Hong Kong – Carried Interest Tax Concession Regime For Private Equity Funds.

Eligible Carried Interest

• The carried interest must be a profit-related return satisfying the following:

  • (i) the carried interest only arises if there are investment profits;

  • (ii) the interest paid would vary by reference to that profit;

  • (iii) the return to external investors would also be determined by reference to that profit.

• The carried interest must be subject to a hurdle rate.

Qualified Payer

•  Either (i) a certified investment funds; (ii) a company or partnership associated with a certified investment funds; or (iii) the Innovation and Technology Venture Fund Corporation (“IVTF”).

• For HKMA’s guidelines on certification of funds, please see our article on this subject: https://hauzen.hk/hkmas-guideline-on-certification-of-funds-for-carried-interest-tax-concession.

Qualifying Transactions

• The carried interest must arise from private equity transactions e.g. in securities such as stocks, debentures, bonds, or notes issued by private companies.

Qualifying Recipients

• Persons which provide investment management services including (i) SFC licensed corporations/authorised financial institution; (ii) persons providing investment management services in Hong Kong to a qualified investment fund or the IVTF or arranging for such services to be carried out in Hong Kong; (iii) persons who are employed by qualifying persons in (i) and (ii) above or their associated corporation/partnership providing investment management services in Hong Kong to qualified investment funds.

Substantial activities in Hong Kong

During the period of assessment, Qualifying Recipients must demonstrate:-

• Having two or more full time employees in Hong Kong who carry out the investment management services; and

• The total amount of operating expenditure incurred in Hong Kong for provision of the investment management services is HK$2 million or more.