Hong Kong is preparing to introduce legislation that would significantly reduce the tax burden on performance-based compensation for hedge fund professionals and other alternative asset managers, according to a report by Bloomberg.
The move is aimed at strengthening the city’s competitiveness as an international financial centre.
The proposed bill, expected to be presented to the Legislative Council, would expand tax exemptions on carried interest – the share of investment profits allocated to fund managers – to a broader range of investment strategies and asset classes.
Industry participants say the changes could boost take-home pay for hedge fund portfolio managers and investment professionals based in Hong Kong by removing taxes currently applied to certain performance-related earnings.
According to Darren Bowdern, KPMG’s head of asset management tax for Asia, the proposed exemption would extend favourable tax treatment to eligible hedge fund performance fees, enhancing the city’s ability to attract and retain investment talent.
The initiative forms part of a wider effort by Hong Kong authorities to reinforce the territory’s appeal to global investors, asset managers and wealthy individuals. Recent measures have included regulatory reforms for family offices, support for digital asset initiatives and proposals to streamline rules governing investment funds.
Adam Williams, managing director at Alvarez & Marsal, said the planned changes would broaden the availability of carried interest exemptions across major asset classes, creating additional incentives for investment management activities to be based in Hong Kong.
Under the proposal, qualifying carried interest earned by both corporate entities and individuals would receive tax relief, with the measures applying retrospectively from 1 April 2025.
At present, performance-linked fees can be taxed at rates ranging from 15% to 16.5%, while management fee income generally remains subject to Hong Kong’s 16.5% corporate tax rate. Private equity managers already benefit from a carried interest exemption, but the new framework would extend similar treatment to a wider segment of the alternative investment industry.
