Is prior approval from the IRD required?

No. The concession operates through a self declaration system.

Does the family office itself benefit from the tax exemption?

No. Operational income of the family office remains taxable.

Hong Kong Single Family Office Tax Concession: Key Changes and Practical Implications

Q: When does the tax concession apply from?

The regime applies retrospectively from the 2022/23 year of assessment.

Q: Is there a minimum asset threshold?

Yes. Assets under management must exceed HKD 240 million.

Samantha Bradley
May 20, 2023
6 min read

Updated: Mar 17

Author: Samantha Bradley, Consultant

A New Tax Concession for Hong Kong Single Family Offices

The Hong Kong government has set out its ambition to host 200 family offices in Hong Kong by 2025. The government perceives this sector to be of broad benefit to Hong Kong due to the multiplier effect on professional services, capital markets, venture capital and private philanthropy.

On 24 March 2023, the government issued a policy statement on the development of family office businesses in Hong Kong. One key plank of this initiative was the removal of tax uncertainty for private wealth management through the introduction of a tax concession for family-owned investment holding vehicles managed by Hong Kong single family offices.

Legislative Approval of the Hong Kong Single Family Office Tax Concession

The government released its proposal paper for industry consultation on March 8, 2022. Impressively, on May 10, 2023, the Legislative Council swiftly approved the Inland Revenue (Amendment) (Tax Concessions for Family-Owned Investment Holding Vehicles) Bill 2022. This bill will have a retrospective application starting from the tax year 2022/23.

Whilst the family offices need not invest in Hong Kong to secure concessionary treatment, the FIHVs must have some minimum economic substance in Hong Kong in terms of staff and operating income as considered below.

Meanwhile the government is set to support the enhancement of the local talent pool able to service family offices, is seeking to attract new talent from overseas, and is promoting the city to become a premier green centre for green and sustainable finance and fintech. These “green” areas are of particular interest to environmentally conscious entrepreneurs, who are also increasingly interested in not just sustainability, but in passing on a regenerative legacy.

What Is the Hong Kong Single Family Office Tax Concession

Tax Exemption on Qualifying Investment Profits

A concessionary rate will apply to the investment profits of a Family-Owned Investment Holding Vehicle from qualifying assets and can include the investment profits of underlying qualifying special purpose vehicles in which they are beneficially interested. The rate will be zero for 2022/23.

The concession also applies to income that arises incidental to the holding of qualifying assets (e.g. interest), limited to 5% of total receipts arising from the qualifying assets.

The family office is taxable on its own operational profits. Very often the office will operate on a cost basis and as a result transfer pricing principles will apply to determine the taxable profits.

How the Legislation Operates?

Entities Eligible for the Hong Kong Single Family Office Tax Concession

The legislation operates by identifying entities available for a tax concession through the following principal definitions:-

(a) A Family-Owned Investment Holding Vehicle (a “FIHV”) – an entity or legal arrangement (including a company, trust, partnership or foundation) established anywhere in the world that meets the following criteria:

a. It is normally managed or controlled in Hong Kong,

b. It meets the ownership qualification at all times in the basis period, namely that it has either (i) one or more members of a family with at least 95% of the beneficial interest (directly or indirectly) or (ii) one or more members of a family with at least 75% of the beneficial interest (directly or indirectly) with the balance held by a charity exempted under section 88 of the Inland Revenue Ordinance.

c. It meets the asset qualification, namely that the qualifying assets under management exceed HK$240m. Qualifying assets are Section 16C assets (explained below). These can be held directly by the FIHV or by underlying special purpose entities in which the FIHV has a qualifying interest.

d. The company meets minimum economic substance criteria, initially understood to be 2 employees with “the necessary qualifications” and operating expenditure subject to the profits tax regime of at least HK$2m.

(b) A Family-Owned Special Purpose Entity (a “FSPE”) – an entity established anywhere in the world in which a FIHV has a beneficial interest (direct or indirect) established or created solely for holding and administering investee private companies or Schedule 16C assets

(c) An Interposed Family-Owned Special Purpose Entity (a “IFSPE”) – an entity through which an indirect beneficial interest in an investee private company is held by a FPSE in which a FIHV has an interest.

(d) An Eligible Single Family Office (a “ESF”) – a private company that meets the following criteria and other detailed requirements:

a. It is normally managed and controlled in Hong Kong

c. It provides services to “specified persons” of a family. Specified persons can include a family member, a FIHV, a FSPE in which a FIHV has a beneficial interest (direct or indirect) or an IFSPE.

d. The FIHVs under management meet the minimum asset tests.

e. The profits of the ESF from providing family office services meet at least 75% of the total profits of the office in each year and are subject to the profits tax regime. This safe harbour rule in practice permits some limited scope for activities for third parties.

(e) A Family – broadly defined by reference to an individual living or dead as the source of the family to include all lineal relations, siblings, adoptees, spouses, and siblings through marriage. Spouses and deceased persons are treated as members of a family for a grace period after divorce or death to allow for events that might otherwise prejudice the exemption.

(f) Section 16C assets – refers to a list at section 16C of the Inland Revenue Ordinance. These assets are securities, shares, bonds and certain foreign exchange contracts and other financial investments. Real estate is not included. The Hong Kong government has expressed an intention to review this list.

Practical Considerations and Compliance Requirements

Whilst thoughtfully and generously drawn, the exemption will not apply to all family offices with a presence in Hong Kong. Nor will it apply to all investment entities they manage or operate. The cost/benefit of restructuring to secure the concession would need to be considered carefully given that investment profits sourced off-shore are often arguably not taxable in Hong Kong in any event. The concession does however, provide certainty in some cases where the position may not be entirely clear.

The legislation is by no means simple to navigate, and there are various compliance hurdles that will need to be addressed. Whilst it is not a licensing regime, and there is no need to apply for the exemption as such, there is an annual self-declaration process using new form IR 1479, which can be found on the IRD website (https://www.ird.gov.hk/eng/paf/for.htm#pf). If the concession is claimed, the conditions for eligibility should be monitored on an ongoing basis to ensure compliance with the regime.

A Department Interpretation and Practice Note is expected from the Inland Revenue Department which will elaborate on the legislation and practical requirements.

How Ravenscroft and Schmierer Can Assist Family Offices?

The Hong Kong Single Family Office tax concession provides opportunities but requires careful structuring, compliance monitoring and interpretation of technical eligibility rules. At Ravenscroft and Schmierer, we advise families, principals and advisors on the establishment and operation of single-family offices, tax concession eligibility and ongoing compliance obligations.

Contact us if you are considering setting up or restructuring a single-family office in Hong Kong, our team can guide you through the legal and tax considerations.

FAQ: Hong Kong Single Family Office Tax Concession

What is the Hong Kong Single Family Office tax concession?

It is a profits tax exemption for qualifying investment income earned by family-owned investment holding vehicles managed by Hong Kong single family offices.

When does the tax concession apply from?

The regime applies retrospectively from the year of assessment 2022/23.

Is there a minimum asset threshold?

Yes. Qualifying assets under management must exceed HKD 240 million.

Are family offices required to invest in Hong Kong?

No. Investments may be made globally.

What economic substance is required?

Generally, at least two qualified employees and operating expenditure of HKD 2 million in Hong Kong.

Does the family office itself enjoy tax exemption?

No. The exemption applies to investment profits. Operational income of the office remains taxable.

Is prior IRD approval required?

No. The regime operates through self-declaration with annual compliance.

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

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