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Executive summary
The Hong Kong Government introduced the Inland Revenue (Amendment) (Tax concessions for family-owned investment holding vehicles) Bill 2022 (the Bill) on 9 December 2022 regarding a dedicated tax concession regime for family-owned investment holding vehicles (FIHVs) managed by eligible single-family offices (SFOs) in Hong Kong.
As outlined in our earlier Global Tax Alert,1 the proposed tax concession regime will exempt an FIHV and its eligible special purpose entities (SPEs) from profits tax in respect of its taxable profits earned from qualifying transactions carried out or arranged by an eligible SFO in Hong Kong. The provisions in the Bill are substantially consistent with that outlined in the consultation but indeed with several positive enhancements. The Bill is currently under review by the Hong Kong Legislative Council and once passed will take retrospective effect from 1 April 2022.
This Alert summarizes the key provisions of the Bill.
Detailed discussion
Similar to the existing unified fund exemption regime, an FIHV will be taxed at a 0% concessionary tax rate under the proposed tax concession regime in respect of its assessable profits earned from qualifying transactions carried out or arranged by an SFO in Hong Kong. This includes profits earned incidental to the qualifying transactions, subject to a 5% threshold. The tax concessions will also be provided to eligible SPEs2 owned by an FIHV in proportion to its beneficial interest in such SPEs.
The proposed tax concession regime will take retrospective effect from 1 April 2022. An FIHV can elect for the tax concessions by making an irrevocable election in writing.
Eligibility to the proposed regime
Qualifying requirements | Details |
FIHV | An entity,3 whether established or created in or outside Hong Kong, is an FIHV for a year of assessment if:
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Eligible SFO | A private company, whether incorporated in or outside Hong Kong, is an eligible SFO if:
The Bill further proposes that no more than 50 FIHVs managed by the same eligible SFO may benefit from the proposed regime. The Bill relaxed the permitted scope of services so an eligible SFO can provide other services to members of the relevant family. |
Qualifying transactions |
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Substantial activities requirements | Subject to an “adequacy” test, the FIHV should at a minimum:
The qualified employees and operating expenditures incurred by an eligible SFO should be attributed to each FIHV for ascertaining the substantial activities requirements. Outsourcing of investment activities by the FIHV to the SFO is permitted, provided that it is not for circumventing the substantial activities requirement. |
The Bill contains specific anti-avoidance provisions, including anti-round tripping provisions and main purpose test.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Services Limited, Hong Kong
- Wilson Cheng
- Paul Ho, Financial Services
Ernst & Young LLP (United States), Hong Kong Tax Desk, New York
- Charlotte Wong
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
- Gagan Malik
- Dhara Sampat
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago
- Pongpat Kitsanayothin
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.