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Hong Kong is preparing to expand its tax relief framework for asset and wealth managers by widening the scope of carried interest exemptions. The proposed changes aim to include private credit, digital assets, and overseas real estate, going beyond the current focus on private equity. This move comes as the city looks to regain its competitive position against global financial hubs like Dubai and Singapore, which have been attracting investment firms with favourable tax regimes. The proposal follows earlier consultations and is expected to be presented to lawmakers soon for approval.
Hong Kong is in the final stages of drafting a proposal to expand tax benefits for asset and wealth managers, as part of its efforts to strengthen its position as a global financial hub. The move focuses on revising the treatment of carried interest, which is a performance-based fee earned by fund managers. Advertisement
At present, Hong Kong offers tax exemption on carried interest only for private equity investments. The new proposal is expected to extend this benefit to additional asset classes such as private credit, digital assets, and overseas real estate. This broader coverage is aimed at making the city more attractive for global investment firms looking to base or expand their operations.
Officials familiar with the development indicated that the proposal is being prepared for submission to lawmakers in the near term. The plan builds on policy discussions initiated during a public consultation conducted in 2024, where authorities explored extending tax relief to a wider range of investment instruments. These include loans, private credit investments, interests in non-corporate private entities, and virtual assets.
Rocky Tung, executive director of the Financial Services Development Council, stated that the objective behind the changes is to reinforce Hong Kong's position as a business-friendly jurisdiction for asset managers. He explained that the update reflects a recalibration of the existing tax framework and aligns it more closely with global practices followed by leading financial centres.
The push for reform comes at a time when competing hubs such as Dubai and Singapore have been actively attracting fund managers through favourable tax policies and regulatory incentives. Over the past few years, these cities have seen increased inflows of capital and financial firms, posing a challenge to Hong Kong's traditional dominance in the sector.
While the Financial Services and Treasury Bureau has not officially commented on the proposal, reports indicate that the framework is likely to be introduced soon. The development also reflects a broader strategy by Hong Kong to diversify its financial ecosystem and respond to shifting global investment trends, particularly in emerging areas like digital assets.
Carried interest remains a key component of fund manager compensation, as it links earnings directly to investment performance. Expanding its tax exemption to more asset classes could improve the overall attractiveness of Hong Kong's investment environment and support the growth of alternative asset management sectors.
Source Reuters
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