Hong Kong is on the verge of implementing major tax reforms to exempt performance bonuses, known as "carried interest," for fund managers. This move is designed to attract top wealth managers and star investors to the city by offering tax relief on these bonuses, which can amount to millions of dollars for top performers. The proposed changes would make Hong Kong the first major financial center in Asia to introduce such tax breaks for individuals on performance bonuses.
The tax relief is expected to be backdated to April 1, 2025, and could benefit investment professionals across thousands of funds, including portfolio managers, traders, and analysts. Currently, Hong Kong taxes these performance bonuses at up to 17%. The Financial Services and Treasury Bureau (FSTB) stated that the plan aims to "reinforce Hong Kong’s competitiveness as the premier asset and wealth management centre in the region." Only "genuine carried interest" tied to fund performance would qualify, distinguishing it from fixed pay and discretionary bonuses.
This initiative comes as Hong Kong seeks to challenge rival financial hubs like Singapore and Dubai, which have attracted fund and wealth managers with favorable tax benefits. While Singapore taxes salaries up to 24% and corporate profits between 17% and 32.5%, Hong Kong currently has a 15% standard personal tax and a 16.5% corporate profits tax. The proposed tax exemption on carried interest for individuals and corporations would further reduce the tax burden, making Hong Kong more competitive.
The legislation, expected to be submitted to the Legislative Council in June, would also broaden existing tax exemptions to cover a wider range of investment assets, including private credit, digital assets, and overseas real estate. This expansion, along with the carried interest tax relief, aims to attract more funds and family offices to establish and operate in Hong Kong. Experts believe this change will significantly impact the mobility of senior investment talent and position Hong Kong favorably against global financial centers.
