Bill granting tax concession to investment vehicles of family offices passes its third reading in the Legislative Council

The Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Bill 2022 (the Bill), which seeks to introduce a dedicated tax concession regime for Family-owned Investment Holding Vehicles (FIHVs) managed by eligible Single Family Offices (ESFOs) in Hong Kong, is expected to be gazetted on 12 May 2023.

The Bill, as passed, has incorporated several Committee Stage Amendments (CSAs) to the original bill. The CSAs were in response to submissions made by various professional bodies to the Bills Committee aimed at enhancing the original bill to make the proposed tax concession more attractive. 

These CSAs include:

(i) changing the requirement that the FIHVs and the ESFOs must be “centrally managed and controlled in Hong Kong” to “normally managed or controlled in Hong Kong”; 

(ii) increasing the threshold of the maximum ownership of tax-exempt charities in FIHVs/ESFOs from 5% to 25%, without affecting the eligibility of the FIHVs for the tax concession; 

(iii) clarifying that non-qualifying investments of FIHVs or Family-owned Special Purpose Entities (FSPEs) in a private company will not taint their tax-exempt profits derived from qualifying transactions; and 

(iv) empowering the Commissioner of Inland Revenue (CIR) to regard, based on all the circumstances of a case, FIHVs/ESFOs to be 95%, in aggregate, beneficially owned by members of a family in ownership structures involving multiple layers of family trusts (such 95% ownership being a pre-requisite for the tax concession). 

Clients who wish to explore how they can benefit from the new law can contact their tax executives.