Treasury Bureau Clarifies Proprietary Trading Excluded from Carried Interest Tax Relief
On.cc · 1 SOURCESabout 2 hours ago2 MIN
Summary
Hong Kong's Financial Services and the Treasury Bureau has clarified that proprietary trading businesses do not qualify for the proposed carried interest tax exemption under the Tax (Amendment) Ordinance currently before the Legislative Council. The Bureau stated that such businesses fail to meet the statutory definition of a "fund" as required under the draft legislation. The ordinance, which covers funds, family investment management vehicles, and carried interest preferential tax treatment, aims to enhance Hong Kong's competitiveness as an asset management hub.
Key Points
- Proprietary trading businesses that use their own capital to trade or hold assets for profit do not meet the statutory definition of a "fund" under the Tax Ordinance
- Under existing definitions, a "fund" must satisfy the requirement that participants have no day-to-day control over management of the relevant property, which excludes commercial or industrial business entities
- Eligible carried interest is defined as performance-linked returns earned by fund managers or their qualified employees providing investment management services in Hong Kong
- The Legislative Council has completed clause-by-clause review of the draft ordinance, with second reading scheduled for the second half of this year
- If approved by the Legislative Council, the tax relief measures would take effect from the 2025-2026 tax assessment year
Why It Matters
This clarification ensures that only genuine fund management structures—rather than proprietary trading operations—can access the preferential tax treatment on carried interest, maintaining the integrity of Hong Kong's incentive scheme designed to attract fund managers and strengthen the city's position as a leading asset management centre. The Inland Revenue Department will issue administrative guidelines to elaborate on implementation details as needed .
This clarification ensures that only genuine fund management structures—rather than proprietary trading operations—can access the preferential tax treatment on carried interest, maintaining the integrity of Hong Kong's incentive scheme designed to attract fund managers and strengthen the city's position as a leading asset management centre. The Inland Revenue Department will issue administrative guidelines to elaborate on implementation details as needed .