On 29 January 2021, the Hong Kong’s Government published the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021 (the Bill) in the Gazette. The Bill aims to amend the Inland Revenue Ordinance (Cap. 112) to provide tax concessions for carried interest distributed by eligible private equity (PE) funds operating in Hong Kong.
PE funds play a pivotal role in channelling capital, talents and expertise into corporations, in particular start-ups in the innovation and technology sector. The proposed tax concessions for carried interest shall attract more PE funds to operate and be managed in Hong Kong, boost more investment management and related activities which will create business opportunities in related professional services and bring economic benefits to Hong Kong.
Qualifying carried interest recipients have to provide investment management services in Hong Kong and fulfil substantial activities requirements. For tax concessions to apply, carried interest must arise from eligible transactions in private companies and be distributed by a fund certified by the Hong Kong Monetary Authority or the Innovation and Technology Venture Fund Corporation set up by the Government. Broadly speaking, carried interest refers to a return linked to the performance of an investment of a PE fund, typically upon the disposal of the investment after it has been held for a period of time. The Bill was supposed to be introduced into the Legislative Council for first reading on February 3.
