Hong Kong’s plan to lower taxes for hedge funds has prompted maneuvers in the financial sector, with concerns about outflows of traders and firms turning front-desk staff into investor relations directors to maximize potential tax benefits, Bloomberg reported on Tuesday.
The government submitted the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 in June this year, which aims to enhance the preferential tax regimes for privately offered funds, family-owned investment holding vehicles managed by eligible single family offices and carried interest.
The goal is to attract more funds and family offices to establish a presence in Hong Kong. Carried interest – a share of investment profits – can translate into substantial earnings for star fund managers.
Although still under review, the bill has sparked lobbying in Hong Kong's financial sector. Trading firms seek inclusion in the concession, but a government statement seems to exclude them. Family office managers are clarifying eligibility. Some small hedge funds may amend contracts for tax-exempt staff bonuses.
Currently, asset managers and wealth management institutions oversee approximately US$5.4 trillion in assets in Hong Kong, with the financial sector accounting for about a quarter of local economic activity.
One law firm partner noted a significant increase in inquiries about Hong Kong licensing applications. In recent weeks, fund managers from the Middle East, Greater China, and other parts of Asia, as well as family offices from mainland China and Europe, have consulted him about setting up licensed entities and funds in Hong Kong.
The move also challenges Singapore and Dubai, which have been actively courting asset management firms. Singapore is also considering tax relief schemes for hedge funds and asset managers after consultations. Many fund managers are waiting for final rules from Hong Kong and Singapore before making decisions.
Hong Kong's bill proposes expanding eligible investments for tax concessions, clarifying special purpose entities, and establishing a new reporting mechanism for certain funds. However, the tax deduction on carried interest remains the most prominent, as well as the potentially lucrative rewards for employees.
