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In brief

The Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Bill 2021 (“Bill”) was published in the Gazette today. The Bill sets forth the legislative framework for granting concessionary tax treatment to carried interest received by or accrued to fund managers and their employees, and is in line with the proposals put forward by the government in its August 2020 consultation paper as well as in the discussion paper issued by the Legislative Council Panel on Financial Affairs earlier this month.

Further to our client alerts published in August 2020 and January 2021 detailing the parameters and eligibility criteria of the concession, we set forth in this alert other features newly introduced in the Bill, which are worthy of note. We will provide a more detailed alert summarizing the features of the Bill at a later date.

The Bill adopts all the features mentioned in the discussion paper issued earlier this month. For the purposes of this alert, we set out other notable features of the concessionary regime that are further elaborated in this Bill.

  • Application. The concession will have retrospective effect and will apply to eligible carried interest received by or accrued to qualifying persons on or after 1 April 2020. However, the Bill makes it clear that the concession will not apply to carried interest accrued before 1 April 2020, even if it is only received after 1 April 2020.
  • Form of the tax concession. For profits tax purposes, the concession will take the form of a 0% profits tax rate on the net eligible carried interest received or accrued. For salaries tax purposes, remuneration paid by qualifying fund managers to their employees for work performed in securing the eligible carried interest received will also not be subject to salaries tax.
  • Eligible carried interest. In addition to the requirements that the carried interest must be profit-linked and must only be payable subject to fulfillment of the hurdle rate under the terms of the agreement governing operation of the fund, the Bill additionally provides that to the extent there is no significant risk that the amount would not be received or accrued, such amount is not to be regarded as eligible carried interest. Any risk that the amount would be prevented from being received or accrued (by reason of insolvency or otherwise) will for this purpose be ignored.
  • Qualifying person. Under the Bill, fund managers may only qualify for the tax concession if they carry out investment management services, or arrange for such services to be carried out, in Hong Kong from the day they start providing such services to the fund, to the day when they receive the carried interest (“Applicable Period”). The investment management services must also not be partially carried on through a permanent establishment which the fund manager has outside of Hong Kong.

Employees, on the other hand, may only qualify for the concession if they are employed by a qualifying fund manager or an associate of such qualifying fund manager who carries on a business in Hong Kong. The employee himself must also provide investment management services in Hong Kong to qualify for the tax concession. The salaries tax concession only applies to the extent that the amount received by the employee is paid out of eligible carried interest that is exempt from profits tax under the concession. Fund managers and employees wishing to take advantage of the tax concession should take care to ensure that the terms of employment are appropriately drafted and relevant documentation is maintained to establish the nexus between payments to employees and the carried interest.

  • Substantial activities requirement. Under the discussion paper, it was suggested that the fund manager must have on average two full-time employees in Hong Kong who carry out investment management services, and incur expenditures of HKD 2 million in Hong Kong in providing the investment management services for each year of assessment in which the concession is sought to be claimed. The Bill clarifies that these conditions must be satisfied during the entire Applicable Period. In addition, even if the conditions are satisfied, the Inland Revenue Department (IRD) may still disallow the concession if it considers that the average number of full-time employees and the total amount of operating expenditure incurred are inadequate.
  • Detailed information and record retention requirements. The Bill contains detailed information and record retention requirements. Qualifying fund managers must, for instance, provide information relating to any eligible carried interest which it receives, and details regarding employees who receive eligible carried interest, to the IRD, and retain sufficient records to enable the accuracy and completeness of payments or accruals of carried interest to be ascertained for a seven-year period. Qualifying payers (i.e., certified investment funds and other qualifying payers) are also subject to similar record retention requirements. Failure by qualifying payers to do so may render any carried interest which they pay ineligible for the tax concession.
  • Anti-avoidance provision. The Bill also includes a new specific anti-avoidance provision which applies to arrangements that have as one of their main purposes the obtaining of a tax benefit under the carried interest tax concession, whether for the person or any other person. This intends to serve as a catch-all to prevent abuse of the rules, such as where an arrangement has been disguised as an eligible carried interest scheme that satisfies all of the specified conditions. The need for this rule is questionable given the scope of this specific anti-avoidance rule appears to overlap with the general anti-avoidance provision.
  • Right to seek advice from the HKMA. We also note that under the Bill, the IRD is expressly empowered to seek advice from the Hong Kong Monetary Authority in respect of any matter relevant to a person’s entitlement to the tax concession.

Pierre Chan is a partner in Baker McKenzie's Hong Kong office. He advises multinational companies, financial institutions, insurance companies as well as investment funds on income tax and stamp duty issues. He also advises wealthy families in relation to their succession planning. Over the years, Pierre has advised and represented taxpayers in relation to various major tax disputes in Hong Kong.


Jason Ng is co-Chair of Baker McKenzie's Global Investment Funds Group. Jason is also the Head of the Financial Services practice for the Firm's Hong Kong, China and Singapore offices. Jason graduated from the National University of Singapore with an LL.B., and is admitted as a solicitor in Hong Kong, England and Wales, and Singapore.


Steven Sieker practices exclusively in the area of tax law, and is recognized as a leading individual in tax as well as private client and wealth management by Chambers Asia Pacific, Citywealth Leaders List and Guide to the World’s leading Tax Advisers. He has authored a wide range of key articles and publications, including the Hong Kong volume of the CCH series Tax Planning and Compliance in Asia. He is a member of the Society of Trust and Estate Practitioners (STEP), and was an executive director of STEP and the Canadian Chamber of Commerce in Hong Kong. Steven is admitted as a solicitor in Hong Kong, England and Wales (non-practising), and is qualified as a barrister and solicitor in Alberta, Canada.


Edwin Wong is a partner in Baker McKenzie’s Funds group and specialises in advising clients on the formation of a broad spectrum of private investment funds, including private equity, real estate, infrastructure, venture capital, debt and clean energy funds.


Carrie Lui is a special counsel in Baker McKenzie Hong Kong office. She is experienced across a broad range of sectors and industries. Carrie's tax knowledge is complimented by her experience working as a tax lawyer in New Zealand prior to joining Baker McKenzie.
Carrie is also a regular speaker and panelists in major client conferences of the Firm.