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March 8, 2021

Hong Kong announces 2021/22 Budget

The Financial Secretary (FS) announced the 2021/22 Hong Kong Budget (Budget) on 24 February 2021. This Alert summarizes the key features of the Budget.

Detailed discussion

Increasing the stamp duty rate on stock transfers

The FS has proposed an increase in the stamp duty rate on stock transfer transactions from 0.1% to 0.13%, payable by both buyers and sellers (i.e., a total stamp duty rate of 0.26%). Based on the Revenue (Stamp Duty) Bill gazetted on 5 March 2021, the change will come into effect on 1 August 2021.

Promoting the development of the funds industry in Hong Kong

Tax concessions for eligible carried interest received by private equity fund managers

After introducing the unified fund exemption regime (UFR) in April 2019 to develop Hong Kong as a premier private equity (PE) fund hub, Hong Kong introduced a new limited partnership law on 31 August 2020 to further accommodate the operational needs of PE funds. These efforts have led to the formation of about 100 limited partnership funds (LPFs) in Hong Kong.

To further incentivize PE fund managers to select Hong Kong as a location of domicile and operation of funds, Hong Kong introduced a bill in January 2021 which exempts eligible carried interest, arising from in-scope transactions received by qualifying recipients for the provision of investment management services to qualifying payers, from tax in Hong Kong.1

Subject to the passage of the bill by the Legislative Council, the above concessionary tax treatment will apply retrospectively and will be applied to eligible carried interest received by or accrued to a qualifying recipient on or after 1 April 2020.

Expansion of the investment scope of special purpose entities owned by a fund

Under the UFR, if a special purpose entity (SPE) is used to hold investments in private companies, the activities of the SPE should be limited to administering and holding the investments of the private companies. Otherwise the SPE’s gain on the disposal of the private companies would not be exempt from tax.

In order to provide flexibility to the UFR, the bill proposes to enable SPEs to hold investments in private companies and other types of investments, such as listed securities and derivative contracts.2

Facilitate foreign investment funds to set up in or re-domicile to Hong Kong

It is expected that a new law allowing foreign investment funds to re-domicile to Hong Kong for registration as open-ended fund companies (OFC) or LPFs will be introduced in the second quarter of 2021. The new law aims to provide a commercially viable mechanism with legal and tax certainty to foreign funds and proposes to provide an exemption for stamp duty.  

In addition, subject to a cap of HK$1 million per OFC, government subsidies covering 70% of the expenses paid to local professional service providers for setting up OFCs in or re-domiciling to Hong Kong in the forthcoming three years have been proposed.

Enabling Hong Kong to compete internationally for reinsurance and specialty insurance businesses

To enable Hong Kong to compete in the international insurance market and obtain new opportunities, the new tax law granting the following tax concessions to relevant insurers and insurance brokerswill be effective on 19 March 2021:

  • Taxing profits derived by a direct insurer (referred to as a specified insurer) from their general insurance business, other than profits from certain locally demand driven business, at the concessionary tax rate of 8.25% (i.e., 50% of the normal corporate tax rate of 16.5%).

  • Extending the current 8.25% concessionary tax rate afforded to professional reinsurers to cover the general reinsurance business of a specified insurer.

  • Taxing profits of a licensed insurance broker company that relate to a contract of insurance effected by (a) a professional reinsurer, or (b) a specified insurer that is eligible for the concessionary tax rate under the bill, at the 8.25% concessionary tax rate.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong

Ernst & Young LLP, Hong Kong Tax Desk, New York

Ernst & Young LLP, Asia Pacific Business Group, New York



  1. See EY Global Tax Alert, Hong Kong introduces tax concessions for carried interest, dated 12 February 2021.

  2. See Schedule 16C of the IRO.

  3. See EY Global Tax Alert, Hong Kong enacts new legislation providing tax incentives for insurance-related businesses, dated 29 July 2020.


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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