FSTB: Carried Interest Tax Regime Expansion Excludes Proprietary Trading, No Further Widening Planned

FSTB responds to media enquiries regarding preferential tax regime for carried interest

In response to media enquiries regarding the preferential tax regime for carried interest of the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026, the Financial Services and the Treasury Bureau issued the following reply today (August 12):

The Government introduced the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 into the Legislative Council (LegCo) in June this year, 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, and more global capital to be managed in Hong Kong, as well as stimulating more local fund investment management and related activities.

The Central Government Offices, Photo source: reference image

One of the key measures in the Bill is to expand the scope of the preferential tax regime for carried interest. Apart from private equity investments which are already covered currently, other profits of eligible funds may also give rise to eligible carried interest which may enjoy a profits tax concession and a salaries tax concession. The preferential tax regime applies to eligible carried interest distributed by "funds" so defined in the Inland Revenue Ordinance (IRO). According to the relevant definition currently set out in the IRO, a "fund" should generally satisfy the requirement that "participating persons do not have day-to-day control over the management of the property", and a business undertaking for general commercial or industrial purposes does not fall within the definition of "fund". Accordingly, a business that trades or holds assets using proprietary capital with a view to generating profits on its own account (commonly referred to as a "proprietary trading business"), does not fall within the definition of "fund", and any remuneration distributed by such a business does not qualify for the tax concessions proposed in the Bill.

In addition, 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. Eligible carried interest must be determined in accordance with the agreement governing the operation of the fund or the provision of investment management services, such that the fund manager or their qualifying employees are entitled to receive returns that are based on the investment performance of the fund and are non-discretionary in nature. "Investment management services" provided to a fund include: (a) seeking funds for the fund; (b) researching and advising on potential investments to be made for the fund; (c) acquiring, managing or disposing of property or investments for the fund; and (d) acting for the fund with a view to assisting an entity in which the fund has invested to raise funds. Therefore, whether the remuneration of an employee of a fund management company qualifies as eligible carried interest depends on whether the employee's duties, in substance, constitute "investment management services", subject to other aforementioned conditions.

Hong Kong, Photo source: reference image

The Bill also proposes to refine the requirements with respect to the distribution of eligible carried interest under the preferential tax regime for carried interest (e.g. broadening the scope of "associate", allowing qualifying employees to receive carried interest through other entities) to accommodate different possible distribution arrangements of carried interest in practice.

The Bill is currently under scrutiny by the LegCo's Bills Committee, with the clause-by-clause examination completed. The Government targets to resume second reading debate on the Bill within 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 relevant administrative guidance will be in line with the above legal framework. The Government does not have plans to further expand the scope of the preferential measures.

The LegCo, Photo source: reference image

The Government has been maintaining close liaison with the industry to explain the policy intent and the scope of the preferential tax regime, and has been in active dialogue with them on the implementation details of the new regime. In the process, a number of fund management companies, both local and overseas, have expressed interest in considering to establish a presence or expand their operations in Hong Kong having regard to the tax incentives proposed in the Bill. The Government expects that these enhancement measures will attract more global capital to be managed in Hong Kong and encourage more funds to be established and operated here, thereby stimulating business activities in related professional service sectors and strengthening Hong Kong's competitiveness as a leading international asset and wealth management centre.

First large-scale drill conducted at Huanggang Port Hong Kong Port Area

The Hong Kong Special Administrative Region (HKSAR) Government today (August 13) conducted a large-scale drill at the Huanggang Port Hong Kong Port Area, with a view to testing the overall management of passenger and vehicular flows at the port building and the public transport interchange (PTI), and to prepare for the upcoming official opening of the port.

About 1 000 civil servants from over 20 departments had been mobilised for this drill. They were instructed to take different modes of public transport (including franchised bus, short-haul cross-boundary coach, green minibus and taxi) to reach the PTI located on the second floor of the port building. Afterwards, they proceeded to the departure hall on the fifth floor and the arrival hall on the fourth floor, then returned to the PTI on the second floor. Subsequently, they followed the instruction to leave the port by taking public transport. Participants and vehicles dispatched by various public transport operators participated in cyclical trials involving more than 120 departures to simulate the flow of people and vehicles arriving and departing from the port. These trials aimed at testing and assessing the management of passenger and vehicular flows, passageway capacity, arrangement of on-site guidance, traffic control, and various supporting measures at the port building and PTI.

The Secretary for Security, Mr Tang Ping-keung, and the Secretary for Transport and Logistics, Ms Mable Chan, inspected the drill on-site. Mr Tang said that the flow of the entire drill had been smooth and meticulously arranged under the close co-operation of all parties.Areas for improvement were identified and will be gradually addressed in subsequent drills. This large-scale drill achieved the expected results and test objectives. He said he hopes that through interdepartmental co-operation, larger drills could be conducted in the future for continuous optimisation of the detailed arrangements, thereby making the most comprehensive preparation for the opening of the Huanggang Port. Ms Chan stated that the first drill today had primarily tested local and cross-boundary public transport services and ancillary arrangements of the Hong Kong Port Area. During the drill, the management of passengers boarding, alighting and queuing, and the management of passenger and vehicular flows operated smoothly, resulting in a positive passenger experience. The Transport and Logistics Bureau and the Transport Department will continue to carefully review and improve the arrangements based on user needs, ensuring the best possible preparation for a highly efficient transport network at the Huanggang Port.

Representatives from various bureaux, departments and organisations participated in the drill, including the Security Bureau, the Transport and Logistics Bureau, the Civil Service Bureau, the Hong Kong Police Force, the Transport Department, the Highways Department, the Immigration Department, the Hong Kong Customs and Excise Department, the Department of Health, the Fire Services Department, the Architectural Services Department, the Electrical and Mechanical Services Department, the Government Property Agency, the Digital Policy Office, the Office of the Communications Authority, the Food and Environmental Hygiene Department, the Agriculture, Fisheries and Conservation Department, the Civil Aid Service, the Auxiliary Medical Service, and various public transport operators.

The HKSAR Government will continue to conduct drills and tests of various scales to comprehensively assess the capacity of the Huanggang Port and its surrounding facilities.

Getting the port ready for opening at an early date is the common goal of the two governments of Hong Kong and Shenzhen. The HKSAR Government will continue to work closely with the Shenzhen side to press ahead with the various preparatory tasks at full steam. Upon confirmation by both sides that the port is ready for safe and smooth operation, the governments of Guangdong and Hong Kong will finalise the official opening date of the Huanggang Port and make timely announcements to the public.

Source: AI-found images