Hong Kong has introduced a landmark tax reform package, publishing the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 on 12 June 2026. The legislation aims to strengthen Hong Kong’s position as a global wealth management hub by broadening tax exemptions for funds, family offices, and carried interest, according to the document.
Hong Kong Unveils Expanded Tax Exemptions for Funds and Family Offices
Expanded Definitions and Qualifying Investments
However, the regime excludes income from private companies engaged in trading or developing immovable property in Hong Kong. The existing 5% limit on profits from incidental transactions is also removed, as noted in the Bakermckenzie analysis.
Carried Interest Tax Concessions Broadened
The Bill proposes significant changes to the carried interest tax regime, which currently offers a 0% profits tax rate on qualifying carried interest. The reforms aim to extend this exemption across a wider range of asset classes, including listed securities, derivatives, private credit, and digital assets. The tax break would apply to both corporate and individual entities retroactively from 1 April 2025, according to businesstimes.com.sg.
Under the new rules, performance-linked income for hedge fund managers and private equity fund companies would be exempt from tax, potentially creating a near-zero tax environment
for performance-based compensation. The changes also seek to simplify eligibility criteria, reduce reliance on prior certification, and expand access to fund-of-one structures and family office platforms.
Economic Substance and Reporting Requirements
To qualify for tax exemptions, funds must meet new economic substance requirements. This includes maintaining an adequate number of full-time qualified employees in Hong Kong who carry out investment management activities, as well as sufficient operating expenditures for such purposes. The Bakermckenzie analysis highlights that these measures aim to prevent tax avoidance while ensuring genuine economic activity in the territory.
The regime for family-owned investment holding vehicles (FIHVs) mirrors the updated rules for funds, including the removal of the 5% incidental transaction limit and expanded definitions of qualifying investments. Family-owned special purpose entities (SPEs) will also be treated more flexibly under the revised framework.
Competing with Regional Financial Centers
The reforms position Hong Kong to compete with financial hubs like Singapore and the UAE by offering a more favorable tax framework for asset managers. JDSupra notes that the changes could reshape fund structuring, domicile choices, and compensation arrangements for multinational firms. Analysts suggest the tax incentives may attract talent and capital, particularly for Asia-focused strategies and private credit managers.
Despite these efforts, Singapore remains a strong competitor, with its family office population growing from 400 to over 2,000 between 2020 and 2024. However, Hong Kong’s broader exemptions for digital assets and cryptocurrencies could differentiate it, according to CNBC. As of the end of 2025, Hong Kong had nearly 3,400 single-family offices, reflecting the city’s ongoing appeal to wealthy investors.
