Executive summary
On 8 March 2022, Hong Kong published a consultation proposal to introduce a tax concession regime (the proposed regime) for family-owned investment holding vehicles (FIHVs) managed by single-family offices (SFOs) in Hong Kong. It is anticipated that the proposed regime will apply retrospectively to any financial year ending on or after 1 April 2022.
This Alert summarizes the key provisions of the proposed regime.
Detailed discussion
Under the proposed regime, an FIHV would be exempted from profits tax in respect of its taxable profits earned from qualifying transactions1 carried out or arranged by an SFO in Hong Kong (including profits earned incidental to the qualifying transactions, subject to the 5% threshold).2 The proposed regime would also cover special purpose entities (SPEs) established by a FIHV that hold and administer the specified assets.
FIHV requirements
A qualifying FIHV must fulfill the following conditions:
Must be a corporation, partnership, or trust, which is incorporated, registered or established in or outside Hong Kong
All the issued shares or interests of the FIHV must be exclusively and beneficially owned by one or more individuals who are “connected persons” of the same family (Single Family)3 directly or indirectly
The assets of the FIHV must be managed by an SFO in Hong Kong
The central management and control (CMC)4 of the FIHV must be exercised in Hong Kong
Must only serve as an investment vehicle for holding and administering the assets for the Single Family, and must not directly engage in activities for general commercial or industrial purposes
SFO requirements
A qualifying SFO must satisfy the following requirements:
Must be a private company (incorporated in or outside Hong Kong) exercising CMC in Hong Kong
Must be exclusively and beneficially owned directly or indirectly by the Single Family holding the FIHV(s)
Must not provide investment management services to entities other than the FIHV(s) exclusively and beneficially owned by the Single Family
Minimum threshold on the assets under management
The minimum asset threshold requires that the aggregate average value of the specified assets be at least HK$240 million (US$30 million) in each of the following family-owned structure:
A single FIHV which is managed by an SFO in Hong Kong; or
Multiple FIHVs which are exclusively and beneficially owned by the Single Family directly or indirectly and managed by the same SFO in Hong Kong.
Substantial activities requirements for FIHVs
The FIHV should have an adequate number of full-time qualified employees and incur an adequate amount of operating expenditure for carrying out the core income generating activities (CIGAs)5 including:
Employing not less than two full-time employees in Hong Kong who carry out the activities concerned and have the qualifications necessary for doing so
Incurring not less than HK$2 million (US$260k) of operating expenditure in Hong Kong for carrying out the activities concerned
Outsourcing of CIGAs by the FIHV to the SFO is permitted, provided that the use of outsourcing is not for circumventing the substantial activities requirement.
Implications
The consultation proposal is a welcome step towards development of Hong Kong as a family office hub. The proposal provides only a high-level summary of the proposed regime. After the public consultation on the proposed regime ends on 8 April 2022, the relevant detailed legislative provisions are expected to be provided in a bill that would be introduced later.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Services Limited, Hong Kong
- David Chan
- Paul Ho, Financial Services
Ernst & Young LLP (United States), Hong Kong Tax Desk, New York
- Charlotte Wong
- Rex Lo
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
- Chris Finnerty
- Gagan Malik
- Bee-Khun Yap
- 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.