On June 12, 2026, the Hong Kong SAR Government published the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 in the Gazette. It is expected the Legco will officially pass the Bill into law within 2026.

This milestone legislative update substantially upgrades Hong Kong’s fund tax exemption framework and carried interest tax concessions, securing Hong Kong’s position as Asia's top fund management hub.

Subject to LegCo enactment, the enhancements apply retrospectively from April 1, 2025 (Year of Assessment 2025/26). Importantly, the Inland Revenue Department (IRD) has introduced transitional administrative measures allowing eligible fund managers to file their YA 2025/26 returns directly under these new proposed rules.

Below is a brief summary of the key legislative changes and how they may impact your operations.

Key Legislative Highlights

1. Streamlined Carried Interest Tax Relief (0% Rate)

• • No HKMA Certification: The requirement to obtain HKMA validation before claiming carried interest tax relief has been eliminated.
  • Hurdle Rates Removed: Mandatory hurdle rate criteria have been abolished.
  • Expanded Strategy Coverage: The 0% tax concession for profits tax and salaries tax now applies across broader strategies—including private credit, macro, and hedge funds—covering carried interest linked to all Schedule 16C assets.

2. Expanded "Fund" Definition (Unified Funds Exemption)

• • The definition of an eligible fund now includes single-investor "funds-of-one" holding at least HK$240 million in qualifying investments (where the investor lacks day-to-day managerial control).
  • Pension funds, endowment funds of s.88 charities, and sovereign wealth vehicles are explicitly integrated.

3. Broadened Asset Classes under Schedule 16C

• • Qualifying investments now include private credit and loans (exempting loan interest income), digital assets, non-corporate equity interests (e.g., partnerships), foreign real estate, carbon credits, and insurance-linked securities.

4. Removal of 5% Incidental Income Cap

• • The 5% threshold cap on incidental transactions has been removed. All profits derived from qualifying investments can now be tax-exempt.

Quick Comparison: Legacy vs. 2026 Concession Framework

How We Can Support Your Transition

1. YA 2025/26 Tax Return Review: Evaluating your fund structures and carried interest distribution models to utilize the IRD's transitional filing rules.
2. Private Credit & Fund-of-One Structuring: Structuring direct lending portfolios or bespoke single-investor arrangements to align with the expanded Schedule 16C scope and anti-round-tripping rules.
3. Economic Substance Compliance: Ensuring local presence and operating expenditures meet IRD standards for tax exemption claims.

Please get in touch with our tax advisory team if you would like to schedule a session to review your fund structures under the updated rules.