Hong Kong: IRD's view on taxability of carried interest, and its implications to employee investment plans

By International Assignment Services

Jun 2016

The Inland Revenue Department (IRD) issued Departmental Interpretation and Practice Notes No. 51 (DIPN 51) on May 31, 2016 to set out its views on various issues relating to the application of the offshore private equity (PE) fund tax exemption regime. The IRD briefly states for the first time in a DIPN its views on the taxation of carried interest received by fund executives. Specifically, it concludes that the nature of carried interest will affect whether it would be regarded as normal investment return (which is not subject to tax) or income chargeable to salaries / profits tax.

Further IRD guidance is needed to provide clarity on the complexities and challenges involved. Employers in other industries operating employee investment and / or incentive plans should also closely monitor the developments in this area to ensure the proper tax position is adopted. 

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