Prop trading not eligible for carried interest tax concessions: Gov’t

Proposed regime covers eligible carried interest but excludes proprietary trading.

The Financial Services and the Treasury Bureau said on 12 August that remuneration distributed by proprietary trading businesses will not qualify for the proposed tax concessions under the Inland Revenue (Amendment) Bill 2026.

The bureau noted that the preferential regime applies only to eligible carried interest distributed by funds as defined under the Inland Revenue Ordinance (IRO).

Under the IRO, a fund must generally meet the requirement that participating persons do not have day-to-day control over property management.

Businesses that trade or hold assets using proprietary capital to generate profits for their own account, commonly known as proprietary trading, do not meet this definition.

Remuneration from such businesses is therefore excluded from the proposed tax concessions, the government said.

It added that eligible carried interest must be determined by the fund’s operating or investment management agreement, whilst returns received by fund managers or qualifying employees must be non-discretionary and based on investment performance.

The bill also proposes refining distribution requirements to accommodate different practical arrangements for carried interest.

The Legislative Council (LegCo) Bills Committee has completed its clause-by-clause examination of the bill. The government aims to resume the second reading debate in the second half of 2026. 

The measures are expected to take effect from the year of assessment 2025/26. The government has no plans to further expand the scope of the preferential measures.

The Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 was introduced in LegCo in June.