Proposed profits tax exemption for family office business

Zero-tax rate for family office business will further reinforce Hong Kong’s position as international financial centre and asset management hub

The Hong Kong Government has been promoting Hong Kong as an asset and wealth management hub in the region. After the Unified Fund Exemption (“UFE”) in 2019, it has recently released a consultation paper on providing tax concession for eligible family-owned investment holding vehicles (“FIHVs”) managed by single family offices (“SFOs”) in Hong Kong with a view to further attracting family offices to establish a presence in Hong Kong.

Some of the key requirements on FIHVs and SFOs under the proposal:
1.    all the interests of the FIHV must be owned by individual(s) of the same family (“Single Family”); 
2.    the assets of the FIHV must be managed by an SFO in Hong Kong;
3.    the central management and control (“CMC”) of the FIHV and SFO must be exercised in Hong Kong;
4.    the SFO must not provide investment management services to other FIHVs not owned by the Single Family;
5.    the aggregate average value of assets under management for the family-owned structure (either a single FIHV 
       or multiple FIHVs) must be more than HK$240 million; and
6.   each FIHV or the SFO should employ at least 2 full-time qualifying employees in Hong Kong and incur at least 
      HK$2 million of operating expenses in Hong Kong for carrying out the family office business.

Points to note:

The family office business tax concession is most welcomed. This serves as a perfect complement of Fund Profits Tax exemption introduced in Year 2019. Remember that, in order to qualify for the fund tax exemption, the fund must have more than one investors. The Single Family requirement of family office tax exemption perfectly complement with this limitation.

More importantly, with proper tax planning, we consider that it is not difficult for family office to fulfill the above requirements. Family office practitioner should not miss the opportunity to enjoy the Zero-rate tax concession.

Cheng & Cheng will keep abreast of the future development of the amendment bill and inform you if there is any important update.

You may refer to our previous issues of newsletter for other related topics:
•    Carried interest tax concessions
•    Certificate of Residence (“CoR”) for Special Purpose Entities (“SPE”) under fund structure