Hong Kong rules out prop trading firms from planned fund tax breaks

Hong Kong has ruled out granting tax breaks to proprietary trading firms, dispelling speculation that the city might expand its asset management incentives to this sector, according to a Bloomberg report. The Financial Services and Treasury Bureau announced on Wednesday that the proposed legislation would exclude businesses that leverage their own capital for buying, selling, or holding assets for profit, as such firms do not align with the bill's definition of a fund.

The clarification followed reports suggesting Hong Kong authorities were contemplating extending tax relief on performance-related income to proprietary trading businesses, encompassing prominent market-making entities like Jane Street. Initially aimed at providing tax exemptions for private equity and hedge fund managers, the draft legislation sought to enhance Hong Kong's standing as an international asset and wealth management hub.

The government aims to refine the tax framework for private funds and family offices, supporting the development of the city as a global wealth management center. The bill is currently under review by the Legislative Council, with the government planning to resume its second-reading debate later in 2026. The decision to exclude proprietary trading firms signifies that businesses operating solely with their own capital will not be eligible for the concessions being considered for fund managers.