Hong Kong fund tax reform targets 0% rate to lure global asset managers

Hong Kong's long-awaited reform of its fund tax exemption and carried interest concession regimes will offer a retrospective effective tax rate of 0 percent, KPMG said, a move expected to draw a new wave of global asset managers to the city.

"The tax reform fully reflects the government's policy direction of incessantly enhancing Hong Kong's fund tax regime," said Darren Bowdern, Head of Alternative Investments, Hong Kong SAR, KPMG China. "By providing a retrospective effective tax rate of 0 percent for carried interest and performance fees, Hong Kong further removes uncertainties in the prevailing tax system."

The enhanced regime targets private equity, private credit and hedge funds looking to establish and operate investment platforms in Hong Kong, according to the firm's latest "Hong Kong Asset Management and Private Equity Outlook" report released Tuesday. KPMG expects the measures to encourage more international asset management institutions to build long-term investment teams in the city and use it as a base for managing high-value Asian investment portfolios.

The tax overhaul comes as Hong Kong's capital markets show renewed strength. The city regained the global top spot for IPO fundraising in 2025, with the momentum extending into 2026, KPMG said. The firm forecast full-year IPO fundraising could reach approximately HKD350 billion, keeping Hong Kong among the world's top two listing venues.

The policy shift addresses a long-standing competitive disadvantage for Hong Kong relative to other financial hubs such as Singapore, which has attracted a growing share of regional asset management mandates in recent years. By codifying the 0 percent rate for carried interest, the government removes a key source of tax uncertainty that had prompted some firms to delay expansion plans in the city.

The IPO pipeline supports the bullish outlook. Hong Kong has seen a flurry of listing applications from Chinese companies and regional firms, with several large deals expected in the second half of the year. Jefferies recently raised its price target on Hong Kong Exchanges & Clearing Ltd. (388:HK) to HKD513, citing expectations that second-quarter profit will rise 10 percent year over year, reflecting higher trading and listing volumes.

For global asset managers, the combination of a clearer tax framework and a resurgent IPO market strengthens Hong Kong's case as Asia's premier capital-raising and investment management hub. The reforms are expected to be particularly attractive for US and European firms seeking to expand their Asian presence without the tax complexity that previously characterized Hong Kong's carried interest rules.

This article is for informational purposes only and does not constitute investment advice.