The Financial Services & the Treasury Bureau today confirmed that remuneration distributed by proprietary trading businesses does not qualify for tax concessions proposed under the Inland Revenue (Amendment) Bill 2026.
The Government introduced the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 into the Legislative Council (LegCo) in June. The bill aims to enhance preferential tax regimes for privately offered funds, family-owned investment holding vehicles managed by single family offices, and carried interest.
A key measure involves expanding the scope of the preferential tax regime for carried interest. Beyond currently covered private equity investments, other eligible fund profits may also yield eligible carried interest, qualifying for profits tax and salaries tax concessions.
Responding to media enquiries, the bureau noted that the preferential regime applies only to eligible carried interest distributed by funds as defined under the Inland Revenue Ordinance (IRO).
Under the IRO, a fund must generally satisfy the requirement that participating persons do not have day-to-day control over property management. A business trading or holding assets using proprietary capital to generate profits for its own account – commonly known as proprietary trading – fails to meet this definition. Remuneration from such businesses is therefore excluded from the proposed tax concessions.
The bureau added that eligible carried interest must be determined by the fund’s operating or investment management agreement. The returns received by fund managers or qualifying employees must be non-discretionary and based on investment performance. Eligible investment management services include seeking capital for the fund, researching and advising on potential investments, acquiring, managing or disposing of fund property, and assisting investee entities in raising capital.
The bill also proposes refining distribution requirements to accommodate different practical arrangements for carried interest.
The LegCo Bills Committee has completed its clause-by-clause examination of the bill. The Government aims to resume the second reading debate within the second half of this year, with the measures taking effect from the year of assessment 2025/26. The Government has no plans to further expand the scope of these preferential measures.
The bureau stated that the Government maintains close liaison with the industry to explain the policy intent. Active dialogue with stakeholders on implementation details will continue. The enhancements are expected to attract more global capital and encourage more funds to be established and operate in Hong Kong.