Hong Kong’s government is considering changes to its tax regulation in order to attract alternative investments including private credit, hybrid securities, real estate and infrastructure, according to a report by Bloomberg citing people familiar with the matter.
According to Bloomberg’s sources, the proposed measures, which are expected to be outlined in a consultation paper, would grant tax exemptions on interest income to special purpose vehicles involved in alternative investments. While the exact details remain confidential, the draft rules are anticipated to be released this month.
Historically, Hong Kong has been a hub for executives and staff of private equity and hedge funds, though it is now driven by the need to compete with financial centres like Dubai and Singapore. Despite implementing fund rule reforms in recent years, including provisions for carried-interest tax exemptions, the city aims to enhance its jurisdiction and legal framework to attract more asset management businesses.
The move is underscored by Hong Kong’s economic challenges, a sluggish stock market and escalating geopolitical tensions between Beijing and Washington.
According to estimates by financial data firm Preqin, AUM in the alternative funds sector is projected to grow by 70% from 2021 to reach $23.3tn by 2027.
In its 2024 budget plan, the Hong Kong government proposed enhancements to the preferential tax regimes for funds, single family offices and carried interest, which includes reviewing the scope of tax concessions, increasing the types of qualifying transactions and enhancing flexibility in handling incidental transactions.
The report cited a spokesman from the Financial Services and the Treasury Bureau in confirming that they are actively engaging with industry stakeholders and regulators to gather feedback on the budget plan proposals. Specific enhancement proposals will be consulted upon in due course.
In 2022, the financial services sector accounted for about 23% of Hong Kong’s gross domestic product, while the asset management sector alone directly employs 54,000 people, according to a Financial Services Development Council report published last March.
