Hong Kong's Financial Services and the Treasury Bureau responded to media inquiries on August 12 regarding the carried interest tax relief provisions in the 2026 Revenue (Amendment) Bill, which covers tax concessions for funds, family-owned investment holding vehicles, and carried interest. The government submitted the bill to the Legislative Council in June, aiming to enhance the tax concession regime for privately offered funds, qualifying single-family office-managed investment holding vehicles, and carried interest. The goal is to attract more funds and family offices to establish a presence in Hong Kong, driving a greater volume of global capital to be managed within the city.

The core measure of the bill is to broaden the scope of the carried interest tax concession. Beyond existing private equity investments, other profits generated by qualifying funds can also produce eligible carried interest, benefiting from profits tax and salaries tax relief. The concession applies to eligible carried interest distributed by a "fund" as defined under the Inland Revenue Ordinance. Under the current definition, a "fund" generally must satisfy the condition that "participants do not have day-to-day control over the management of the property concerned," and entities operating for general commercial or industrial purposes do not meet the "fund" definition. Consequently, remuneration distributed by a business that trades or holds assets for its own account using its own capital—referred to as a "proprietary trading business"—does not qualify for the proposed tax exemption under the bill.

Eligible carried interest is defined as a non-discretionary return linked to the fund's investment performance, earned by a fund management company or its qualifying employees through providing investment management services to the fund in Hong Kong. "Investment management services" provided to the fund include: (a) raising capital for the fund; (b) researching and advising on potential investments for the fund; (c) acquiring, managing, or disposing of properties or investments for the fund; and (d) assisting portfolio companies in raising capital on behalf of the fund. Whether an individual employee's remuneration qualifies as eligible carried interest depends on the substantive nature of their work, specifically whether it falls under the defined "investment management services," and also requires meeting other relevant conditions.

The bill also proposes to refine the distribution rules for carried interest, including broadening the definition of "associates" and allowing qualifying employees to receive carried interest through other entities, in order to cover various distribution arrangements that may arise in practice. The bill is currently under review by the Legislative Council's Bills Committee, which has completed a clause-by-clause examination, with the target of resuming the second reading debate in the second half of the year. If passed, the measures will take effect from the 2025/26 tax year. The Inland Revenue Department will issue administrative guidelines upon implementation to further clarify the operational details, with the guidelines remaining consistent with the legal framework. The government has made it clear that there are no plans to further widen the scope of the concessions.

The Hong Kong government stated that it has been maintaining close contact with the industry, explaining the policy rationale and the scope of the tax concession, and actively discussing the implementation details of the new system with the sector. During this process, several local and foreign fund management companies have expressed their intention to establish a presence in Hong Kong or expand their operations there, taking into account the proposed tax incentives in the bill. We expect the enhanced measures to attract more global capital to be managed in Hong Kong and more funds to be established and operated in the city, thereby stimulating commercial activity in related professional services sectors and reinforcing Hong Kong's competitiveness as a leading international asset and wealth management center.