HKMA’s Guideline on Certification of Funds for Carried Interest Tax Concession

HKMA’s Guideline on Certification of Funds for Carried Interest Tax Concession

HKMA’s Guideline on Certification of Funds for Carried Interest Tax Concession 1401 789 Hauzen

Further to our article “FSTB’s Proposal on Tax Concession for Carried Interest”, the Hong Kong Monetary Authority (“HKMA”) on 16 July 2021 issued a Guideline on Fund Certification for Carried Interest Tax Concession under Schedule 16D to the Inland Revenue Ordinance (Cap. 112) (“IRO”).

The Guideline sets out two requirements for certification of funds in order to enjoy the carried interest tax concession:-

  1. The fund has invested in certain classes of assets during the applicable period (such as shares, funds, bonds issued by a private company); and
  2. The qualifying person has satisfied the minimum activity requirements (having at least two full-time qualified employees who carry out investment management services and with over HK$2 million total operating expenditure for each year of assessment) throughout the applicable period.

The applicable period means the period beginning on the day when the qualifying person commences providing investment management services for a fund and ending on the day when the eligible carried interest is received by, or accrued to, that qualifying person.

Application can be made to the HKMA for each year of assessment in which the eligible person wishes to claim the carried interest tax concession. To apply for certification, a fund has to submit to the HKMA a completed “Certification Application Form” and the required supporting documents, including an auditor’s report. The certification scheme is open to application by funds with immediate effect.

Further, the HKMA also clarified that a qualifying person will not automatically be entitled to tax concessions even if the thresholds are met. To be eligible for tax concessions, a qualifying person has to demonstrate that the “adequacy test” under section 5(3) of Schedule 16D to the IRO has been satisfied when the qualifying person claims profits tax concession for eligible carried interest in a particular year of assessment.

For assistance with tax-related matters when 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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