Hong Kong plans tax cuts on bonus pay to lure top fund managers, sources say

Hong Kong is considering waiving tax on fund managers’ performance bonuses, known as “carried interest”, in a move to attract top investment talent, according to market participants and sources familiar with the plans.

If approved, the reform would make Hong Kong the first major financial centre in Asia to introduce such tax breaks for individuals, potentially drawing high-profile wealth managers and star investors to the city.

“The industry has a lot of excitement over this,” said Eric Lam, an M&A tax services partner at Deloitte. “We are proactively talking to our clients on how to best prepare.”

Hong Kong currently taxes performance bonuses tied to investment returns at up to 17 percent. The proposed changes could prove highly lucrative, especially for top performers who earned more than US$50 million (HK$390 million) in performance-linked bonuses last year amid strong market gains.

The policy would position Hong Kong ahead of Singapore in tax certainty for carried interest and bring it closer to Dubai, where individuals enjoy full income tax exemption.

The Hong Kong government is expected to submit draft legislation to the Legislative Council as early as next month. The tax relief could be backdated to April 1, 2025.

A spokesperson for the Financial Services and the Treasury Bureau said the proposal aims to “reinforce Hong Kong’s competitiveness as the premier asset and wealth management centre in the region” by attracting more funds and family offices.

DRAWCARD FOR STAR MANAGERS

Hong Kong has been actively competing to lure financial professionals. The tax exemption is seen as particularly attractive to senior investment talent.

“For star managers, the individual level treatment matters,” said Kher Sheng Lee, Asia Pacific co-head of the Alternative Investment Management Association. “Senior investment talent is highly mobile, so personal tax certainty can be a real factor in deciding where to base themselves and their teams.”

Only “genuine carried interest” directly tied to fund performance would qualify under the proposal. Fixed salaries and discretionary bonuses would remain taxable.

Reuters

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