Hong Kong Tax News Flash

Nov 2024, Issue 19

Hong Kong’s game changing proposal on tax concessions for carried interest, funds and single family offices

The Hong Kong SAR Government (Government) prioritises consolidating Hong Kong’s status as a leading asset and wealth management hub. In the 2024/25 Budget speech, the Financial Secretary announced plans to enhance preferential tax regimes for funds, single family offices and carried interest by reviewing the scope of the tax concessions, increasing the types of qualifying transactions and improving flexibility for incidental transactions. The Chief Executive also reaffirmed that the Government would consult the industry on these enhancements in his 2024 Policy Address.

The long-awaited details of the proposed changes finally came in the form of a consultation paper issued by the Financial Services and Treasury Bureau on 25 November 2024 (Consultation Paper). The Consultation Paper sets out the proposed enhancements to the unified fund exemption (UFE) regime, the family-owned investment holding vehicle (FIHV) tax concession regime and the carried interest tax concession regime. The Consultation Paper at the same time proposes introducing a tax reporting mechanism and substantial activities requirement under the UFE regime. The Consultation Paper is part of an industry consultation process designed to collect feedback on the proposed changes, which will close on 3 January 2025.

The enhancements to the three regimes are expected to further solidify Hong Kong’s status as a premier international asset management hub. Notably, the proposal to extend the carried interest tax concession regime to include carried interest arising from transactions in all types of qualfiying assets, rather than limiting it to private equity transactions, will greatly enhance the regime’s appeal and practicality. This extension is anticipated to have a significant positive impact, making Hong Kong a more attractive destination for fund managers to establish their presence.

This news flash summarises the proposed enhancements and our observations, with focus on the carried interest tax concession and UFE regimes. For a more detailed discussion on the proposed enhancements to the FIHV tax concession regime, please refer to a separate news flash.