Hong Kong’s Proposed Fund and Family Office Tax Enhancements: Why Structure, Substance and Reporting Need Early Review

Hong Kong has proposed amendments to enhance the preferential tax regimes for privately offered funds, family-owned investment holding vehicles (FIHVs) managed by eligible single family offices, and carried interest. The Inland Revenue amendment Bill was gazetted on 12 June 2026 and was scheduled for first reading in the Legislative Council on 24 June 2026.

The proposals may create broader opportunities for funds and family offices, but they also reinforce the importance of aligning investment assets, legal structure, accounting records, local substance and tax reporting. The Bill should not be treated as enacted or effective until the legislative and commencement stages are officially completed.

A broader investment scope is proposed

The Bill proposes expanding the definition of a fund to cover specified additional structures, including certain pension and endowment funds and eligible single-investor arrangements. It would also broaden qualifying investments to include, among other items, overseas immovable property, carbon-related assets, insurance-linked securities, interests in non-corporate private entities, loans, digital assets, precious metals and specified commodities, subject to the proposed conditions and anti-avoidance rules.

The existing 5% threshold for incidental transactions would be removed. The proposals also seek to relax the treatment of special purpose entities (SPEs) and expand the activities they may undertake in connection with investments. These changes do not mean that every asset, entity or return will automatically qualify; the detailed conditions, exclusion rules and anti-round-tripping provisions remain important.

Family office and carried-interest arrangements may need structural review

Similar enhancements are proposed for the FIHV regime, including qualifying investments, family-owned SPE treatment and the calculation of the aggregate value of qualifying investments managed by an eligible single family office. The current HK$240 million minimum aggregate value remains a relevant threshold in the proposed framework.

For eligible carried interest, the Bill proposes removing the Hong Kong Monetary Authority certification requirement, broadening qualifying payers and transactions, and accommodating additional payment structures. The actual treatment will still depend on the final legislation and the facts of each arrangement.

Reporting and economic substance are central to readiness

The Bill proposes a tax-reporting mechanism for funds and their SPEs benefiting from the enhanced unified fund exemption. Fund managers or authorised representatives would provide specified accounting data and information demonstrating compliance with exemption conditions and economic-substance requirements.

The proposed minimum substance thresholds include at least two qualified employees and at least HK$2 million of annual operating expenditure in Hong Kong, while both must also be adequate in the Commissioner of Inland Revenue’s opinion. The Legislative Council Brief states that details of the reporting arrangements will be issued by the Inland Revenue Department after enactment, with a transitional filing extension proposed for the first implementation year, 2025/26.

Professional review should precede restructuring or tax reliance

Before relying on any proposed concession, a fund or family office may need to map its entities and beneficial ownership, confirm the nature and location of investments, reconcile accounting data across funds and SPEs, assess local employment and expenditure, and document who is responsible for reporting. This is a professional review exercise rather than a do-it-yourself filing checklist.

HKBSCL can assist with company and entity-structure review, accounting-record readiness, economic-substance documentation, tax-compliance coordination and ongoing company-secretarial support. Complex fund, investment, regulatory or cross-border tax questions may also require appropriately qualified legal, tax or investment advisers.

Update on 12 August 2026: Government clarifies carried-interest scope

The Financial Services and the Treasury Bureau clarified that the Bill remains under scrutiny by the Legislative Council Bills Committee. Clause-by-clause examination has been completed, and the Government targets resumption of the second reading debate in the second half of 2026. The measures are therefore not yet enacted or in force. Subject to passage, the relevant measures are proposed to take effect from the year of assessment 2025/26.

The clarification draws an important boundary around the proposed carried-interest concession:

• The concession applies to eligible carried interest distributed by a “fund” as defined in the Inland Revenue Ordinance. Participating persons generally must not have day-to-day control over management of the property.
• A business undertaking for general commercial or industrial purposes is not a “fund”. A proprietary trading business that trades or holds assets using its own capital for its own profit falls outside that definition, so remuneration distributed by it would not qualify under the proposed concession.
• Eligible carried interest must be linked to a fund’s investment performance, be determined under the governing or investment-management agreement, and be non-discretionary in nature.
• Whether employee remuneration qualifies depends on whether the employee’s duties, in substance, constitute investment management services and whether the other conditions are met.

The Government also said it does not plan to expand the preferential measures beyond the stated legal framework. IRD will issue administrative guidance where necessary after the legislation is finalised. Funds, managers and family offices should therefore avoid relying on labels alone and should wait for the final legislation and implementation guidance before taking a tax position.

Official sources

• IRD / FSTB clarification on carried interest (12 August 2026): https://www.ird.gov.hk/eng/ppr/archives/26081201.htm
• HKSAR Government — Bill gazetted: https://www.info.gov.hk/gia/general/202606/12/P2026061200200.htm
• Legislative Council Brief: https://www.legco.gov.hk/yr2026/english/brief/asst315c2026_20260610-e.pdf

Disclaimer

This article is for general information only and does not constitute tax, accounting, legal or investment advice. The proposals remain subject to the legislative process, final wording and commencement arrangements. Professional advice should be obtained for each case. HKBSCL does not guarantee eligibility, tax exemption, filing acceptance or regulatory outcomes.