carried interest tax concession
The legislative council brief accompanying the Bill specifies that carried interest derived from a hedging transaction may only be eligible for the Tax Concession if the hedging transaction forms part and parcel of the private equity transaction and the profits on the hedging transaction are embedded in the profits or loss on such transaction for the calculation of. The proposal states that the tax concession only applies to carried interest distributed by PE transactions only.
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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.
. January 11 2021. 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 Transactions of Certified Investment Funds 10.
A qualifying payer is any of the following. The New Law applies to eligible carried interest received or accrued on or after 1 April 2020. The tax concession for a carried interest also looks through to the employees.
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. The Bill will be subject to scrutiny and approval by the. Transactions in the shares stocks debentures loan stocks bonds or notes of or issued by a private company as well as transactions incidental to the carrying out of such transactions provided that they do not exceed 5 of total trading.
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. The tax concession involves a number of conditions that must be satisfied for a carried interest to qualify for the concession. 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.
Specifically the carried interest must arise from a tax-exempted qualifying transaction in the shares stocks. For tax concessions under the tax concession regime for carried interest. The managers pay a federal personal income tax on these gains at a rate of 238 percent 20.
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. To qualify for the tax concession the fund must be validated by the HKMA. The preferential tax rate is especially important for a private equity fund and its managers.
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. In line with our policy objective to promote the development of PE funds in Hong Kong concessionary tax treatment would be ring-fenced to eligible carried interest arising from qualifying transactions. 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.
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. Received a preferred return at an annual rate of 6 compound interest that would also be considered carried interest. 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.
On 7 May 2021 the Inland Revenue Amendment Tax Concessions for Carried Interest Ordinance 2021 the Amendment Ordinance was enacted into law. Qualifying carried interest broadly includes carried interest received from gains from investments in private companies. The Government has spared no efforts in developing Hong Kong as a premier PE fund hub.
Carried interest tax concession - conditions Must be paid by a qualifying payer The carried interest must be paid by a certified investment fund ie. 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. 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.
The tax concession is limited to carried interest distributed in respect of transactions that meet the following criteria. 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. That is where an entity that is recipient of the carried interest return pays part of the return to its employees that payment will be concessionally taxed.
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. After six months of consultation the Inland Revenue Amendment Tax Concessions for Carried Interest Bill 2021 Bill providing for a tax concession for a 0 profits tax rate on eligible. On 29 January 2021 the Inland Revenue Amendment Tax Concessions for Carried Interest Bill 2021 the Bill was gazetted to amend the Inland Revenue Ordinance and introduce a concessionary tax treatment on eligible carried interest received by or accrued to qualifying recipients on or after 1 April 2020.
Eligible carried interest recipients. 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 Ordinance 2021 Ordinance was enacted into law on 7 May 2021 by way of amendment to the Inland Revenue Ordinance IRO.
11 rows As part of a longstanding Government policy to attract private equity PE and investment fund. A private equity fund typically uses carried interest to pass through a share of its net capital gains to its general partner which in turn passes the gains on to the investment managers figure 1. With some expectation a gain on an investment in a public company or from any other non.
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