Hong Kong Private Equity Funds to Have 0% Tax for Carried Interest
7th May 2021 | Hong Kong
Hong Kong eligible private equity funds will have 0% tax for carried interest, with eligible private equity funds and carried interest recipients to benefit retrospectively, on or after 1st April 2020. With the 0% tax concession for carried interest, Private Equity fund managers can now look to setup Hong Kong fund structures, instead of using popular offshore jurisdictions with 0% tax such as Cayman Islands, British Virgin Islands (BVI), Bermuda and Luxembourg.
” Hong Kong Private Equity Funds to Have 0% Tax for Carried Interest “
Carried interest refers to the performance fees on top of the management fee. In a $100 million fund with 2% + 20% structure, the management fee will be $2 million (2%) and carried interest will be 20% of profit (performance).
If the fund doubles to $200 million, the returns will be $100 million and the private equity fund will receive $20 million. With the 0% tax concession, the private equity managers do not have to pay any tax on the $20 million they received as carried interest (performance).
Related:
- China Regulators Set $23.2 Billion Quota for Greater Bay Area Wealth Management Connect
- 150 Stocks Suspended Trading on Hong Kong Stock Exchange for Missing Filing Deadline
- The 2021 Global Financial Centres Index 29 Report
More:
- $342 Billion Investment Firm KKR Raises $15 Billion for Asia Fund
- Indonesia President Jokowi Targets $200 Billion Sovereign Wealth Fund
- Monetary Authority of Singapore and Industry Group Launches New Asset Management Industry Group – SFIG
Hong Kong, Hub for Private Equity Funds
The 0% tax rate for carried interest will attract private equity funds in using Hong Kong to setup their funds and to manage their investments. The most popular offshore jurisdictions with 0% tax includes Cayman Islands, British Virgin Islands (BVI), Bermuda and Luxembourg. (The corporate tax rate in Hong Kong is 16.5% corporate tax)
Tax Concessions for Carried Interest – Bill Passed & Gazetted
The Hong Kong Inland Revenue amendment of the Inland Revenue Ordinance (Cap. 112) – “Tax Concessions for Carried Interest” Bill 2021 was passed on the 28th April 2021 and gazetted on 7th May 2021.
Qualifying carried interest recipients have to fulfil substantial activities requirements, including the number of qualified full-time employees and operating expenditure incurred in Hong Kong.
The Bill also expands the classes of assets that may be held and administered by a special purpose entity on behalf of a fund for the purpose of profits tax exemption regime for funds, with a view to facilitating the operation of funds in Hong Kong.
The concessionary tax treatment of 0%, will apply to eligible carried interest received or accrued to qualifying carried interest recipients on or after 1st April 2020.
Hong Kong Secretary for Financial Services and the Treasury, Mr Christopher Hui:
“The tax concession regime for carried interest would attract more private equity funds to operate and be managed in Hong Kong, thus boosting more investment management and related activities, which will bring business opportunities to various professional services and economic benefits to Hong Kong.”
Related:
- China Regulators Set $23.2 Billion Quota for Greater Bay Area Wealth Management Connect
- 150 Stocks Suspended Trading on Hong Kong Stock Exchange for Missing Filing Deadline
- The 2021 Global Financial Centres Index 29 Report
More:
- $342 Billion Investment Firm KKR Raises $15 Billion for Asia Fund
- Indonesia President Jokowi Targets $200 Billion Sovereign Wealth Fund
- Monetary Authority of Singapore and Industry Group Launches New Asset Management Industry Group – SFIG
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