Hong Kong is considering scrapping tax on performance-linked bonuses for fund managers as it seeks to attract investment talent, reported Reuters citing sources familiar with the plans.
The proposal centres on carried interest, the share of profits earned by fund managers when investments perform well.
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If introduced, the measure would make Hong Kong the first major financial centre in Asia to offer tax relief to individuals on carried interest.
At present, Hong Kong taxes such income at rates of up to 17%.
The change could be particularly valuable for senior investment professionals. Industry sources told Reuters that, after market gains last year, several fund managers in Asia received more than $1m in performance-related bonuses. Top earners were said to have made more than $50m.
Hong Kong’s deputy financial secretary, Michael Wong Wai-lun, said at a conference this week that draft legislation could be submitted to the Legislative Council as early as next month.
According to Eric Lam, an M&A tax services partner at Deloitte, and another person familiar with the policy, the relief could be backdated to 1 April 2025.
“The industry has a lot of excitement over this,” Lam told the news agency. “We are proactively talking to our clients on how to best prepare.”
Lam said the changes under consideration would give Hong Kong an edge over Singapore on tax certainty for carried interest and bring it closer to Dubai, where individuals do not pay income tax.
He added that Deloitte has been involved in government consultations on the proposals and has recently held seminars with asset managers in Beijing, Shanghai and Hong Kong.
A spokesperson for the Financial Services and Treasury Bureau told Reuters the tax plan is intended to “reinforce Hong Kong’s competitiveness as the premier asset and wealth management centre in the region”.
The spokesperson added that the proposal would help attract more funds and family offices to establish and operate in the city.
Hong Kong has been trying to draw more finance professionals across sectors, including asset management.
Last week, Boston Consulting Group ranked Hong Kong ahead of Switzerland as the world’s largest cross-border wealth hub.
The proposed exemption could benefit investment staff working across thousands of funds in Hong Kong, including portfolio managers, traders and analysts. It could also encourage senior investors at global firms to relocate.
“For star managers, the individual level treatment matters,” said Kher Sheng Lee, the Asia Pacific co-head of the Alternative Investment Management Association.
“Senior investment talent is highly mobile, so personal tax certainty can be a real factor in deciding where to base themselves and their teams,” he added.
The tax relief would not apply to all forms of pay.
The Financial Services and Treasury Bureau said only “genuine carried interest” would qualify under the proposal. Fixed salaries and discretionary bonuses would remain taxable.
“There is a risk element,” Lam said. “It has to be tied to the fund’s performance,” as assessed by a method reflecting the volatility of the investment, he added.
