Making Hong Kong a better global wealth management hub – Further improvements to Hong Kong’s Unified Funds and Carried Interest Tax Exemption Regimes

Hong Kong has recently overtaken Switzerland as the world's largest cross-border wealth management centre¹. 

As part of its continuing efforts to strengthen its position as a leading international asset and wealth management centre, Hong Kong has introduced the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 (the "Bill"), which was gazetted on 12 June 2026, received its First Reading in the Legislative Council on 24 June 2026, and is scheduled for a clause-by-clause examination by the Bills Committee on 30 July 2026.

The Bill introduces significant enhancements to the tax regimes applicable to funds, family-owned investment holding vehicles and carried interest. This article focuses on the key reforms to the Unified Fund Exemption ("UFE") and Carried Interest regimes, and considers these developments in the context of Hong Kong's broader efforts to strengthen its asset and wealth management ecosystem. 

Enhancements to the Unified Fund Exemption

Expansion of eligible assets

The Bill significantly expands the categories of Schedule 16C assets that can benefit from the exemption. The expanded list now extends beyond traditional securities and private equity investments to include a wider range of asset classes such as private credit, digital assets, overseas real estate, carbon credits and other emissions-related products.

Significantly for fund managers, this expansion enables them to pursue a broader range of alternative investment strategies within the UFE framework. 

Expansion of definition of "fund"

The Bill also expands the definition of a "fund" to include additional categories of vehicles, including pension funds, charitable endowment funds and certain qualifying single-investor arrangements². This is intended to provide greater flexibility for institutional investors and ultra-high-net-worth investment structures. Similar to the family office tax concession regime, these special categories of "funds" will need to satisfy certain substance (i.e. maintaining a minimum number of employees and a minimum level of operating expenditure in Hong Kong)³  in order to qualify for preferential tax treatment. However, unlike funds qualifying under the original UFE regime, they are not required to be managed by a "specified person"⁴. 

A shift away from the transaction-based approach

The move from a transaction-based framework to an asset-based framework eliminates the need to distinguish between "qualifying transactions" and "incidental transactions", so that the proposed exemption will apply by reference to profits derived from Schedule 16C assets. Together with the expansion of Schedule 16C and the broader scope of permissible activities for special purpose entities, this should provide greater flexibility for funds pursuing a wider range of investment strategies and structuring arrangements⁵. 

Anti-avoidance, substance and reporting requirements

However, the reforms are not solely liberalising measures. The anti-round-tripping provisions will extend to certain profits and income derived from loans and private credit investments. In particular, certain loan-related profits of a fund may continue to be taxed in the hands of financial institutions, insurers and moneylenders holding 20% or more of the relevant interests in the fund⁶. These provisions restrict Hong Kong taxpayers from accessing the exemption through fund structures in circumstances where the profits remain attributable to them.

In addition to the existing economic substance requirements, the Bill introduces a formal reporting framework for funds claiming the exemption. Specified persons responsible for managing or administering a fund will be required to submit an initial notification within prescribed timelines and, where requested by the Inland Revenue Department, annual notifications thereafter⁷. Funds must also maintain sufficient records for at least seven years to support filings and demonstrate continued eligibility for the exemption⁸.

These measures reflect the Hong Kong Government's intention to broaden the scope of the exemption while maintaining appropriate safeguards, transparency and regulatory oversight.

* Please refer to our earlier article here on the proposed changes affecting family-owned investment holding vehicles and single family offices, as well as relevant enhancements considered in those contexts.

Streamlining the carried interest regime

Removal of HKMA certification

A fund will no longer need certification from the Hong Kong Monetary Authority to enjoy the carried interest concession⁹. This simplifies the statutory framework and reduces compliance burdens for eligible fund managers.

Greater flexibility in fund economics

The Bill also removes the existing hurdle rate requirement¹⁰. Under the existing regime, eligible carried interest generally only arises after investors have achieved a specified preferred return. While common in private equity structures, hurdle rates are not a universal feature across all investment strategies and fund structures. The proposed amendment will broaden the range of commercial structures to include certain private credit funds, hedge funds and other alternative investment structures.

Broader scope of eligible carried interest

The Bill also modernizes and broadens the definition of eligible carried interest¹¹. Historically, the regime was often associated with traditional private equity fund structures. The reforms recognize that investment managers increasingly operate across multiple asset classes and strategies, including private credit, hedge funds, digital assets and other alternative investment strategies.

Expanding access for investment professionals

More categories of employees of closely related entities will benefit from the concession¹². This enhancement is intended to reflect prevailing industry practices, where investment management activities are often carried out by personnel employed across entities within the same group. By expanding the scope of the concession to employees of closely related entities, the proposed regime seeks to ensure that eligible employees are not excluded solely because of the group's organizational or legal structure, while providing greater flexibility in structuring investment teams and remuneration arrangements. The change may be particularly relevant to family office and asset management platforms, where investment management functions are frequently performed by personnel employed by related management or operational entities within a broader group structure.

Taken together, these reforms will reduce administrative barriers, increase flexibility in fund economics and benefit more investment professionals and investment strategies. They also complement the wider UFE reforms discussed above. 

The Bill received its First Reading in the Legislative Council on 24 June 2026. A Bills Committee Background Brief issued on 6 July 2026¹³ provided further clarification on the operation of the proposals but did not indicate any proposed changes to the Bill at this stage. Further refinements may nevertheless emerge as the legislative process continues, including following the Bills Committee's clause-by-clause examination of the Bill scheduled for 30 July 2026.

Beyond tax: a broader push to strengthen Hong Kong as a wealth management hub

Hong Kong has introduced a number of broader initiatives aimed at strengthening its position as an international wealth management and asset management centre, including:

1. Expanding access to digital assets and tokenisation: Hong Kong has continued to develop a regulated digital asset ecosystem through licensing regimes for virtual asset service providers, custodians and stablecoin issuers. The Hong Kong Monetary Authority's Project Ensemble initiative, including the launch of Ensemble^TX in 2025, forms part of Hong Kong's broader infrastructure for tokenized deposits and tokenized assets. Together with the inclusion of digital assets within the expanded UFE regime, these developments provide both regulatory and operational infrastructure for digital asset investment strategies. This is further complemented by Hong Kong's implementation of the Crypto-Asset Reporting Framework ("CARF") and related Common Reporting Standard ("CRS")/Automatic Exchange of Information ("AEOI") reforms, which are intended to support the transparency and regulatory framework applicable to digital assets.
   
   * Please refer to our article here on the recent developments of the ASPIRE roadmap, and our article here on the CARF and related CRS/AEOI reforms for crypto-assets
2. Broadening access to investment products: Hong Kong's exchange-traded product market has expanded significantly in recent years, offering investors exposure to a growing range of asset classes and investment themes, including precious metals, digital assets, technology sectors and international indices. As product offerings continue to expand, Hong Kong is increasingly able to provide the breadth of investment opportunities expected by sophisticated investors, helping narrow the gap with larger international exchange-traded fund ("ETF") markets (such as the US ETF market).
3. Facilitating the restructuring of investment and family office structures: the Hong Kong Government has made it easier to establish and reorganize investment structures.  For instance, the company re-domiciliation regime allows qualifying overseas companies to migrate to Hong Kong without first undergoing a liquidation process in their existing jurisdiction. For family offices in particular, this provides a useful mechanism for simplifying and consolidating existing offshore holding structures. Recently, the Hong Kong Government has also proposed enhancements to the intra-group stamp duty relief regime¹⁴, including expanding the scope of eligible entities and reducing the association threshold from 90% to 75%. If implemented, these changes would provide greater flexibility for internal reorganizations and asset transfers within investment and family office structures. The proposed single-investor arrangement under the UFE regime may provide tax concessions for different family holding structures managed through multi-family office arrangements. At the same time, the relaxation of the "Carried Interest" tax concession regime may also benefit family offices and the management teams carrying out the asset management services in Hong Kong. Together, these measures provide greater flexibility for long-term wealth planning and structuring.

Conclusion

Viewed together, the Bill and the wider initiatives discussed above demonstrate Hong Kong's continued efforts to strengthen its position as a leading wealth management hub.

While tax incentives remain important, they are only one part of the equation. A successful wealth management centre must also offer regulatory certainty, security, access to investment opportunities, liquidity, market infrastructure and talent. The recent reforms — ranging from enhancements to the UFE and carried interest regimes to developments in digital assets, investment products and corporate restructuring — suggest that Hong Kong is seeking to strengthen each of these pillars.

The result is an increasingly comprehensive ecosystem for high-net-worth individuals, family offices and investment managers, reinforcing Hong Kong's position as a platform for long-term wealth management and structuring.

If you have any questions on this topic, please get in touch with your usual Withers contact or the authors of this article.