Hong Kong Gazettes Bill to Expand Tax Exemptions for Funds and Family Offices

Secretary for Financial Services and the Treasury Christopher Hui Ching-yu stated that tax treatment is often a primary consideration for funds and family offices when deciding where to establish a presence. The first reading of the Bill is scheduled for 24 June 2026 at the Legislative Council Hubbis reported.

Expanded Definitions and Qualifying Investments

To reflect modern investment strategies, the scope of qualifying investments has been expanded to include:

• Digital assets and carbon credits, emission allowance, and derivatives.
• Immovable property located outside Hong Kong.
• Loans and equity interests in non-corporate private entities, such as partnerships.
• Precious metals and insurance-linked securities.
• Commodities incidental to the trading of futures contracts or OTC derivative products.

Additionally, the Bill removes the previous 5% limit on profits derived from incidental transactions. However, a new exclusion list (Schedule 16L) will carve out specified income from tax exemptions, specifically income from private companies engaged in developing or trading immovable property within Hong Kong according to Hubbis.

Family Office and FIHV Reforms

The tax regime for FIHVs, which is largely modeled on the unified funds exemption regime, will see the removal of the 5% incidental transaction limit and the same expansion of qualifying investments. A significant change involves the minimum asset threshold; the Net Asset Value Rule is being replaced by a more flexible “asset value” concept. Under this new rule, shareholders’ loans to the FIHV will not be deducted when calculating the relevant value Hubbis reported.

The Bill also expands tax exemption treatment for FIHVs and family-owned special purpose entities (FSPEs) regarding disposal gains from equity interests in investee entities, rather than just shares in companies, provided certain tests are met. Furthermore, anti-roundtripping rules are being refined to attribute profits of FSPEs and FIHVs to certain Hong Kong-based entities, such as insurers and money lenders.

Economic Substance and Carried Interest

To prevent misuse and ensure compliance with international tax transparency standards, the government is introducing economic substance and reporting requirements. For the unified funds exemption regime, Christopher Hui said these requirements include spending HK$2 million annually on operations in Hong Kong and employing at least two qualified employees Thestandard.

The Bill also proposes enhancements to the carried interest regime, which currently offers salaries tax concessions for qualifying employees and profits tax exemptions for qualifying persons providing investment management services. The reforms aim to extend these concessions beyond private equity to include performance-linked returns from private credit, derivatives, listed securities, and other alternative assets JD Supra noted.

Implementation Timeline

The proposed enhancements are intended to take effect retrospectively starting from the 2025/26 year of assessment. As a transitional measure, eligible taxpayers may submit their tax returns for the 2025/26 year on the basis of these proposed exemptions or concessions EY reported.