Treasury Bureau Clarifies Proprietary Trading Excluded from Tax Benefits; Bill Targets Second Half Resumption
RTHK · 3 SOURCESabout 2 hours ago7 MIN
Summary
The Financial Services and the Treasury Bureau (財庫局) has issued a detailed clarification confirming that proprietary trading businesses are excluded from the carried interest tax incentive scheme under the proposed Tax (Amendment) (Tax Concessions for Funds, Family Investment Management Vehicles and Carried Interest) Ordinance 2026. The clarification follows a Financial Times report suggesting Hong Kong was considering granting tax exemptions to proprietary trading companies such as Jane Street and Citadel Securities. The bureau emphasized that the tax benefits are strictly limited to entities meeting the legal definition of a "fund" under the Inland Revenue Ordinance.
Key Points
- The proposed tax amendments were submitted to the Legislative Council in June
- Tax incentives apply exclusively to entities qualifying as "funds" under the Inland Revenue Ordinance, which require participants to lack day-to-day control over property management
- Proprietary trading businesses, which trade using a company's own capital for its own account, do not meet the "fund" definition and therefore do not qualify for tax exemptions
- Qualifying carried interest must be non-discretionary returns linked to fund investment performance, earned through investment management services in Hong Kong
- Investment management services eligible for tax benefits include fundraising, researching potential investments, acquiring or disposing of fund assets, and assisting investee companies with financing
- The bill has completed committee-stage review at LegCo, with second reading targeted for the second half of this year
- If passed, the ordinance will take effect from the 2025/26 tax year
- Multiple local and foreign fund managers have expressed plans to set up or expand Hong Kong operations under the new tax regime
- The government has confirmed it has no plans to further expand the scope of preferential measures beyond the current bill
- The bill also proposes expanding the definition of "connected persons" and allowing them to receive carried interest through other entities
Why It Matters
The clarification ensures Hong Kong's tax incentive framework remains targeted at genuine fund structures, preventing misuse while maintaining competitiveness as an international asset and wealth management centre. The proposed legislation, if passed, is expected to attract more global capital management and fund formation in Hong Kong, stimulating professional services and reinforcing the city's position in the asset management industry .
The clarification ensures Hong Kong's tax incentive framework remains targeted at genuine fund structures, preventing misuse while maintaining competitiveness as an international asset and wealth management centre. The proposed legislation, if passed, is expected to attract more global capital management and fund formation in Hong Kong, stimulating professional services and reinforcing the city's position in the asset management industry .