proposes optimizing the tax incentive regime for funds, single family offices, and carried interest. The spokesperson stated that the reform is intended to strengthen Hong Kong's competitiveness as a leading asset and wealth management center in the region and to attract more funds and family offices to establish and operate in Hong Kong. The spokesperson confirmed that the government plans to submit the amendment by mid-2026 and emphasized that bonuses and payments linked to general services "will continue to be taxed at the normal profits tax rate." (da/u) Auto-translated by third-party software This translation was auto-generated by third-party software. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. More Details
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