Proposed tax concessions for family offices in Hong Kong

Hong Kong
By Christine Ho

On April 4, 2022, the Financial Services and Treasury Bureau (FSTB) submitted a paper for discussion to the Legislative Council Panel on Financial Affairs on the subject of Proposed Tax Concession for Family Offices. The objective of the proposed tax exemption is to provide tax certainty to ultra-high-net-worth individuals and their family members who hold assets via investment holding vehicles in order to attract family offices to set up and operate in Hong Kong.

The tax exemption is aimed at family-owned investment holding vehicles (FIHV) managed by single family offices (SFOs) in Hong Kong. In order to enjoy the tax exemption, an election is required and is irrevocable once it is made. Subject to the passage of the amendment bill by the LegCo, the tax concession treatment will apply for any years of assessment commencing on or after April 1, 2022.

The requirements for the FIHVs to qualify for this tax exemption include but are not limited to the following: (i) the FIHV must have the central management and control (CMC) in Hong Kong; (ii) the FIHV must be beneficially owned by individuals who are connected persons of the same family; (iii) the assets under management should be at least HKD240 million; and (iv) the FIHV must not engage in general commercial or industrial activities.

The requirements for the SFOs are that an SFO must be a private company with CMC in Hong Kong, must be beneficially owned by the Single Family, and must not provide investment management services to other FIHVs not owned by the Single Family.

The scope of qualifying transactions for FIHVs are expected to be similar to those under the Unified Funds Tax Regime (DIPN 61) for privately offered funds with the associated limitations on holding assets of immovable property and short-term assets.

In terms of substantial activities requirements, the core income generating activities (CIGAs) with respect to the asset management must be performed in Hong Kong. Further, each FIHV or SFO should employ at least two full-time qualifying employees in Hong Kong and incur at least HKD2 million in operating expenditure each year in Hong Kong for carrying out the CIGAs.

The proposed tax exemption would attract family offices to domicile in Hong Kong, thereby generating more demand for investment management and other related professional services, including financial, legal, and accounting services. It will also deepen Hong Kong's funding pool and create more business opportunities for the financial services industry.

Financial Services and the Treasury Bureau, 2022, Legislative Council Panel on Financial Affairs – Proposed Tax Concession for Family Offices (LC Paper No. CB(1)156/2022(07), Financial Services Branch of The Government of the Hong Kong Special Administrative Region

FamilyOfficeHK is a team of dedicated family office specialists based in Hong Kong, mainland China and Europe, to help families plan, set up and launch their offices in the HKSAR. At the same time, the team has been working hard to build bridges among family offices, their stakeholders, the regulators and Government with an aim to further optimise the family office ecosystem in Hong Kong.

For further information, contact Christine Ho or Dixon Wong at FamilyOfficeHK.

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