HONG KONG: New profit tax waiver enhances ‘attractiveness of Hong Kong’ as international family-office hub

As published on: scmp.com, Friday 23 June, 2023.

A tax incentive introduced by the Hong Kong government last month for family offices is attracting interest from such firms globally, according to InvestHK.

The city will waive a 16.5 per cent tax on profits generated from global stocks, bonds and other qualified investments by family offices set up in Hong Kong. Family offices are firms set up by wealthy families or individuals to invest their fortunes, manage their ­succession plans and pursue their philanthropic endeavours.

To avail this incentive, such firms must have an investment portfolio valued at HK$240 million (US$30.66 million), two employees in Hong Kong who may or may not be locals, and annual operating expenses of at least HK$2 million.

“The tax incentive has significantly enhanced the attractiveness of Hong Kong as an international family-office hub,” Jason Fong, global head of family offices at InvestHK, a government agency that promotes the city as an international financial centre, told a seminar arranged by the Hong Kong Tianjin Business and Professional Women Association on Wednesday.

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The profit tax waiver – introduced on May 11 – comes after Chief Executive John Lee Ka-chiu, Hong Kong’s leader, set a goal last year of attracting 200 new family offices to the city by 2025. The waiver is among eight measures announced by the Hong Kong government in March aimed at increasing the number of such firms in the city. Other measures include a revamped investment-migration scheme, as well as the creation of art storage facilities at Hong Kong’s airport.

The new incentive, which will be backdated to cover tax assessments from April 1 2022, not only covers Hong Kong-based family offices’ investments in the city, but also those made in overseas markets, Fong said.

“It means any investments in stocks, bonds or other qualified investment products in the UK, Australia, Europe or other overseas markets can enjoy the tax benefit, as long as [the investments] are managed by an entity under a family office set up in Hong Kong,” he added.

“Scores” of representatives from wealthy families in Southeast Asia and other markets have contacted Fong’s office since the introduction of the new incentive and expressed their interest in moving assets currently being managed by their families offices overseas to Hong Kong entities.

“Many of these wealthy families have set up family offices in the UK, Europe or Australia, where they need to pay taxes,” Fong said. “By moving investment assets from these markets to their family offices in Hong Kong, they will no longer need to pay taxes in these markets.”

The new policy offers significant advantages for family offices established in Hong Kong, said JPMorgan Private Bank. It provides “tax certainty on various investment profits” and allows “asset management activities without increasing Hong Kong profits tax risk”.

Karmen Yeung, a tax partner at KPMG, told the seminar that hundreds of bankers, family-office operators and other professionals have attended briefings held by her firm in the days since the introduction of the tax incentive.

“The threshold and requirements [of Hong Kong’s new tax incentive] are not high, [and can] be met by many wealthy families or high-net-worth individuals,” Yeung said.

Singapore, which competes with Hong Kong for international financial services business, also offers tax incentives to family offices. It has had such incentives in place since 2020, but only offers tax breaks for investment in funds managed in Singapore and also requires a minimum investment in Singapore assets.

“When compared with the tax incentives in Singapore, Hong Kong is more flexible as it does not impose requirements of minimum investment in domestic assets, or the hiring of local Hong Kong staff,” she said.

If such firms are not sure about qualifying for the tax benefit, they can apply to the Inland Revenue Department for an advance ruling, so that they can be certain of it, Yeung said.

Financial Secretary Paul Chan Mo-po said in his budget speech in February that the government had allocated HK$100 million to promote family offices and other wealth-management businesses.

“Developing the family office business will be conducive to pooling capital from around the world in Hong Kong,” Chan said in March. It will “bolster our financial markets, as well as asset and wealth management industries”, he said.

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