carried interest tax concession

A tax concession is proposed for carried interest issued by private entity PE funds operating in Hong Kong. Given tax treatment is one of the key factors influencing the choice of jurisdiction for fund domiciliation and operations it is announced in the 2020- 21 Budget Speech that the Government plans to provide tax concession for carried interest distributed by PE funds operating in Hong Kong.

Introduction Of Carried Interest Tax Concessions For Hong Kong Private Equity Funds

Eligible carried interest distributions are to be taxed at a 0 rate.

. Applying retrospectively to tax years commencing on or after 1 April 2020 the Amendment Ordinance has essentially transformed Hong Kong into one of the most tax efficient jurisdictions for fund. Qualifying carried interest broadly includes carried interest received from gains from investments in private companies. Following the governments consultation paper issued in August 2020 and the industry consultation on the initial proposals the Legislative Council LegCo Panel on Financial Affairs released a discussion paper on 4 January 2021 on the proposed tax.

A tax concession should be provided for carried interest arising from eligible transactions of a fund subject to meeting spe cified conditions. 11 rows As part of a longstanding Government policy to attract private equity PE and investment fund. The Inland Revenue Amendment Tax Concessions for Carried Interest Ordinance 2021 Ordinance was enacted into law on 7 May 2021 by way of amendment to the Inland Revenue Ordinance IRO.

Key points from the Proposal. Hong Kong enacted the Inland Revenue Amendment Tax Concessions for Carried Interest Bill 2021 the New Law on 7 May 20211 The New Law provides a tax regime offering tax incentives for eligible carried interest of qualifying persons and qualifying employees. Furthermore the Proposal clarifies that 100 of eligible carried interest would also be excluded from the employment income for the calculation of the investment professionals salaries tax.

To be eligible for the Tax Concession the carried interest must be distributed by a fund which falls within the meaning of fund under section 20AM of. The Government has spared no efforts in developing Hong Kong as a premier PE fund hub. The New Law applies to eligible carried interest received or accrued on or after 1 April 2020.

Only carried interest distributed out of tax-exempted qualifying transactions in private equity investments ie shares stocks debentures loan stocks funds bonds or notes of or issued by a private company under Schedule 16C of the Inland Revenue Ordinance would be eligible for the tax concession. Under this new concession eligible carried interest received or accrued on or after from 1 April 2020 will be subject to zero percent profits tax. Under this new concession eligible carried interest received or accrued on or after from 1 April 2020 will be subject to zero percent profits tax.

Hong Kongs 0 Tax Concession for Carried Interest. Following its proposal to introduce a concessionary tax rate for carried interest earned from Hong Kong private equity funds on January 4 2021 the Hong Kong Government announced that eligible carried interest will be charged at a profits tax rate of 0 and that 100 of eligible carried interest will be excluded. The Regime operates to provide tax concession at both the salaries tax and profits tax levels.

Eligible Carried Interest will be taxed at 0 profits tax rate. On 7 May 2021 the Inland Revenue Amendment Tax Concessions for Carried Interest Ordinance 2021 the Amendment Ordinance was enacted into law. The tax concession regime for carried interest distributed by eligible private equity funds operating in Hong Kong alongside the enhancements to the profits tax exemption that was initially introduced in April 2019 offer additional strong incentive and an attractive tax framework for fund operators to establish and operate private equity funds in Hong Kong while.

Eligible carried interest recipients. At the meeting of the Executive Council on 26 January 2021 the Council ADVISEDand the Chief Executive ORDEREDthat the Inland Revenue Amendment Tax Concessions for Carried Interest Bill 2021 the Bill at Annex A should be introduced into the Legislative Council LegCo to. As a prerequisite to the concessionary tax regime the eligible carried interest must arise from profits on the in-scope transactions 2 of private equity PE funds which are exempt from profits tax under the Unified Fund Exemption Regime UFR.

They provide for a 0 tax rate for qualifying carried interest further to the. The concessional tax treatment for carried interest is now effective from 1 April 2020 and will provide for a 0 tax rate for qualifying carried interest. The tax concession involves a number of conditions that must be satisfied for a carried interest to qualify for the concession.

January 11 2021. These include being a qualified recipient the need to comply with headcount and operating expenditure substance requirements as well as the need for the fund be certified by the Hong Kong Monetary Authority and the Inland Revenue. For qualifying persons who are subject to profits tax and for qualifying employees subject to salaries tax.

Hong Kong has historically not been an attractive jurisdiction-of-choice for fund sponsors when it comes to choosing the domicile of their private equity funds and establishing its funds management business. For tax concessions to apply carried interest must arise from eligible transactions in private companies and be distributed by a fund certified by the Hong Kong Monetary Authority or the Innovation and Technology Venture Fund Corporation set up by the Government the spokesperson added. The Inland revenue Amendment Tax Concessions for Carried Interest Bill 2021 confirms that.

On 7 May 2021 the Inland Revenue Amendment Tax Concessions for Carried Interest Ordinance came into operation introducing the much-anticipated Carried Interest Tax Concession Regime the Regime. The proposal states that the tax concession only applies to carried interest distributed by PE transactions only. The Inland Revenue Amendment Tax Concessions for Carried Interest Ordinance 2021 Ordinance was enacted into law on 7 May 2021 by way of amendment to the Inland Revenue Ordinance IRO.

The proposal does not specify the tax concession rate but notes it will be highly competitive. With some expectation a gain on an investment in a public company or from any other non. Received a preferred return at an annual rate of 6 compound interest that would also be considered carried interest.

Under the Carried Interest Tax Concession Regime eligible carried interest will be taxed at 0 profits tax rate and all of the eligible carried interest would also be excluded from the employment income for the calculation of the investment professionals salaries tax. Inland Revenue Amendment Tax Concessions for Carried Interest Bill 2021. Treatment for carried interest in Hong Kong.

However coupled with various other reforms in the recent years. Tax concession rate The Proposal provides that eligible carried interest would be charged at a 0 profits tax rate such rate was kept silent under the Consultation Paper. A qualifying payer is any of the following.

A fter years of lobbying with the government of the Hong Kong Special Administration Region Hong Kong SAR government and the Hong Kong Inland Revenue Department IRD the tax concessions for carried interest are now effective retrospectively from April 1 2020. The Carried Interest Tax Concession Regime coupled with the introduction of the limited partnership fund. The tax concession will take retrospective effect from the year of assessment commencing on 1 April 2020.

Specifically the carried interest must arise from a tax-exempted qualifying transaction in the shares stocks.

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