Key Takeaways
- • Hong Kong's Legislative Council is expected to approve tax exemption legislation "soon" that will eliminate levies on performance-linked income and carried interest for fund managers, effective from April 2025, according to KPMG's Sandy Fung, partner of tax and alternative investments.
- • The proposed Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 will offer qualifying fund managers a 0% effective tax rate on performance fees and carried interest at both corporate and individual levels, positioning Hong Kong as the first global city with explicit, detailed rules governing such tax treatment.
- • The legislation targets private equity, venture capital, and hedge fund managers, exempting firms and their employees from performance-linked bonus taxation if they meet specified criteria, creating a significant competitive advantage for attracting global investment talent.
- • KPMG characterizes the proposed framework as "an unprecedented and revolutionary improvement" that will cement Hong Kong's status as a global asset management and wealth management hub by removing a material cost disadvantage relative to competing jurisdictions.
- • The bill was formally gazetted in mid-June 2026 and moved to second reading on June 24, indicating legislative momentum toward passage within 2026.
Summary
Hong Kong is on track to approve landmark tax legislation exempting fund managers from taxation on performance-linked compensation and carried interest, with KPMG confirming passage "soon" by the Legislative Council. The Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 represents the city's strategic effort to strengthen its position as a global alternative asset management center and wealth management hub amid intensifying competition for institutional capital and investment talent.
The proposed framework will eliminate both corporate and individual-level taxation on qualifying carried interest and performance fees for private equity, venture capital, hedge funds, and related alternative asset managers. If enacted, the legislation will provide an effective 0% tax rate on performance-linked income for compliant fund structures and their managers, commencing from April 2025. Sandy Fung, KPMG China's partner of tax and alternative investments, stated that the bill would "attract lots of fund managers and related talent to settle in Hong Kong," underscoring the government's objective to use tax policy as a competitive recruitment mechanism.
The legislation, formally gazetted in mid-June and advanced to second reading on June 24, positions Hong Kong as the first jurisdiction globally to establish explicit, detailed statutory rules governing tax treatment of carried interests and performance-linked fund income. KPMG characterizes the initiative as offering unprecedented clarity and regulatory certainty compared to existing frameworks in competing financial centers. Market participants expect the bill to pass before year-end 2026, signaling strong political support for the measure as part of Hong Kong's broader economic diversification strategy following recent macroeconomic headwinds.
The tax exemption directly addresses a material compensation disadvantage that has constrained Hong Kong's ability to attract senior fund managers and investment professionals from established markets. By waiving performance-linked salary taxation for qualifying fund managers, the legislation substantially enhances after-tax compensation retention and improves Hong Kong's relative attractiveness versus competing jurisdictions such as Singapore, London, and New York. The measure is expected to drive incremental relocation of fund management offices and senior talent to Hong Kong, reinforcing the city's infrastructure for alternative asset management.
The proposed framework will eliminate both corporate and individual-level taxation on qualifying carried interest and performance fees for private equity, venture capital, hedge funds, and related alternative asset managers. If enacted, the legislation will provide an effective 0% tax rate on performance-linked income for compliant fund structures and their managers, commencing from April 2025. Sandy Fung, KPMG China's partner of tax and alternative investments, stated that the bill would "attract lots of fund managers and related talent to settle in Hong Kong," underscoring the government's objective to use tax policy as a competitive recruitment mechanism.
The legislation, formally gazetted in mid-June and advanced to second reading on June 24, positions Hong Kong as the first jurisdiction globally to establish explicit, detailed statutory rules governing tax treatment of carried interests and performance-linked fund income. KPMG characterizes the initiative as offering unprecedented clarity and regulatory certainty compared to existing frameworks in competing financial centers. Market participants expect the bill to pass before year-end 2026, signaling strong political support for the measure as part of Hong Kong's broader economic diversification strategy following recent macroeconomic headwinds.
The tax exemption directly addresses a material compensation disadvantage that has constrained Hong Kong's ability to attract senior fund managers and investment professionals from established markets. By waiving performance-linked salary taxation for qualifying fund managers, the legislation substantially enhances after-tax compensation retention and improves Hong Kong's relative attractiveness versus competing jurisdictions such as Singapore, London, and New York. The measure is expected to drive incremental relocation of fund management offices and senior talent to Hong Kong, reinforcing the city's infrastructure for alternative asset management.
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