Hong Kong recently unveiled a bill to enhance the tax concession for carried interest and to broaden the tax exemption regime for funds and family offices. Eligible carried interest and performance fees paid to qualifying employees can be excluded from income when calculating their Salaries Tax liability. The enhancements reinforce Hong Kong’s position as an established asset and wealth management hub making it an attractive location for investment talent.1
WHY THIS MATTERS
The enhancements are expected to extend the carried interest concession to a broader range of asset and fund managers, across multiple asset classes, as well as their professional teams. With eligible carried interest and performance fees paid to qualifying employees tax-exempt under the concession, asset and fund managers may wish to review and refine their fund and talent remuneration structures to maintain a competitive edge and support retention. With the enhancements being implemented with retrospective effect from 1 April 2025, existing arrangements may also qualify for the concession.
Key Highlights
Overview of the tax concession
The existing tax concession operates to exclude eligible carried interest paid or accruing to the employee in the year of assessment when calculating the employee’s Salaries Tax liability, subject to satisfying conditions. Broadly, the proposed reform will:
- extend the concession for carried interest from private equity funds to also apply to profit sharing from a wide range of funds; and
- provide more flexibility to accommodate different carried interest and performance fee arrangements and practices.
Key enhancements at a glance
Broader scope | The tax concession previously limited to private equity may now apply to carried interest and performance fees from a wide range of funds and strategies including hedge funds, private credit and debt, real estate funds, virtual assets and a broad range of alternative investments. |
More flexible structures | Eligible carried interest and performance fees may be paid via the fund manager, advisor, or a separate carry vehicle. |
No hurdle rate requirement | There will no longer be a requirement that carried interest is only paid or accrues after the investors receive a minimum return (hurdle rate). |
Qualifying employees | Employees who provide investment management services in Hong Kong for a wide range of funds may qualify. |
Key requirements for tax concession
- The employee has a specified right (held directly or indirectly) to participate in carried interest or performance fees.
- The amount of carried interest or performance fee is variable and derived from profits and gains generated by the fund.
- The employee provides investment management services in Hong Kong for, or on behalf of, a qualifying person (e.g., investment manager or advisor in Hong Kong).
Tax reporting obligations
- The requirement under the existing tax concession to obtain Hong Kong Monetary Authority fund certification will be removed.
- Broadly, eligible employees are expected to apply for the tax concession via their individual tax filing and supplementary forms. There are separate reporting obligations for the investment manager or advisor.
- Robust documentation should be retained to support eligibility for the concession.
Implementation timeline
- The bill has been introduced into Legislative Council and upon enactment, the enhancements to the tax concession will be effective from 1 April 2025, with retrospective application (i.e., from the Year of Assessment 2025/26).
- The Inland Revenue Department announced a transitional administrative measure that taxpayers who are eligible for the tax exemption or concession proposed under the bill may submit their tax returns for the year of assessment 2025/26 on that basis.
KPMG INSIGHTS
In light of the changes, employers and affected individuals might wish to consider the following:
- Review current and planned carried interest and performance fee arrangements for eligibility under the enhanced tax concession
- Review and refine the relevant documentation (fund terms, carry plans, employee participation agreements) to support the concessionary tax treatment
- Communicate with stakeholders on the process and requirements to apply and support the tax concession
If assignees and/or their programme managers have any questions or concerns about the scope of the directive, its application and potential impacts, and appropriate next steps, they should consult with their qualified tax or social security professional or a member of the GMS/People Services team with KPMG in China (see the Contacts section).
ENDNOTE:
1 Hong Kong e-Legislation, “Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026.”
RELATED RESOURCE
This article is excerpted, with permission, from "Hong Kong SAR unveils draft law to enhance the Unified Funds Exemption and the Carried Interest concession,” Hong Kong SAR Tax Alert (June 2026), a publication of the KPMG International member firm in Hong Kong SAR.
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Disclaimer
he information contained in this newsletter was submitted by the KPMG International member firm in Hong Kong.
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