The Asian city has created a new tax regime to encourage private equity and hedge funds. At issue is how far the benefits extend and whether certain activities are still subject to tax. Hong Kong continues to attract business as it competes against rival financial centres.

Hong Kong regulators may extend a new tax regime to trading houses such as Jane Street and Citadel Securities, media reports last week said. However, a government statement suggested that new rules will not cover remuneration paid by proprietary trading firms.

The government’s plan to offer exemptions on taxes paid on performance fees could be expanded to include trading firms. The report was first made by the Financial Times, citing unnamed sources. The tax change was already being planned for private equity firms and hedge funds. Under the proposal, Hong Kong's taxes on qualified carried interest and performance fees at the level of a firm and an individual employee in the city will be cut to zero.

Developments suggest a tilt towards boosting onshore mainland and Hong Kong wealth, and a tilt against Hong Kong's more overt "offshore" status. Beijing has cracked down on Chinese wealthy persons’ use of offshore accounts in Hong Kong and elsewhere raises questions that firms serving such clients might withdraw or pivot to different business lines. On the more "onshore" theme, a new tax regime for the city is a positive story for Hong Kong's wealth and asset management sector. Hong Kong’s vigorous IPO sector has already been a marker of its recovery from the pandemic.

On 12 August, the Financial Services & the Treasury Bureau in Hong Kong said in a statement: “remuneration distributed by proprietary trading businesses does not qualify for tax concessions proposed under the Inland Revenue (Amendment) Bill 2026.”

Hong Kong introduced legislation covering funds, family-owned investment holding vehicles and carried interest in June. Its bill aims to “enhance preferential tax regimes for privately offered funds, family-owned investment holding vehicles managed by single-family offices and carried interest.”

“A key measure involves expanding the scope of the preferential tax regime for carried interest. Beyond currently covered private equity investments, other eligible fund profits may also yield eligible carried interest, qualifying for profits tax and salaries tax concessions,” the government said. 

However, the government added: “Responding to media enquiries, the bureau noted that the preferential regime applies only to eligible carried interest distributed by funds as defined under the Inland Revenue Ordinance (IRO).

“Under the IRO, a fund must generally satisfy the requirement that participating persons do not have day-to-day control over property management. A business trading or holding assets using proprietary capital to generate profits for its own account – commonly known as proprietary trading – fails to meet this definition. Remuneration from such businesses is therefore excluded from the proposed tax concessions,” it said. 

Hong Kong has sought to encourage HNW individuals, family offices and other wealth management groups to the city, for example, with incentives set out in 2023.

The city taxes residents' salaries up to 15 per cent.