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Carried interest (CI) or “carry” refers to the portion of a fund’s investment profits allocated to a general partner (GP) fund manager as performance-based compensation in connection with their fund management activities. Designed to incentivise fund managers/GPs, and attract and retain top talent, CI is paid in addition to salary and any management fee and is distinct from returns attributable to the manager/GP’s own capital investment in the fund. CI typically represents 20% of investment profits and is distributed only after investors receive a return of their capital contributions plus a pre-agreed rate of profit on funds invested.
The tax treatment of CI across the globe differs and is often the subject of policy debate. Some countries have enacted—or are in the process of enacting—dedicated CI regimes that provide preferential treatment if specified conditions are fulfilled—such as minimum holding periods, acquisition of carry rights at market value, meaningful GP/manager co-investment, etc. Others classify CI as capital gains rather than ordinary income, resulting in lower tax rates and creating disparities compared to other fund employees whose compensation is taxed as salary.
The following comparative guide looks at the tax treatment of CI in 20 countries
