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The Hong Kong SAR government’s programmes to accelerate the development of the region’s Family Office sector reached a significant milestone with The Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Bill 2022, which was introduced in December, after public consultations. The tax concession regime, along with the regulatory framework for Single Family Offices (SFOs) constitute the pillars of the Asia-Pacific’s most competitive Family Office jurisdictions.


Details on taxation policies for FIHVs have been widely anticipated since Hong Kong’s Securities and Futures Commission (SFC) issued the Circular on Family Office Licensing requirements in 2020. The SFC’s licensing regime requires Single Family Offices to meet specific criteria for regulated activities for Type 9 asset management regulations, which include the management of securities and futures contracts, including funds, shares, bonds, and intellectual property rights.


Single Family Offices managing these types of assets are eligible for an intra-group tax exemption for related entities within a group. Such entities include holding companies with full ownership, wholly owned subsidiaries, or subsidiaries of holding companies. However, Family Investment Holding Vehicles do not fall under the ‘related entity’ category under the SFC’s regulations, even if they are held by individuals that meet the definition of persons connected to the family. The SFC also requires Single Family Offices to be engaged in business activities in Hong Kong, which generally require the for-profit operations with the payment of fees for services rendered.


As such, tax concessions for Family Investment Holding Vehicles have been an area of great interest in the Family Office sector, because Hong Kong is the leading cross-border private wealth management hub in Asia. The tax concessions apply to transactions in Hong Kong involving eligible assets (and incidental transactions, up to a 5% threshold) including exchange-traded commodities, deposits, securities, futures contracts, and other investment products.


Family Investment Holding Vehicles have to meet specific requirements in order to qualify for the concessions.  The assets must be managed by a Single Family Office registered in Hong Kong, and the beneficiaries of the FIHV must be persons connected to the family. Any documented family relation (including the children of a spouse’s siblings) would generally suffice to meet the connected person criteria.


Furthermore, the FIHV’s administrative functions (‘Central Management and Control’) should be executed in Hong Kong, and all core income generating activities must take place in the jurisdiction. The SFO must have assets under management with an aggregate value of at least HK$240 million and employ at least two full time staff involved in revenue generating operations. The minimum operating expenditure required to qualify for the tax concessions is HK$ 2 million.


The Tax Concessions Amendment Bill also stipulates that in order for Single Family Offices to be eligible, they must be Hong Kong based private companies, fully under the family’s ownership, providing investment management services exclusively to the beneficiaries and no other unrelated persons or entities.


Qualifying SFOs may claim tax concessions for a maximum of 50 Family Investment Holding Vehicles under a single entity. FIHVs will also enjoy an exemption from Hong Kong profits tax, as long as they pass the tests for funds under the unified tax exemption regime. These include an immovable property test, holding period test and control and short-term asset test. The Inland Revenue Department has also implemented guardrails to prevent offshore round-trip structuring and shifting income to FIHVs for tax avoidance purposes.


As Hong Kong’s new Family Office regulations and tax regime take shape, we would like to encourage our clients to assess the unique advantages and benefits available to them. We have several decades of experience working closely with SFOs in Hong Kong, and we specialize in matching industry leading expertise with an appreciation for cultural context and individual circumstances when working with our clients across Asia and Europe. Should you have any enquiries regarding structuring, taxation, or trust set up and administration, please do not hesitate to contact us for a complimentary initial consultation.