Hong Kong: Draft legislation to enhance tax incentives under Unified Fund Exemption and carried interest regimes

The Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026, which was gazetted on June 12, 2026, would enhance tax incentives under the Unified Fund Exemption (UFE) and carried interest regimes.

• The UFE regime would be expanded in several ways, including with respect to (1) the definition of “fund” (to explicitly include pension funds), (2) the scope of qualifying investment (to cover private credit and debt, virtual assets, real estate funds, private equity, hedge funds, and a broad range of alternative investments), and (3) the ability to earn qualifying income through special purpose entities (SPEs).
• The carried interest regime also would be expanded in several ways, including with respect to (1) the scope of qualifying profits (to include not only profits from private equity transactions but all profits arising from asset classes specified in Schedule 16C that fall within the UFE, as well as other non-taxable income such as dividends and offshore income, and even taxable income), (2) the scope of participants entitled to tax incentives under the regime (to include not only managers and general partners, but also employees who are directly involved in relevant asset management activities).

The bill will be introduced into the Legislative Council on June 24, 2026, and if enacted, the provisions in the bill would apply retroactively from April 1, 2025 (i.e., from the year of assessment 2025/2026).

The Inland Revenue Department (IRD) has announced a transitional administrative measure to facilitate taxpayers who are eligible for the tax concessions proposed under the draft legislation to file their 2025/2026 tax returns on that basis.

Read a June 2026 report prepared by the KPMG member firm in Hong Kong