Hong Kong Raises Family Offices' Competition Stakes
Last month, Hong Kong’s Legislative Council began work on a law to help its family offices compete with those of rival hubs such as Singapore. It is expected to take effect in April.
While not enacted to a massive fanfare and possibly overshadowed by moves to loosen pandemic controls, new Hong Kong legislation for family offices could help the financial hub compete more vigorously with rival Singapore.
In December 2022, the Asian city introduced a bill providing tax concessions for investments managed by eligible single-family offices, with retrospective effect from 1 April 2022, according to EY, the Society of Trust and Estate Practitioners and other bodies commenting on the details.
A statement from the government said the first reading of the bill was on 14 December. The government added: "The multiplier effect of attracting more family offices to set up and operate in Hong Kong could be tremendous, including generating increased demand for financial and related professional services, creating more high-quality employment opportunities, and channelling substantial capital to Hong Kong's capital markets, thus benefitting the economy as a whole.”
Called the Inland Revenue (Amendment) (Tax concessions for family-owned investment holding vehicles) Bill 2022, it exempts family-owned investment holding vehicles and their portfolios of special purpose entities from tax on transactions carried out by a Hong Kong-based family office.
STEP noted that the provision is similar to that already in effect under the unified fund exemption regime.
Among the details, the exemption includes profits earned incidental to the qualifying transactions, subject to a 5 per cent threshold. A minimum asset value of HK$240 million ($30.8 million) also applies. The tax relief is also available to special purpose entities in proportion to the FIHV's beneficial interest.
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 does not need to be incorporated in Hong Kong. However, central management and control of this beneficial interest must be exercised there at all times.
An important term in financial affairs today is “substance.” 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 HK$2 million of annual operating expenditure in Hong Kong for carrying out the investment activities for the year.
With Singapore having introduced its own legislation for family offices, including a fresh look at the variable capital companies regime introduced in 2022, Hong Kong’s move looks like an attempt to wrest back some of the initiative from its rival.
Hong Kong’s international profile as a family office hub has arguably suffered from the strict quarantine and lockdown measures imposed to tackle the pandemic since 2020, while Dubai and Singapore have been quicker to loosen controls. Last year in the UAE, for example, the Dubai International Financial Centre, aka DIFC, introduced a new family business and private wealth centre.