Following the government’s stakeholder consultation in 2024 and engagement sessions in 2025 on its proposals to enhance the tax concession for FIHVs (as well as funds and carried interest)¹, the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026² (the Bill) was gazetted on 12 June 2026 to set out the detailed legislation for implementing the enhanced tax concessions for FIHVs, funds and carried interest.

Under the existing tax concession for FIHVs, assessable profits derived by an FIHV from (i) transactions in any of the assets specified in Schedule 16C of the Inland Revenue Ordinance (IRO) (Schedule 16C assets) (i.e. qualifying transactions) and (ii) transactions incidental to the carrying out of qualifying transactions (subject to a 5% threshold) (i.e. incidental transactions) are taxed at a 0% rate if the specified conditions are met³. The key enhancements to the existing tax concession are summarised as follows.

The Bill expands the scope of Schedule 16C assets to include the following assets:

• equity interests (direct or indirect) in non-corporate entities (e.g. partnerships);
• loans;
• immovable property situated outside Hong Kong;
• digital assets;
• insurance-linked securities;
• precious metals (with value not exceeding 20% of the investment portfolio);
• certain commodities in connection with and incidental to the trading of OTC derivative products; and
• emission derivatives/allowances and carbon credits.

The Bill removes the references to “qualifying transactions” and “incidental transactions”, as well as the 5% threshold for incidental transactions. As tax concession is now granted to the assessable profits derived from “holding of or transactions in Schedule 16C assets” instead of “transactions in Schedule 16C assets”, these terms / the threshold are no longer relevant. 

Under the existing regime, the aggregate net asset value (NAV) of Schedule 16C assets held by one or multiple relevant FIVHs managed by an eligible single-family office (ESF Office), as of the end of a YOA, must not be less than HK$240 million.  The term “net asset value” is not defined and could be subject to different interpretations.

Instead of referring to the net asset value, the Bill now refers to the value of the Schedule 16C assets under management.  As per the existing law, the value of any Schedule 16C assets is to be determined in the manner specified by the Commissioner of Inland Revenue. The Legislative Council Brief⁴ clarified that, in calculating the value of Schedule 16C assets under management, loans from holders of direct beneficial interest of FIHVs and family-owned special purpose entities (FSPEs) will not be deducted from the asset value while loans from parties other than the holders (e.g. bank loans) will continue to be deducted. 

• FIHV not regarded as a business undertaking for general commercial or industrial purposes – An FIHV cannot be a business undertaking for general commercial or industrial purposes. The Bill now adds a new provision to the IRO to the effect that a business undertaking to transact in or derive profits from any Schedule 16C assets would not, by itself, be regarded as a business undertaking for general commercial or industrial purposes.
• Expanded scope of permissible activities for FSPE – Currently, the scope of permissible activities of an FSPE is restricted to holding and administering Schedule 16C assets and/or investee private companies. The Bill expands the scope to cover (i) acquisition, holding, administration, or disposal of Schedule 16C assets and/or investee private companies and (ii) activities incidental to those in (i) above.
• Full tax concession for partially-owned FSPE – Currently, the extent of an FSPE’s assessable profits eligible for the tax concession is determined by reference to the FIHV’s beneficial interest in the FSPE. The Bill now removes this limitation and grants a tax concession to all the assessable profits of an FSPE irrespective of the FIHV’s beneficial interest in it, provided that the investors of the FSPE do not have day-to-day control over the management of the FSPE’s property and the other specified conditions are met. Accordingly, the anti-round tripping provisions are extended to apply to FSPEs as well (see discussion below).

Besides the above key enhancements, the Bill also introduces (i) new exceptions to the tax concession and (ii) revised anti-round tripping rules as follows:

• New exceptions to the tax concession – In addition to the “immovable property test” that may deny tax concession for the assessable profits derived from the holding of, or transactions in, equity interest in private entities⁵, the Bill also specifies that income derived by an FIHV or FSPE from shares or stocks of a private company and is attributable to property trading or property development of immovable property in Hong Kong is not eligible for the tax concession. The other three existing tests that may apply to deny tax concession for income derived from equity investments in a private company or non-corporate private entity are the holding period test, the control test and the short-term assets test.
• Additional anti-round tripping rules – Under the existing regime, the tax-exempt profits of an FIHV or FSPE are deemed as assessable profits of a resident person (excluding (i) Hong Kong resident individuals and (ii) certain Hong Kong resident entities (e.g. an ESF office)) if the resident person: (i) has, either alone or jointly with its associate(s), not less than 30% beneficial interest in the FIHV or (ii) has any beneficial interest in the FIHV and the FIHV is an associate of the resident person. The Bill now introduces the following additional anti-round tripping provisions:
  • Extending the existing general anti-round tripping provisions to FSPEs,
  • Introducing a new specific anti-round tripping provisions against financial institutions, insurance companies, and money lenders⁶ with respect to profits derived by an FIHV (or FSPE) from loans, and
  • Introducing additional carve-outs for general and specific anti-round tripping provisions (e.g. natural persons, FIHVs that are eligible for the tax concession, etc).

1.  For more details, please refer to our previously issued Hong Kong SAR Tax Alert - Issue 17, November 2024.

2.  The Bill can be accessed via this link: https://www.legco.gov.hk/yr2026/english/bills/b202606122.pdf

3. For more details, please refer to our previously issued Hong Kong SAR Tax Alert - Issue 28, December 2022 and Hong Kong SAR Tax Alert – Issue 7, April 2023.

4. The Legislative Council Brief can be accessed via this link: https://www.legco.gov.hk/yr2026/english/brief/asst315c2026_20260610-e.pdf

5. Under the immovable property test, income derived by an FIHV or FSPE from equity investment in a private company / non-corporate private entity that holds, directly or indirectly, more than 10% of its assets in Hong Kong immovable property assets are not eligible for the tax concession. Hong Kong immovable property assets include Hong Kong immovable property and shares of a private company / equity interest in a non-corporate private entity that holds Hong Kong immovable property.

6.  Money lenders refer to persons carrying on a money lending business or an intragroup financing business.

7. The transitional administrative measure can be accessed via this link: https://www.ird.gov.hk/eng/new/index.htm