Welcome to Part 2 of our series on Hong Kong’s 2024 tax updates! In this video, we explore key enhancements to the carried interest tax concession regime, family investment holding vehicles, and additional compliance measures. Learn about the expanded scope for carried interest, flexible distribution structures, and full tax exemptions for family offices. We also cover new measures for simplifying tax qualifications and ensuring transparency.

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Hong Kong Tax Regime Enhancements - Part 2

Welcome to Part 2 of our series on Hong Kong’s tax regime enhancements. This section will cover carried interest tax concessions, family investment holding vehicles, and key compliance updates.

The carried interest tax concession regime is also undergoing significant changes as part of the 25 November 2024 consultation paper. Eligible carried interest now covers profits from all Schedule 16C assets, not just private equity, alongside offshore income and other taxable income.

Distribution arrangements have also been made more flexible. The requirement for carried interest payments to flow through a qualifying person has been removed, accommodating diverse distribution structures. Additionally, the hurdle rate requirement, which had previously been a condition for tax benefits, has been eliminated. These updates reflect the government’s understanding of the diverse investment strategies and operational needs of modern funds.

The consultation paper also outlines enhancements for Family Investment Holding Vehicles. Under the new rules, Special Purpose Entities with 95% or more ownership by an exempt fund will enjoy full tax exemption on profits from qualifying transactions. This simplifies compliance for family offices operating in Hong Kong.

Moreover, the scope of activities for these entities has been expanded to include acquisition, holding, and disposal of assets, as well as investments in non-corporate private entities. These updates, scheduled for industry consultation until 3 January 2025, aim to attract more family offices to Hong Kong, strengthening the city’s role as a premier wealth management hub.

Several additional measures were proposed in the November 2024 consultation paper. The control test and short-term asset test, which previously restricted tax exemptions, have been removed, simplifying qualifications. A new tax reporting mechanism is also being introduced to ensure transparency and meet international standards. The deeming provisions for resident investors have been relaxed to encourage investment while tighter rules for financial entities prevent potential tax avoidance. These updates strike a balance between regulatory compliance and maintaining Hong Kong’s competitive edge as a global financial hub.

These tax regime enhancements reflect Hong Kong’s dedication to fostering innovation and maintaining its position as a global financial hub. If you have thoughts or questions, feel free to share them in the comments or reach out to your tax advisor for tailored advice. The consultation period remains open until 3 January 2025, and your feedback can shape the final implementation. Don’t forget to subscribe for more updates. Thank you for watching.