Key Takeaways
- • Hong Kong's Legislative Council is expected to pass the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 this year, with implementation effective April 2025.
- • The bill will exempt private equity, venture capital, and other fund managers from paying tax on performance-linked income and eliminate salary tax on fund managers' performance-linked bonuses, provided they meet specified requirements.
- • Hong Kong will become the first global city to offer comprehensive, detailed tax rules for carried interest and performance-linked income to funds and their managers, according to KPMG's Sandy Fung.
- • KPMG has fielded substantial inquiry volume from overseas fund managers regarding settlement or relocation to Hong Kong following the proposal announcement, indicating strong market interest in the tax incentive structure.
- • The measure is designed to strengthen Hong Kong's competitive position as a global asset management and wealth management hub, with potential to attract international fund management talent and capital.
Summary
Hong Kong is poised to approve significant tax incentives targeting the alternative asset management industry, with passage expected within 2026. The Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 was gazetted in mid-June and moved to second reading in the Legislative Council on June 24, signaling regulatory momentum toward enactment.
The proposed legislation would establish a preferential tax regime specifically designed for fund managers and their investors. If approved, private equity firms, venture capital funds, and other eligible alternative asset managers would be exempted from corporate profits tax on performance-linked income, while individual fund managers would receive exemptions from salary tax on performance-linked bonuses. The regime is scheduled to take effect retroactively from April 2025, contingent upon funds and managers meeting specified operational and structural criteria.
Sandy Fung, KPMG China's partner of tax and alternative investments, characterized the initiative as "unprecedented and revolutionary" during a media briefing on July 22, emphasizing that Hong Kong would become the first jurisdiction globally to codify detailed, comprehensive rules governing tax treatment of carried interest and performance-linked compensation. Currently, Hong Kong's standard salary tax is capped at 15 percent for individuals, while companies face a 16.5 percent corporate profits tax rate. The new regime would represent a substantial competitive advantage relative to existing tax structures.
Market response has been immediate and substantial. KPMG reported receiving numerous inquiries from international fund managers exploring relocation or expanded operations in Hong Kong following the proposal's public disclosure. The tax incentive architecture is explicitly intended to reinforce Hong Kong's position as a leading global asset management and wealth management center, with potential to drive talent migration and capital allocation decisions within the alternative investment industry.
The proposed legislation would establish a preferential tax regime specifically designed for fund managers and their investors. If approved, private equity firms, venture capital funds, and other eligible alternative asset managers would be exempted from corporate profits tax on performance-linked income, while individual fund managers would receive exemptions from salary tax on performance-linked bonuses. The regime is scheduled to take effect retroactively from April 2025, contingent upon funds and managers meeting specified operational and structural criteria.
Sandy Fung, KPMG China's partner of tax and alternative investments, characterized the initiative as "unprecedented and revolutionary" during a media briefing on July 22, emphasizing that Hong Kong would become the first jurisdiction globally to codify detailed, comprehensive rules governing tax treatment of carried interest and performance-linked compensation. Currently, Hong Kong's standard salary tax is capped at 15 percent for individuals, while companies face a 16.5 percent corporate profits tax rate. The new regime would represent a substantial competitive advantage relative to existing tax structures.
Market response has been immediate and substantial. KPMG reported receiving numerous inquiries from international fund managers exploring relocation or expanded operations in Hong Kong following the proposal's public disclosure. The tax incentive architecture is explicitly intended to reinforce Hong Kong's position as a leading global asset management and wealth management center, with potential to drive talent migration and capital allocation decisions within the alternative investment industry.
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