Hong Kong is considering extending proposed tax incentives to proprietary trading firms as it seeks to strengthen its position as a global financial centre and compete with Singapore, New York and Miami for high-value investment talent, according to a report by the Financial Times.
The proposed changes could give traders at firms such as Jane Street and Citadel Securities access to tax treatment that would exclude performance-related compensation from taxation, according to people familiar with the discussions.
Officials are weighing whether to amend legislation currently before Hong Kong’s Legislative Council or issue guidance clarifying that eligible proprietary traders can benefit from the incentives. The final scope of the relief has yet to be determined, and not every proprietary trading firm may qualify.
The proposals form part of a broader overhaul unveiled in June that aims to attract more investment funds and family offices to Hong Kong.
At the centre of the reforms is an expansion of Hong Kong’s carried-interest regime.
The territory currently offers favourable tax treatment for qualifying carried interest, but the proposed changes would broaden the range of investments that can qualify beyond traditional private equity transactions.
That could give managers across hedge funds, private equity, venture capital and private credit greater scope to structure performance-related returns more efficiently.
Family offices could also benefit from the changes, potentially strengthening Hong Kong’s appeal to wealthy investors and investment professionals.
Carried interest differs from a conventional discretionary bonus because it represents a contractual share of investment profits linked to the performance of a fund.
The proposed package has consequently been described by industry participants as a potentially transformational overhaul of Hong Kong’s taxation framework for the asset-management sector.
The initiative comes as financial centres compete increasingly aggressively for traders, portfolio managers and other highly paid investment professionals.
Singapore has already been considering its own tax measures in response to Hong Kong’s proposals, reflecting concerns that investment firms and senior professionals could shift operations between the two Asian financial hubs.
The competition is particularly relevant to proprietary trading firms, which have expanded rapidly in recent years. Unlike traditional asset managers, firms such as Jane Street and Citadel Securities generally trade using their own capital rather than managing portfolios on behalf of external investors.
Hong Kong has been seeking to rebuild its financial sector after years of weaker dealmaking following political unrest and the Covid-19 pandemic.
The territory’s initial public offering market has recently regained momentum, helped by major listings from Chinese companies and an increase in international business activity.
Capital flows from mainland China remain a major source of activity, including through the Stock Connect programmes linking Hong Kong with exchanges in Shanghai and Shenzhen.
The tax proposals could further strengthen Hong Kong’s appeal to global trading businesses already expanding their presence in the city.
Jane Street made a significant commitment to Hong Kong last year by agreeing to pay about $4m a month to lease six floors in a new waterfront development.
Citadel Securities, the market-making firm founded by Ken Griffin, is also expanding its Hong Kong operations as it develops additional business lines.
Hong Kong’s Financial Services and the Treasury Bureau has emphasised that the proposed enhanced tax concessions are not restricted to particular categories of funds or asset managers.
Instead, eligibility would depend on whether applicants satisfy the relevant conditions and requirements.
