New tax incentives aim to attract Family Offices and bolster Hong Kong’s Wealth Management sector
The Hong Kong government has announced tax cuts for family offices in an effort to attract wealthy families to set up or expand their businesses in the city.
The government will provide tax exemptions on profits to Family-owned Investment Holding Vehicles (FIHVs) managed by a single-family office (SFO) in Hong Kong as part of a range of measures aimed at enhancing the competitive environment. After the disruptions brought on by the COVID-19 pandemic, Hong Kong is aiming to convince more family offices to open in the city as it aims to develop into a leading global family office hub.
Starting in the year of assessment 2022/23, the FIHV tax system provides a 0% tax rate on assessable profits earned from certain transactions by Family Investment Holding Vehicles (FIHVs) owned by ultra-high-net-worth individuals and their family members, provided that they meet certain conditions.
To qualify as a Family Investment Holding Vehicle (FIHV), an entity must exercise central management and control in Hong Kong, have at least 95% of its beneficial interest held by one or more family members (according to a broad definition that covers multiple generations), and not be a general commercial or industrial business. Additionally, the tax concession extends to special purpose vehicles set up by the FIHV to hold and administer specified assets or invest in private companies.
To be an eligible Single Family Office (SFO), the private company must exercise central management and control in Hong Kong, provide services to a Family Investment Holding Vehicle (FIHV) or its Family Special Purpose Entities (FSPEs) and/or specified persons, chargeable to Hong Kong profits tax, and have at least 95% of its beneficial interest held by one or more members of the relevant family.
Furthermore, they must meet the safe harbour rules, whereby at least 75% of the SFO’s assessable profits is derived from services provided to specified persons in the current year of assessment or in the current year and up to two preceding years of assessment on average. Additional requirements can be found here.
The government believes that developing family office business will contribute to capital pooling and strengthen Hong Kong’s financial market and wealth management industry. The relaunch of the capital investment entrant scheme was one of the measures discussed at the Wealth for Good in Hong Kong Summit, and further details will be released at a later date.
With a target of attracting at least 200 family offices by the end of 2025, Hong Kong is hoping to compete with rival hubs such as Singapore and Dubai, which have been attracting wealthy entrepreneurs with generous tax incentives.
For more information, contact Alpadis Group.