Hong Kong’s Proposed Expansion of Its 0% Carried Interest Tax Regime: Opportunities for Fund Managers and Family Offices
Hong Kong’s Proposed 0% Carried Interest Tax Regime Explained
Hong Kong has proposed a significant expansion of its preferential tax regime for carried interest, potentially allowing a much broader range of fund managers and qualifying employees to receive eligible carried interest and performance-linked compensation at an effective tax rate of 0%.
The proposed reform is particularly relevant to private equity, venture capital, hedge fund, private credit, real estate, virtual asset and alternative investment managers considering establishing or expanding their operations in Hong Kong.
It may also create opportunities for family offices that operate qualifying investment structures and conduct genuine investment management activities in Hong Kong.
However, the proposal does not mean that every performance fee, investment return or employee bonus will automatically become tax-free. Eligibility will depend on the legal structure, the nature of the remuneration, the activities performed in Hong Kong and compliance with the applicable statutory conditions.
Quick answer: Under Hong Kong’s proposed 2026 reform, eligible carried interest received by qualifying fund managers and qualifying employees may benefit from a 0% profits tax or salaries tax rate. The reform would broaden the existing concession beyond private equity, but proprietary trading profits, ordinary bonuses and arrangements that do not satisfy the statutory requirements would remain outside the regime.
What Is Carried Interest?
Carried interest is a performance-linked share of a fund’s profits paid to its fund manager, investment adviser or investment professionals.
Unlike a fixed management fee, carried interest generally depends on the investment performance of the fund. It is commonly used to align the interests of fund managers with those of investors.
A simplified example would be:
Investors contribute capital to an investment fund.
The fund invests that capital according to its investment strategy.
When investments generate profits, the investors receive the amounts to which they are entitled under the fund agreement.
The fund manager or its investment team receives an agreed share of the investment profits as carried interest.
The precise terms depend on the fund agreement, investment management agreement and any employee participation or carried interest plan.
What Is Hong Kong Proposing?
The Hong Kong Government introduced the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 to the Legislative Council in June 2026.
The Bill seeks to enhance the preferential regimes applicable to:
Privately offered investment funds;
Family-owned investment holding vehicles managed by eligible single family offices;
Special purpose entities used within eligible investment structures; and
Eligible carried interest received by qualifying fund managers and employees.
For carried interest, the principal change is an expansion of the existing concession beyond the private equity investments currently covered.
According to the Hong Kong Government, profits of a broader range of eligible funds may generate carried interest qualifying for both profits tax and salaries tax concessions. The Government intends the changes, if enacted, to take effect from the 2025/26 year of assessment. As of September 2026, however, the Bill remains subject to passage by the Legislative Council. Hong Kong Inland Revenue Department
Is Hong Kong Really Proposing a 0% Tax Rate?
Yes—but only for eligible carried interest that meets the legislative requirements.
Under Hong Kong’s existing carried interest regime, the concessionary percentage is currently 100%. This means that qualifying carried interest is fully excluded from the relevant calculation, producing an effective tax rate of:
Recipient | Applicable concession on eligible carried interest | Effective Hong Kong tax rate |
Qualifying fund manager or qualifying person | 100% profits tax concession | 0% |
Qualifying employee | 100% salaries tax concession | 0% |
The proposed reform would not simply create a general exemption for asset managers. Its importance lies in making the existing 0% treatment available to a wider range of qualifying funds, investments, distribution arrangements and investment professionals.
The Hong Kong Inland Revenue Department confirms that the existing salaries tax concession excludes 100% of eligible carried interest received by qualifying employees, provided all applicable conditions are satisfied. IRD carried interest guidance
What Would Change Under the Proposed Regime?
1. A broader range of investment strategies may qualify
The existing carried interest concession is principally associated with private equity investments.
The proposed framework is expected to accommodate eligible carried interest generated by a wider range of funds and investment strategies, potentially including:
Private equity;
Venture capital;
Hedge funds;
Private credit and debt strategies;
Real estate investments;
Securities and derivatives;
Virtual assets;
Commodities and precious metals; and
Other qualifying alternative investments.
Whether a particular investment or strategy qualifies will depend on the final legislation and the underlying fund’s compliance with Hong Kong’s tax rules.
2. The hurdle rate requirement would be removed
Under the proposed regime, it would no longer be necessary for investors to receive a prescribed minimum return or “hurdle rate” before a distribution can constitute eligible carried interest.
Nevertheless, the payment must still be variable, linked to the fund’s investment performance and calculated in accordance with the applicable fund or investment management agreements.
3. More flexible carried interest structures may be accepted
The proposal is designed to accommodate different commercial arrangements used by international fund managers.
Eligible carried interest may potentially be distributed through:
The fund manager;
An investment adviser;
An associated entity;
A dedicated carried interest vehicle; or
Other qualifying intermediary entities.
The Bill also seeks to broaden the relevant associate provisions and allow qualifying employees to receive carried interest through other entities.
This flexibility may be useful for international fund groups that use carried interest partnerships, special purpose vehicles or employee participation structures.
4. The existing fund certification requirement would be removed
The proposed reform would remove the requirement to obtain certification of the fund from the Hong Kong Monetary Authority for carried interest purposes.
This could reduce an important administrative barrier under the existing regime. However, fund managers and employees would still need to maintain sufficient records and submit the required tax information to support their claims.
5. The changes could apply retrospectively
Subject to enactment, the Government intends the enhanced rules to take effect from the year of assessment beginning on 1 April 2025.
Existing fund managers and investment professionals should therefore review not only future arrangements but also carried interest that has accrued since that date.
Who May Qualify for the 0% Carried Interest Tax Treatment?
The concession may apply to a qualifying fund manager, investment adviser or other qualifying person that receives eligible carried interest for providing investment management services in Hong Kong.
Qualifying employees may also receive the salaries tax concession when they:
Are employed by a qualifying person or an eligible associated entity carrying on business in Hong Kong;
Provide qualifying investment management services in Hong Kong;
Hold a direct or indirect right to participate in eligible carried interest;
Receive a variable amount derived from the fund’s profits or gains; and
Satisfy the applicable reporting and documentary requirements.
Qualifying investment management services may include:
Raising capital for the fund;
Researching or advising on potential investments;
Acquiring, managing or disposing of investments;
Monitoring portfolio companies or other investments; and
Assisting an investee entity with fundraising.
Employees performing only general administrative or support functions would not ordinarily qualify merely because they work for a fund management company.
What Payments Would Not Qualify?
The 0% regime is not a blanket exemption for investment income, salaries or performance-related compensation.
The following would not automatically qualify:
Fixed management fees;
Ordinary salaries;
Discretionary employee bonuses;
Payments unrelated to investment performance;
Proprietary trading profits;
Returns on an owner’s personal investment capital;
Payments made by a commercial operating business; or
Artificial arrangements created primarily to reclassify taxable remuneration.
The Hong Kong Government has specifically confirmed that a business trading or holding assets using its own proprietary capital does not qualify as a “fund” merely because its profits are performance-based. Remuneration distributed by a proprietary trading business would therefore fall outside the proposed carried interest concession. Hong Kong Government clarification
Why Does the Proposal Matter to Fund Managers?
A potentially competitive effective tax rate
A 0% effective tax rate on eligible carried interest could make Hong Kong particularly attractive to fund sponsors and investment professionals whose compensation is substantially linked to investment performance.
However, the tax benefit must be evaluated together with:
Licensing requirements;
Fund structure;
Management and control;
Employment arrangements;
Economic substance;
Investor location;
Tax residence; and
Tax obligations in other jurisdictions.
An exemption in Hong Kong does not necessarily eliminate taxation in the recipient’s country of residence.
Access to Asian investment markets
Hong Kong offers access to international capital, Mainland China and the wider Asia-Pacific region. It also provides an established ecosystem of banks, institutional investors, legal advisers, auditors, fund administrators and corporate service providers.
Fund managers may establish a Hong Kong presence to support:
Asian investment origination;
Regional fundraising;
Portfolio management;
Private credit activities;
Family wealth management; and
Cross-border investment holding structures.
Greater flexibility for international fund groups
The broader definition of qualifying investments and more flexible carried interest distribution rules could help international fund groups align their Hong Kong arrangements with established global remuneration structures.
A typical structure may involve:
An investment fund or family-owned investment vehicle;
A Hong Kong fund management or investment advisory company;
One or more investment holding or special purpose entities; and
A carried interest vehicle through which qualifying professionals participate in investment performance.
The suitability of this structure must be determined on a case-by-case basis.
What Are the Opportunities for Family Offices?
Hong Kong has also been enhancing its tax environment for single-family offices and family-owned investment holding vehicles.
The proposed Bill would expand aspects of the preferential tax regime available to eligible family-owned investment structures, including the range of qualifying investments and the treatment of certain special purpose entities.
Potential benefits for international families may include:
Consolidating family investments through a recognised Asian financial centre;
Establishing a dedicated Hong Kong single family office;
Employing investment professionals in Hong Kong;
Using Hong Kong companies or other permitted entities as investment holding vehicles;
Accessing a broader range of banks, managers and professional advisers; and
Developing a structured framework for investment governance and succession planning.
Nevertheless, a family office will not automatically qualify for the carried interest concession.
There must be a genuine fund or qualifying investment arrangement, eligible performance-linked remuneration and qualifying investment management services performed in Hong Kong. A family’s proprietary investment company cannot simply label distributions or employee bonuses as carried interest.
Why Substance in Hong Kong Matters
The reform is intended to attract real fund management and family office activities to Hong Kong—not only legal entities registered there.
A fund management or family office structure seeking preferential tax treatment should be able to demonstrate an appropriate Hong Kong presence. Depending on the structure, relevant factors may include:
Directors and investment decision-makers;
Qualified employees;
Investment research and portfolio management activities;
Office facilities;
Operating expenditure;
Employment and remuneration agreements;
Fund and investment management documentation;
Accounting and transaction records; and
Appropriate regulatory licences or exemptions.
The Bill also introduces or strengthens reporting and economic substance requirements for relevant fund and family office structures.
Does a Hong Kong Fund Manager Need an SFC Licence?
Possibly.
The tax concession and the regulatory licensing framework are separate matters. Establishing a Hong Kong company or qualifying for a tax concession does not by itself authorise the company to conduct regulated asset management activities.
Depending on its activities, a fund manager or adviser may require a licence from the Hong Kong Securities and Futures Commission, such as a licence for asset management, advising on securities or another regulated activity.
Some structures may qualify for an exemption, but this should be assessed before the company begins operating or marketing investment services.
What Should Fund Managers and Family Offices Do Now?
Fund sponsors and family offices considering Hong Kong should conduct a structured review covering:
Fund eligibility: Determine whether the proposed vehicle would meet the statutory definition of a fund or qualifying family-owned investment holding vehicle.
Investment scope: Identify whether the underlying assets and transactions are eligible under the proposed regime.
Hong Kong activities: Define which investment management services will actually be performed in Hong Kong.
Carried interest terms: Ensure that the entitlement is variable, non-discretionary, performance-linked and properly documented.
Distribution structure: Review whether carried interest will be paid directly or through a manager, adviser, associated entity or carry vehicle.
Employment arrangements: Identify the employees who genuinely provide qualifying investment management services in Hong Kong.
Economic substance: Plan the personnel, premises, expenditure and decision-making functions required in Hong Kong.
Regulatory position: Confirm whether the proposed activities require an SFC licence or qualify for an exemption.
Tax reporting: Maintain appropriate agreements, calculations and supporting documentation for future Inland Revenue Department filings.
International taxation: Consider how the carried interest will be treated in each recipient’s jurisdiction of tax residence.
Frequently Asked Questions
What is Hong Kong’s proposed 0% carried interest tax regime?
It is an expansion of Hong Kong’s existing tax concession under which eligible carried interest may receive a 100% profits tax or salaries tax concession, resulting in an effective Hong Kong tax rate of 0%.
Has the new carried interest regime already been enacted?
As of September 2026, the amendment Bill remains subject to passage by Hong Kong’s Legislative Council. The Government intends the enhanced measures to apply from the 2025/26 year of assessment if the legislation is enacted.
Will all fund performance fees be tax-free?
No. Only payments satisfying the legal definition of eligible carried interest and all related conditions may qualify. Ordinary management fees, discretionary bonuses and remuneration from proprietary trading businesses remain outside the concession.
Can hedge fund performance fees qualify?
Potentially. One objective of the proposal is to extend the regime beyond private equity to a broader range of eligible funds and investment strategies. The fund, payment arrangement, manager and relevant investment management services must still satisfy the statutory requirements.
Can family office employees receive carried interest tax-free?
Potentially, but not automatically. The underlying structure must qualify, the remuneration must constitute eligible carried interest, and the employee must provide qualifying investment management services in Hong Kong.
Does the concession apply to proprietary investment companies?
Generally no. The Hong Kong Government has confirmed that a business investing or trading its own capital for its own account is not a qualifying fund merely because it generates investment profits.
Will foreign jurisdictions also exempt the carried interest?
Not necessarily. The recipient’s country of residence may tax the income even if Hong Kong grants a concession. Cross-border tax advice is therefore essential.
How VICS Can Assist
For international fund managers and families, establishing a Hong Kong presence requires more than incorporating a company. The legal entities, ownership arrangements, management functions, regulatory position and ongoing compliance obligations should work together from the beginning.
V. I. Corporate Services Limited (VICS) can assist with the corporate implementation of a Hong Kong fund management or family office structure, including:
Incorporation of Hong Kong companies, including guidance on company formation costs;
Registered office services;
Designated representative services;
Corporate ownership and holding structure implementation;
Coordination with independent tax, legal, accounting and regulatory professionals;
Ongoing corporate and statutory compliance.
The proposed reform may offer significant opportunities, but access to the 0% carried interest treatment depends on the actual structure and activities of each fund manager or family office.
Contact VICS to discuss the establishment of your Hong Kong fund management, investment holding or family office structure.
Website: www.vics.com.hk
Email: management@viss.com.hk
Telephone: +852 3104 1914
Address: Unit 803, 8/F, Greenfield Tower, Concordia Plaza, 1 Science Museum Road, Tsim Sha Tsui, Kowloon, Hong Kong
This article is provided for general information only and does not constitute legal, tax, investment or regulatory advice. The proposed measures remain subject to enactment and may be modified during the legislative process. Professional advice should be obtained based on the specific structure, activities and jurisdictions involved.
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