Hong Kong hedge fund managers set for pay bump in tax plan

[HONG KONG] Hedge fund managers in Hong Kong are set to benefit from a change to the city’s tax laws, which will effectively eliminate taxes on performance-related income for some funds.

The Hong Kong government plans to present a bill to the city’s Legislative Council proposing tax exemptions for a wide range of alternative asset managers on so-called carried interest. That’s the share of investment profits paid to fund managers, often making up a huge chunk of their annual compensation.

The tax break on eligible carried interest will apply to hedge fund employees’ performance fees, which could help Hong Kong attract talent, said Darren Bowdern, head of asset management tax for KPMG in Asia.

The tax break will translate into higher pay for Hong Kong-based portfolio managers, he added.

The bill is part of a broad push to attract global firms and executives to the city.

Hong Kong has already eased red tape for family offices, embraced cryptocurrencies and proposed looser regulations for mutual funds to maintain its place among the world’s major financial hubs.

“These changes are set to reinforce Hong Kong’s position as a leading global financial centre,” wrote Adam Williams, a managing director at Alvarez & Marsal, in a social media post on Wednesday night.

He said that for the first time, the carry exemption would apply across all major asset classes, creating “a compelling tax incentive for managing assets in Hong Kong”.

The proposed tax break will apply to both corporations and individuals retroactively from Apr 1, 2025, according to the bill.

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Performance-tied fees are currently taxed from 15 to 16.5 per cent, while management fees are subject to the 16.5 per cent corporate tax rate.

Private equity fund managers already enjoy zero taxes on carried interest, but Hong Kong has so far held back from expanding that tax treatment more widely.

Hedge funds have been expanding in the city. ExodusPoint Capital Management took up a new floor in Hong Kong’s Central business district, while Qube Research & Technologies signed one of the biggest office leasing deals in the same district in more than a decade. BLOOMBERG