10/01/23

HONG KONG: Bill introduces tax concessions for family offices.

As published on step.org/industry-news, Monday 9 January, 2023.

The Hong Kong government has introduced a Bill providing tax concessions for investments managed by eligible single-family offices, with retrospective effect from 1 April 2022.

The Inland Revenue (Amendment) (Tax concessions for family-owned investment holding vehicles) Bill 2022 will exempt family-owned investment holding vehicles (FIHVs) and their portfolios of special purpose entities from tax on transactions carried out by a Hong Kong-based family office. The provision is similar to that already in effect under the unified fund exemption regime.

The exemption includes profits earned incidental to the qualifying transactions, subject to a 5 per cent threshold. A minimum asset value of HKD240 million also applies. The tax relief is also available to special purpose entities in proportion to the FIHV's beneficial interest. An FIHV can elect for the tax concessions by making an irrevocable election in writing.

One or more family members must hold at least 95 per cent of the direct and indirect beneficial interest in the family office during the whole of the tax year. It need not be incorporated in Hong Kong but its central management and control must be exercised there at all times.

To satisfy the 'substantial activities' requirements, a qualifying FIHV must have at least two full-time qualified employees in Hong Kong, and must incur at least HKD2 million of annual operating expenditure in Hong Kong for carrying out the investment activities for the year.

Outsourcing of investment activities by the FIHV to the family office is permitted, provided that it is not for circumventing the substantial activities requirement.

The Bill also contains specific anti-avoidance provisions, including anti-round-tripping provisions and a main purpose test. Profits from investments in certain private companies by FIHVs or special purpose vehicles will not be eligible for the tax concessions if they fail the immovable property test, the holding period test or the control and short-term asset test.

The measure is currently under review by the Legislative Council of Hong Kong.