Hong Kong Private Equity: 0% tax rate for carried interest - legislation enacted

On 7 May 2021, the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Ordinance (Carried Interest Ordinance) was gazetted and came into effect.

The Carried Interest Ordinance amends the Inland Revenue Ordinance (Cap. 112) to introduce a concessionary 0% tax rate for ‘carried interest’ paid by eligible private equity (PE) funds operating in Hong Kong to their managers. The concessionary tax treatment applies retroactively to eligible carried interest received by or accrued to qualifying PE fund managers on or after 1 April 2020.

No amendments were made to the draft legislation during its passage through the Legislative Council. Our client briefing on the draft legislation is available here.

The 0% tax rate for carried interest is the latest initiative in a drive by the government to consolidate Hong Kong’s position as Asia’s premier fund hub for PE, making it comparable with offshore jurisdictions.

This follows the new unified profits tax exemption for privately offered funds (effective from 1 April 2019) and the new limited partnership fund regime (effective from 31 August 2020), which are discussed in our client briefing available here.

This means that Hong Kong now has: (i) a PE fund vehicle; (ii) tax exemptions at PE fund level; and (iii) tax concessions at PE fund manager level, to rival offshore jurisdictions.