The government has proposed tax concessions for carried interest distributed by eligible private equity funds operating in Hong Kong, including exemption from profits tax and salaries tax.
In this regard, the government published the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021 in the Gazette of 29 January 2021.
Carried interest refers broadly to a return linked to the performance of an investment of a private equity fund, typically upon the disposal of the investment after it has been held for a period of time. The Bill exempts eligible carried interest from profits tax, while 100% of eligible carried interest will be excluded from employment income for the calculation of salaries tax. In addition, the Bill also proposes to expand the classes of assets that may be held and administered by a special purpose entity on behalf of a fund for the purpose of a profits tax exemption regime for funds, with a view to facilitating the operation of funds in Hong Kong.
The Bill will be introduced into the Legislative Council for first reading on 3 February 2021.