Tax Planning
How Hong Kong’s Preferential Tax Regime for Carried Interest May Affect Fund Managers
Hong Kong is expanding its carried interest tax concessions under a new bill—find out who benefits, what qualifies, and how you can act now.
By NomadicTax Research Team • 5-8 min read • September 5, 2026
## Overview of the Proposed Regime
Hong Kong introduced the **Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026**. This aims to **strengthen tax incentives** for privately offered funds, single family offices managing holding vehicles, and especially **carried interest** structures—boosting Hong Kong’s attractiveness as a fund hub. ([ird.gov.hk](https://www.ird.gov.hk/eng/ppr/archives/26081201.htm?utm_source=openai))
Subject to passage in LegCo, these enhancements are intended to take effect for the **year of assessment 2025/26**. ([ird.gov.hk](https://www.ird.gov.hk/eng/ppr/archives/26081201.htm?utm_source=openai))
## Key Features & Potential Changes
- Broadening of the definition of **associate** in carried interest arrangements, to cover more relationships. ([ird.gov.hk](https://www.ird.gov.hk/eng/ppr/archives/26081201.htm?utm_source=openai))
- Permitting some qualifying employees to **receive carried interest via separate entities**, which can create more flexible compensation structures. ([ird.gov.hk](https://www.ird.gov.hk/eng/ppr/archives/26081201.htm?utm_source=openai))
- Expand “eligible carried interest” beyond private equity to other profits of qualified funds. ([ird.gov.hk](https://www.ird.gov.hk/eng/ppr/archives/26081201.htm?utm_source=openai))
- Removal of certain certification requirements (e.g. under the HKMA) for Section 1.2(c) in Form S15, **transitionally** for 2025/26 filings. ([ird.gov.hk](https://www.ird.gov.hk/eng/faq/s15.htm?utm_source=openai))
## Who Stands to Gain
- **Fund managers and general partners** whose compensation includes carried interest. These reforms can reduce exposure to profits tax or salaries tax.
- **Employees in fund management** hierarchies who currently receive carried interest through non-standard entities. They may benefit if structures are compliant.
- **Family offices and holding vehicle-resident investors** meeting the eligibility criteria under the fund regime.
## Example Application
*Alex*, a partner in a private equity firm in Hong Kong, receives carried interest payments through a holding vehicle associated with a single family office. Under the new proposal, Alex could pay **profits tax** rather than salaries tax on eligible carried interest, which may result in lower taxation—*if* the Bill is enacted and conditions are met.
## Actionable Advice Right Now
1. **Monitor Bill progress**—track LegCo debates. If passed, check for the final text and administrative guidelines.
2. **Evaluate your structure**—check how carried interest is distributed through associates or via entities. Some existing structures may already comply or with minor adjustments can benefit.
3. **Coordinate with the HKMA** if required currently, but keep an eye on whether certification becomes optional under the Bill.
4. **File returns carefully for year 2025/26**—you may use the proposed benefits as a transitional administrative measure. Ensure relevant parts of the tax return reflect claims under the Bill (e.g. Form S15).
## Risks & Limitations
- Measures are **not yet enacted**—still subject to legislative scrutiny in LegCo. Final details could change.
- Eligibility depends on fund definitions and associates definitions—may exclude proprietary trading businesses where “day-to-day control” applies.
- Potential administrative compliance burden—need proper documentation to support claims.
## Final Word
If you're part of a fund structure in Hong Kong—and particularly if you earn carried interest—this regime could unlock material tax savings. Acting early to check your eligibility and preparing evidence may help you get ahead when the legislation takes effect.