Hong Kong: A Snapshot Of Hong Kong's Proposed Tax Concession Regime For Family Offices

The Financial Service and Treasury Bureau (FSTB) announced in a Policy Statement today several measures with a view to creating a conducive and competitive environment for the businesses of global family offices and asset owners to thrive in Hong Kong.

These measures include a dedicated regime which aims to provide a tax concession for single 'family offices' operating in Hong Kong. It should be clarified that the tax concession regime proposed under the Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Bill 2022 (the 'Bill')¹ has not yet come into effect. The Bill is still under review by the Legislative Council of Hong Kong and this article refers to the provisions of the Bill as gazetted.

Though Hong Kong adopts a mainly territorial basis of taxation, and entities which hold investments are generally only subject to Profits Tax² if they 'carry on trade or business in Hong Kong' and derive 'Hong Kong sourced' profits which are 'trading' (as opposed to capital) in nature the application of these common law principles is fact specific and not clear cut.

In addition, with the recent changes³ to tax 'specified foreign sourced income'⁴ in Hong Kong, entities carrying on a trade or business in Hong Kong may face a further risk of Profits Tax if they receive such foreign sourced income in Hong Kong⁵, subject to certain conditions and exceptions⁶.

Currently, Profits Tax is charged at 16.5% for corporations (with the first HK$2 million of assessable profits being taxed at 8.25%, subject to certain conditions being met).

The Bill aims to offer certainty such that income derived by a Family Investment Holding Vehicle (FIHV) shall be charged at a concessionary tax rate (which will be 0% for the tax year 2022-23) provided that certain conditions are met. The regime aims to benefit families with FIHVs and family offices already operating in Hong Kong, as well as families located overseas who intend to establish their investment teams in Hong Kong.

It is anticipated the Bill will be refined and enacted by the end of March or early April 2023 with the tax concession applying retrospectively from 1 April 2022.

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