carried interest tax concession
The long-awaited Bill seeks to promote the development of private equity PE funds in Hong Kong by ushering in a 0 profits tax rate on eligible carried interest and excluding 100 of eligible carried interest from. 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.
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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.
. 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. 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. A qualifying payer is any of the following.
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 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. 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.
January 11 2021. 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. 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.
11 rows As part of a longstanding Government policy to attract private equity PE and investment fund. The tax concession involves a number of conditions that must be satisfied for a carried interest to qualify for the concession. 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.
Eligible Carried Interest will be taxed at 0 profits tax rate. 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. 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.
1 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. Inland Revenue Amendment Tax Concessions for Carried Interest Bill 2021.
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. Qualifying carried interest broadly includes carried interest received from gains from investments in private companies.
With some expectation a gain on an investment in a public company or from any other non. Tax Concessions for Carried Interest Bill 2021 the Bill for first reading in the Legislative Council on 3 February 2021. 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.
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. They provide for a 0 tax rate for qualifying carried interest further to the. Under the proposal carried interest must qualify as such and assuming this is the case will be taxed at a preferential concessionary rate if 3 conditions are satisfied.
I the recipient of the carried interest must be an eligible entity ii the carried interest must be derived from the provision of investment management services in Hong Kong and iii the. Eligible carried interest recipients. The tax concession for a carried interest also looks through to the employees.
Qualifying carried interest broadly includes carried interest received from gains from. 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. On 7 May 2021 the Inland Revenue Amendment Tax Concessions for Carried Interest Ordinance 2021 the Amendment Ordinance was enacted into law.
The preferential tax rate is especially important for a private equity fund and its managers. The New Law applies to eligible carried interest received or accrued on. The Regime operates to provide tax concession at both the salaries tax and profits tax levels.
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 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. Hong Kong enacted the Inland Revenue Amendment Tax Concessions for Carried Interest Bill 2021 the New Law on 7 May 2021.
Asset Management Tax Update of 29 January 2021 provided an overview of the Carried Interest Tax Concession Bill. 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. The managers pay a federal personal income tax on these gains at a rate of 238 percent 20.
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