The race to become the world’s premier fund domicile just got more competitive. Hong Kong is making its boldest moves yet to attract global fund managers with landmark tax reforms, flexible fund structures and a talent pool that no offshore jurisdiction can match.
If you’d like more information about Hong Kong funds, please contact one of our Hedge Fund or Mutual Fund lawyers.
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Table of Contents
Unified Funds Tax Exemption: Relief for OFCs and Other Hedge Funds and Private Equity Funds
The Unified Funds Tax Exemption exempts OFCs, hedge & private equity funds from profits tax without offshoring central management and control
Update on Discussions on the Inland Revenue Ordinance Unified Funds Exemption
Discussions on changes to the Inland Revenue Ordinance seek to clarify how the Unified Funds Exemptions apply to hedge funds and private equity
Hong Kong Tax Concessions Succeed in Drawing Family Offices
Learn how the newly introduced tax concessions have created more family offices in Hong Kong and how family office transactions could be eligible for a zero tax
Source of Profits – The Foreign Sourced Income Exemption Regime in Hong Kong
We discuss the refinements to HK’s FSIE regime, IRO provisions deeming foreign income to be sourced in HK and how those may be exempted from profits tax.
SPOTLIGHT ON
FAMILY OFFICES
Table of Contents
Hong Kong is undertaking one of the most significant overhauls of its fund regime in years as the government seeks to position the city as a global leader for asset management and fund formation.
The raft of proposed rule changes aim to make it easier to register and relocate funds to Hong Kong while extending tax exemptions for private equity, venture, and hedge funds as well as other closed end strategies. The efforts build on decades of hard work to establish the city as a leader in financial services and attract talent from across the region and beyond.
“Hong Kong has the ambition to become the preeminent centre for fund issuance, not just in Asia but worldwide. Recently enacted and proposed policies mean Hong Kong will become as attractive as entrenched incumbents such as the Cayman Islands or Ireland for fund formation but with the benefit of a far greater talent pool and capital market liquidity,” says Gavin Cumming, Partner and Head of London at Timothy Loh.
The territory already surpassed Switzerland in 2025 for cross-border wealth flows, with $2.9 trillion in global wealth parked at institutions in the city, according to Boston Consulting Group. Since 2018, some 765 open-ended fund companies (OFCs) and 523 limited partnership funds have registered in Hong Kong, taking advantage of competitive rule changes that are now set for further enhancements. The city’s role as a financial centre for Mainland China makes it especially relevant for domiciling funds that will trade domestic Chinese securities as well as offshore renminbi assets.
How Hong Kong Built Its Fund Framework
The reforms build on a series of incremental changes introduced since 2018, when Hong Kong enabled OFC structures beneficial for hedge and mutual funds, and followed up with a unified profits tax exemption for offshore and onshore funds alike:
Hong Kong domiciled OFCs were introduced in 2018. These were designed to fill a long-standing gap in Hong Kong's toolkit. Open-ended corporate vehicles allow for the ongoing issuance and redemption of shares from paid-up capital, making them well-suited to hedge funds and mutual funds trading liquid assets.
Critically, OFCs offer statutory segregation of assets and liabilities between sub-funds, meaning the liabilities of one sub-fund cannot be satisfied from the assets of another.
Regulatory changes in 2020 further enhanced the OFC's attractiveness by removing investment restrictions and allowing prime brokers to serve as custodians, an important concession for hedge fund managers.
Unified Funds Tax Exemption, in force since April 2019, exempted qualifying profits earned by both onshore and offshore registered private funds, including hedge funds and private equity funds, from profits tax. Qualifying transactions span a broad range of asset classes, including securities, futures, foreign exchange contracts, OTC derivatives, and assets in private companies.
In 2020, the Limited Partnership Funds Ordinance, provided a flexible vehicle for private equity, venture capital, and other closed-ended strategies. The partnership agreement carried few restrictions, giving general partners and limited partners wide latitude to agree on investment scope, fee arrangements, and governance terms.
Recognising that managers may wish to bring existing offshore structures onshore, Hong Kong also introduced re-domiciliation legislation allowing foreign funds (including Cayman Islands vehicles) to register in Hong Kong as OFCs or LPFs.
For private equity managers specifically, Hong Kong went further still: eligible carried interest earned from qualifying private equity funds is taxed at a zero, and 100% of such carried interest is excluded from an individual's assessable employment income for salaries tax purposes. The practical result is that carried interest, if structured correctly, is now essentially tax-neutral in Hong Kong, a remarkably competitive position compared to many other jurisdictions.
A Broader More Competitive Regime
While these changes have been welcomed by the financial industry, feedback has pointed to a persistent gap: newer strategies such as private credit, digital assets and commodities-linked funds fell outside the scope of the existing exemption, while carried interest relief remained tied almost exclusively to private equity.
As a result, in June, the Hong Kong government gazetted the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 to address those concerns. The bill is currently working its way through Legislative Council scrutiny, and if passed, it will substantially widen the tax breaks already available to private markets funds, family offices and the fund managers who run them. Hedge funds will also be included. Of note:
The bill amends three related regimes under the Inland Revenue Ordinance: the unified profits tax exemption for privately offered funds, the profits tax concession for family-owned investment holding vehicles managed by eligible single family offices, and the profits tax and salaries tax concession for carried interest.
For managers of hedge funds, private credit vehicles, venture capital funds and digital-asset strategies, the practical effect is straightforward: profits and performance fees that previously fell outside Hong Kong's preferential regimes may now qualify for exemption, and the individuals who earn carried interest could see a material reduction in their personal tax exposure.
These changes are meaningful incentives for managers weighing where to base new fund launches or relocate existing teams, provided they can meet the requirements.
“Hong Kong's asset and wealth management sector already manages trillions of Hong Kong dollars and anchors a wide ecosystem of legal, fund administration, banking and professional services jobs. Broadening the preferential tax regime to cover a fuller range of modern investment strategies is intended to deepen that ecosystem further,” says Managing Partner Timothy Loh.
More funds domiciled and managed in Hong Kong means more demand for local service providers, more skilled employment, and a stronger claim to the leading asset management hub status the government has been actively seeking.
