Hong Kong close to proposing tax cuts to lure asset and wealth managers

[HONG KONG] The Hong Kong government is close to proposing changes to its carried interest regime that would make tax breaks more accessible to asset and wealth managers, as it seeks to bolster the city’s appeal as an asset management hub.

Currently, Hong Kong’s tax-free carried interest measure only applies to private equity investments. Carried interest is performance-based pay, referring to the portion of a private fund manager’s compensation tied to profits generated.

The Financial Services and Treasury Bureau (FSTB) told Reuters it is proposing to enhance preferential tax treatment for funds, single family offices and carried interest.

The measures including scrapping certification by Hong Kong’s de-facto central bank, removing the hurdle rate requirement and expanding eligible transaction types, the FSTB said in an email.

Measures aimed to lure asset managers

The government agency is poised to expand the scheme to cover private credit, digital assets and overseas real estate, a source with knowledge of the matter told Reuters on Thursday (Mar 26), declining to be named as they were not authorised to speak to the media.

An official proposal is being drafted and will be submitted to lawmakers for approval soon, the source said.

The revised regime will continue to apply only to genuine carried interest-returns linked to long-term investment performance-according to the FSTB.

Since a 2024 public consultation, the government said the tax-relief would extend beyond private equity to cover loans, private credit investments, interests in non-corporate private entities and virtual assets, official filings show.

Rival hubs lure investment away from HK

“The goal of these changes is clear: Hong Kong aims to strengthen its position as the leading pro-business jurisdiction for asset managers to domicile and scale their operations,” said Rocky Tung, executive director of the Financial Services Development Council, a government think tank.

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Tung said the enhancement was a “re-calibration” of Hong Kong’s tax regime since the introduction of carried interest and aligns the city with “global best practices for asset managers.”

Rival wealth hubs like Dubai and Singapore have attracted fund and wealth managers in recent years with favourable tax benefits, drawing investments away from Hong Kong.

The Financial Times first reported on Thursday that the tax proposal was expected to be introduced soon. REUTERS