Carried Interest Tax Concession Regime for Private Equity Funds

Carried Interest Tax Concession Regime for Private Equity Funds

Carried Interest Tax Concession Regime for Private Equity Funds 1401 788 Charing

As previously reported, the Financial Services and the Treasury Bureau (the “FSTB”) of the Government of HKSAR proposed to amend the Inland Revenue Ordinance (Cap. 112) to provide tax concessions for carried interest distributed by eligible private equity funds operating in Hong Kong.

On 7 May 2021, the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Ordinance came into operation introducing the much-anticipated Carried Interest Tax Concession Regime (the “Regime”).

The Regime operates to provide tax concession at both the salaries tax and profits tax levels.  Eligible Carried Interest will be taxed at 0% profits tax rate and all of the Eligible Carried Interest would also be excluded from computation in the calculation of salaries tax.

We set out in the table below a summary of the key aspects of the Regime:

Eligible Carried Interest
  • The carried interest must be a profit-related return satisfying the following:
    • (i) the carried interest only arises if there are investment profits;
    • (ii) the interest paid would vary by reference to that profit;
    • (iii) the return to external investors would also be determined by reference to that profit.
  • The carried interest must be subject to a hurdle rate.
Qualified Payer
Qualifying Transactions
  • The carried interest must arise from private equity transactions e.g. in securities such as stocks, debentures, bonds, or notes issued by private companies.
Qualifying Recipients
  • Persons which provide investment management services including (i) SFC licensed corporations/authorised financial institution; (ii) persons providing investment management services in Hong Kong to a qualified investment fund or the IVTF or arranging for such services to be carried out in Hong Kong; (iii) persons who are employed by qualifying persons in (i) and (ii) above or their associated corporation/partnership providing investment management services in Hong Kong to qualified investment funds.
Substantial activities in Hong Kong

During the period of assessment, Qualifying Recipients must demonstrate:-

  • Having two or more full time employees in Hong Kong who carry out the investment management services; and
  • The total amount of operating expenditure incurred in Hong Kong for provision of the investment management services is HK$2 million or more.

For assistance with setting up or restructuring of an investment fund or to obtain your certification for the carried interest concession, please contact us today.

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