Macau Business | Macau’s Investment Funds Law: a structural advance for economic diversification

The law provides for a range of fund structures — contractual, corporate (including variable capital corporations), partnership-based — and introduces mechanisms such as umbrella funds, master-feeder arrangements, and fund-of-funds. It also establishes governance obligations for fund managers, custodians, and other service providers, enhancing investor protection and operational transparency. These reforms bring Macau in line with international standards and lay the groundwork for a credible fund market.

From an economic policy standpoint, investment funds are essential instruments for capital mobilisation and its efficient deployment. They facilitate the aggregation of savings and their allocation into productive sectors, thereby supporting innovation, infrastructure development, and long-term growth. In the context of Macau’s diversification strategy, a well-functioning fund market could serve as a key enabler.

Macau’s economy remains heavily concentrated on gaming and tourism, sectors that have been immensely successful, but are inherently cyclical and vulnerable to external shocks. Both central and local governments have continuously highlighted the risks of such dependence, prompting urgent efforts to diversify. However, much of the responsibility for diversification has been placed on the shoulders of the gaming concessionaires themselves. Naturally, the areas where they have achieved greater success are those that align with their expertise and are synergistic with their primary business activities, such as entertainment, conventions and exhibitions, and sporting events.

A dynamic fund ecosystem could help mobilise capital towards other industries, support small and medium-sized enterprises (SMEs), and attract strategic investment into sectors aligned with the SAR’s policy priorities.

Moreover, Macau possesses latent capital pools that remain underutilised. Public reserves, pension assets, and family wealth are largely deployed in passive instruments or offshore structures. A credible and well-regulated fund regime could facilitate the domestic deployment of this capital, enhance risk diversification, and support regional investment initiatives — particularly within the Greater Bay Area (GBA).

To realise this potential, however, the fund law must be complemented by enabling policy measures. Among these, the fiscal treatment of investment funds and fund managers is particularly consequential. While the law does not specifically address funds taxation, recent changes to Macau tax laws imply that certain fund structures may not be subject to profits tax in Macau on income earned overseas, whereas profits from investments within Macau remain taxable. International experience suggests that comprehensive tax neutrality or preferential regimes are often decisive in fund domiciliation and capital allocation decisions.

Jurisdictions with successful fund ecosystems typically offer clear and competitive tax frameworks. Take the Cayman Islands for example – home to 30,000 funds (approximately 25 per cent of all registered funds globally), thanks largely to its full tax neutrality: there are no income, capital gains, or withholding taxes for fund entities or investors. For further examples of flourishing fund markets, look no further than our neighbouring region. Hong Kong’s effective government policies in recent years have led to a thriving industry managing HKD1.64 trillion in assets as of 2024, according to a survey from the Securities and Futures Commission, making it the top jurisdiction in Asia and sixth globally.

Key policies that contributed to the rapid development of the Hong Kong fund industry include the Unified Funds Exemption, which exempts certain qualified funds from profits tax on specified investments; as well as carried interest incentives, exempting fund managers and related employees from tax on performance-based income if conditions are met. A grant scheme supports the establishment and operation of open-ended fund companies by subsidising a portion of the expenses incurred through services provided by local professionals. While the Mutual Recognition of Funds (MRF) between Hong Kong and Mainland China enables eligible public funds to be distributed across both regions with streamlined approval, significantly expanding the investor base.

While Macau does not need to replicate these measures, it can design its own comprehensive tax and incentives regime combining existing tax features with specific measures tailored to its strategic objectives, thus strengthening its competitiveness as a fund domicile. These should include:

• Full exemption from profits tax for fund vehicles
• No withholding tax on distributions to investors
• Preferential treatment for fund managers, particularly in the initial years
• Favourable treatment of carried interest, aligned with international norms
• Incentives to the engagement of local service providers for the establishment and management of fund structures

Such measures would not constitute tax arbitrage but rather strategic alignment with global standards. They would signal Macau’s commitment to building a credible and sustainable fund ecosystem, capable of attracting regional sponsors and mobilising local capital.

Importantly, the development of a fund market must be viewed as part of a broader institutional strategy. Regulatory clarity, fiscal competitiveness, and human capital development must converge to create a viable ecosystem. This includes:

• Building local capacity in fund administration, compliance, and asset management, both by training residents and importing qualified professionals.
• Facilitating the distribution of Macau funds, particularly in Greater China.
• Promoting investment into key sectors and geographical areas, notably in the mainland’s high-quality economy, Hengqin and the Portuguese-speaking countries.
• Promoting financial literacy and investor education to support retail participation.

The SAR’s policy institutions — particularly the Monetary Authority of Macao and the Financial Services Bureau — will play a central role in shaping this environment. Coordination with other economic agencies, such as the Labour Affairs Bureau, will be essential to ensure alignment with the “1+4” strategy and to avoid regulatory fragmentation.

Simultaneously, Macau should consider establishing a strategic investment platform to anchor the fund market. Such a vehicle could deploy public capital into priority sectors, co-invest with private sponsors, and serve as a market signal for institutional investors. It would also provide a mechanism for aligning capital deployment with long-term policy objectives.

Ultimately, the success of Macau’s fund market will depend not only on legal architecture but also on the broader policy ecosystem. The Investment Fund Law is a necessary first step. The next phase will require coordinated action across fiscal, regulatory, and institutional domains to ensure that the opportunity it presents is fully realised.

If implemented effectively, the fund regime could become a cornerstone of Macau’s economic diversification strategy. It could unlock domestic capital, support innovation, and position the SAR as a regional platform for strategic investment. In doing so, Macau would not only reduce its dependence on tourism but also lay the foundation for a more resilient and inclusive economic model, anchored in long-term investment returns. The opportunity is before us. Now it is time to translate vision into reality.