Hong Kong excludes proprietary trading firms from tax concessions on carried interest

Hong Kong just drew a clear line in the sand. Proprietary trading firms, no matter how large or influential, will not benefit from the city’s proposed 0% tax concession on carried interest and performance fees.

The Financial Services and the Treasury Bureau made the announcement on August 12, clarifying that remuneration earned through proprietary operations simply doesn’t qualify. For firms like Jane Street, Citadel Securities, and Jump Trading, which trade with their own capital rather than managing outside money, the message is straightforward: you’re not a fund, so you don’t get fund tax breaks.

What the tax regime actually does

The exclusion is part of a broader legislative push called the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026. It was introduced to Hong Kong’s Legislative Council in June 2026, with a second reading expected later this year.

The bill’s intent is to expand Hong Kong’s existing carried-interest tax regime, which was first introduced in 2021 specifically for private equity. That original framework offered a 0% profits tax rate on eligible carried interest. The new bill widens that aperture. Instead of limiting the concession to private equity alone, it extends coverage to a more diverse set of fund managers and family offices.

But widening access doesn’t mean universal access. The FSTB made it explicit that proprietary trading businesses fall outside the definition of a “fund” under the legislation. If you’re deploying your own balance sheet rather than managing pooled capital from outside investors, you’re operating a trading business, not a fund. And trading businesses don’t get the 0% rate.

Why Hong Kong is doing this now

Hong Kong is locked in an increasingly aggressive competition with Singapore and Dubai to attract global asset managers. Singapore has its own Variable Capital Company structure and a well-established fund tax exemption regime. Dubai’s DIFC has been pulling in hedge funds and family offices with zero income tax and a regulatory environment modeled on common law.

Top fund managers in the region can earn performance bonuses exceeding $1 million, with some outliers pulling in more than $50 million. When the tax rate on that income is the difference between 0% and Hong Kong’s standard 16.5% profits tax rate, the stakes get material fast. At those compensation levels, a 16.5% tax rate on a $50 million carry payout works out to $8.25 million in tax.

What this means for prop trading firms

For proprietary trading operations, these firms generate returns by deploying their own capital, often through high-frequency strategies, market making, or quantitative approaches. They don’t charge management fees or carried interest because there are no outside investors to charge.

The second reading of the bill in the Legislative Council later this year will be the next milestone to watch. For now, Hong Kong has made its priorities clear: it wants fund managers and family offices, and it’s willing to pay for them in forgone tax revenue.

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