Hong Kong FSTB clarifies proposal to expand preferential tax regime for carried interest
The Hong Kong Financial Services & the Treasury Bureau (FSTB) confirmed, in a response to media enquiries on 12 August, that remuneration distributed by ‘proprietary trading businesses’ does not qualify for tax concessions proposed under the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026.
The Bill, which was tabled in the Legislative Council (LegCo) in June, is designed to enhance the preferential tax regimes for privately offered funds, family-owned investment holding vehicles managed by eligible single-family offices, and carried interest, with a view to attracting more funds and family offices to establish a presence in Hong Kong.
One of the key measures in the Bill is an expansion of the scope of the preferential tax regime for carried interest from currently covered private equity investments, to other profits of eligible funds that may also yield eligible carried interest qualifying for the profits tax and salaries tax concessions.
In its statement, the FSTB noted that the preferential regime applies only to eligible carried interest distributed by funds as defined under the Inland Revenue Ordinance (IRO). Under the IRO, a fund must generally satisfy the requirement that participating persons do not have day-to-day control over property management.
The FSTB clarified that a business trading or holding assets using proprietary capital to generate profits for its own account – commonly known as a “proprietary trading business” – would fail to meet this definition. Remuneration from such businesses is therefore excluded from the proposed tax concessions.
Eligible carried interest refers to returns, that are linked to the investment performance of a fund, earned by fund management companies or their qualifying employees from the provision of investment management services in Hong Kong for the fund.
The FSTB stated that eligible carried interest must be determined by the fund’s operating or investment management agreement. The returns received by fund managers or qualifying employees must be non-discretionary and based on investment performance.
Eligible investment management services include seeking capital for the fund, researching and advising on potential investments, acquiring, managing or disposing of property or investments for the fund, and assisting investee entities in raising capital.
The Bill also proposes refining distribution requirements to accommodate different practical arrangements for carried interest.
The Bill is currently under scrutiny by the LegCo’s Bills Committee, with the clause-by-clause examination completed. The government aims to resume second reading debate on the Bill in the second half of this year. Subject to passage by the LegCo, the relevant measures will take effect from the year of assessment 2025/26.
In implementing the enhancement measures, the Inland Revenue Department will issue administrative guidance where necessary to provide further clarifications on matters relating to the implementation details. The FSTB said the government had no plans to further expand the scope of the preferential measures.
