carried interest tax concession
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. The managers pay a federal personal income tax on these gains at a rate of 238 percent 20.
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Individuals who have received carried interest or to whom any such sum has accrued will also be eligible for a 100 deduction for those sums against their assessable income.
. Proposed tax concession regime. 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. 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.
The proposal states that the tax concession only applies to carried interest distributed by PE transactions only. January 11 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.
Given tax treatment is one of the key factors influencing the choice of jurisdiction for fund domiciliation and operations it is announced in the 2020- 21 Budget Speech that the Government plans to provide tax concession for carried interest distributed by PE funds operating in Hong Kong. Regardless whether the qualifying employees apply for the salaries tax concession in respect of eligible carried interest you must state the exact amount of sums paid or payable to them in section 26 and exact number of qualifying employees who. For qualifying carried interest recipients subject to profits tax ie the fund management entities under Part V of the Securities and Futures Ordinance carried interest payments would first need be netted off against outgoings and expenses and depreciation to arrive at the net carried interest eligible for the concession.
The IRO will assess whether the carried interest that the tax concession is being claimed for is eligible carried interest. A qualifying payer is any of the following. 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.
Specifically the carried interest must arise from a tax-exempted qualifying transaction in the shares stocks debentures loan stocks funds bonds or notes of or issued by a private company under Schedule 16C to the IRO. The concessionary tax treatment applies to eligible carried interest arising from profits on investments profits on particular investments or profits on a disposal of investment that are earned from qualifying transactions in private. 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.
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. To qualify as eligible carried interest the carried interest must be a sum received by or accrued to an Eligible Person by way of profit-related return subject to a hurdle rate. 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.
The Bill will apply concessionary tax treatment to eligible carried interest received by or accrued to qualifying carried interest recipients on or after 1 April 2020. The proposal had been announced by Paul Chan the Financial Secretary in his 2020-21 budget speech on 26 February 2020. The Regime operates to provide tax concession at both the salaries tax and profits tax levels.
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. This would provide tax certainty and facilitate the early decision of PE funds to domicile and operate in.
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 Hong Kong government released in August 2020 a consultation paper on a proposed tax concession regime for carried interest issued by private equity funds operating in Hong Kong. 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.
After six months of consultation the Inland Revenue Amendment Tax Concessions for Carried Interest Bill 2021 Bill providing for. The preferential tax rate is especially important for a private equity fund and its managers. Under the Carried Interest Tax Concession Regime eligible carried interest will be taxed at 0 profits tax rate and all of the eligible carried interest would also be excluded from the employment income for the calculation of the investment professionals salaries tax.
Qualifying carried interest broadly includes carried interest received from gains from investments in private companies. For carried interest to qualify for the concession the underlying investments from which the carried interest is distributed must also comply with the same conditions governing exemption from tax. 11 rows As part of a longstanding Government policy to attract private equity PE and investment fund.
The Government has spared no efforts in developing Hong Kong as a premier PE fund hub. The tax concession involves a number of conditions that must be satisfied for a carried interest to qualify for the concession.
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