It is reported that Hong Kong plans to significantly revise the laws related to contingent rights, and asset management companies' performance fees may be completely tax-exempt

According to the Financial Times, Hong Kong is planning to significantly revise the legislation related to carried interest, which may allow many asset management companies to earn performance fees without paying any taxes.

The report indicates that a bill soon to be submitted to the Legislative Council for review will qualify profits from a wide range of investment categories for tax treatment as carried interest, rather than being limited to private equity transactions.

This change means that managers of hedge funds, private equity, venture capital, private credit, and even family offices can further reduce their already low tax bills in Hong Kong through structured arrangements. The report cites three informed sources revealing that Hong Kong aims to align itself with hubs like Dubai in the UAE, re-establishing its recovery as a global financial center post-pandemic.

A person familiar with the proposal stated that this has the potential to be a "Big Bang" in tax reform. If everything goes through, it will have a huge impact.

"Carried interest" refers to the portion of profits from private equity funds that is distributed to general partners responsible for managing the fund after returns exceed a certain threshold (often 20%).

In many countries, carried interest is treated as capital gains rather than ordinary income, thus enjoying tax benefits. Hong Kong has a 0% preferential tax rate on carried interest, but the applicable conditions are limited, with industry experts describing the current regulations as "burdensome."

According to the proposal, profits generated from various assets, including securities, derivatives, cash, and deposits, can constitute carried interest, thereby qualifying for the zero tax rate regime.

A spokesperson for the Hong Kong Financial Services and the Treasury Bureau responded that the government proposes to optimize the tax incentive system for funds, single family offices, and carried interest. The spokesperson stated that the reform aims to strengthen Hong Kong's competitiveness as the region's primary asset and wealth management center and attract more funds and family offices to establish and operate in Hong Kong. The spokesperson confirmed that the government plans to submit the amendment by mid-2026 and emphasized that bonuses and payments linked to general services "will continue to be taxed at the normal profits tax rate."