Hong Kong family tax regime

The Hong Kong Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Ordinance 2023 came into operation on 19 May 2023. Upon gazette, the law is effective retrospectively from 1 April 2022 and offers Hong Kong Family Offices certainty in terms of the tax implications for the management of assets in Hong Kong.

Without material change but more relaxed compared to the latest draft bill, the finalized tax regime provides tax exemption on the profits of the Qualifying Transactions under the qualifying Family Office structure. It indicates the determination of the Hong Kong Special Administrative Region government to push Hong Kong forward as the global centre for Family Offices.

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A. Conditions for tax exemption

To qualify for the family office tax regime tax exemption, the following conditions should be met:

1. Minimum total net asset value of specified assets managed by ESFO

Total net value of the specified assets managed by a ESFO for the FIHV(s) and the FSPEs held by the FIHVs at the end of the FIHVs’ basis period for the year of assessment (“subject year”) or for the year immediately preceding the subject year (“1st preceding year”), or immediately preceding the 1st preceding year should be at least HK$240 million (around US$30 million); The specified assets are listed under Schedule 16C to the Inland Revenue Ordinance:

1. Securities;
2. Shares, stocks, debentures, loan stocks, funds, bonds or notes of, or issued by, a private company (“Relevant Company”) (also see item 5 below);
3. Futures contracts; iv. Foreign exchange contracts under which the parties to the contracts agree to exchange different currencies on a particular date;
4. Deposits other than those made by way of a money-lending business;
5. Deposits (as defined by section 2(1) of the Banking Ordinance (Cap. 155)) made with a bank (as defined by Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571));
6. Certificates of deposit (as defined by Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571));
7. Exchange-traded commodities; ix. Foreign currencies; x. OTC derivative products (as defined by Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571));and
8. An investee company’s shares co-invested by a partner fund and ITVFC under the ITVF Scheme.

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2. Ownership

At least 95% of the beneficial interest of the ESFO and FIHVs should be held by the family. Any interest held by parents, spouse, descendants, siblings, niece, nephews, cousins, and their in-laws can be included in calculating the beneficial interest of the family. Children can include adopted children / stepchildren / illegitimate children of either the person or his spouse.

This can however be reduced to 75% if the remaining 25% is held by a Section 88 tax-exempt charity.

If structure involves a trust arrangement (which complicates the assessment of the family’s percentage of beneficial interest), an advance ruling is strongly recommended to confirm structure’s compliance with this requirement.

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3. Establishment of ESFO, FIHVs

ESFO, FIHVs can be set up outside HK but must register with the Companies Registrar and obtain a Business Registration in HK. The FIHV can be any entity, including any legal arrangement; corporate or unincorporated, partnership and a trust (including a discretionary trust) but the ESFO must be a private company. FIHVs is not a business undertaking for general commercial or industrial purposes.

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4. Management, control, operations

• Both the ESFO and FIHVs shall normally be managed OR controlled in Hong Kong¹ ;
• The FIHV should meet the requirements below during the fiscal year –
  
  • Incurred annual operating expenses of at least HK$2 million (around US$260,000) in investment activities in Hong Kong; and
  • Employed at least 2 full time employees (who are qualified to carry out the investment services) in Hong Kong.

The above should be commensurate with the level of the investment activities in Hong Kong.

FIHV can outsource the above to be performed by ESFO or (as arranged by ESFO) to be performed by other parties in Hong Kong.

• At least 75% of the ESFO’s profits must come from managing the family assets.

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5. Anti-avoidance for tax exemption

No tax exemption on the profits generated from the transactions on item ¹ii. above if the Relevant Company directly / indirectly holds –

(a) immovable property in Hong Kong; or
(b) share capital in another private company which holds directly/ indirectly immovable property in Hong Kong.

Unless,

• the total value of the aforesaid immovable property and share capital held by the Relevant Company does not exceed 10% of the Relevant Company’s total assets fair value, and
• the FIHV / FSPE holds the item 1ii. assets items issued by that Relevant Company –
  
  • at least 2 years;
  • or o if below 2 years;
    
    • FIHV / FSPE does not have control over the Relevant Company; or
    • If FIHV / FSPE has control over the Relevant Company; aggregate value of the short-term assets (i.e. any assets other than Schedule 16C assets, immovable property, and held less than 3 years) directly / indirectly held by the Relevant Company does not exceed 50% of Relevant Company’s total assets fair value.

¹ The definition of “normally managed or controlled” is not as yet finalised and the IRD will issue a Departmental Interpretation Practice Note in due course.

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B. Tax implications

Tax exemption for FIHVs and FSPEs

• FIHV(s)
  Assessable profits arising from –
  
  • Qualifying Transactions (“QT”); and
  • Transactions incidental to QT (subject to 5% of the total FIHV’s trading receipts from qualifying transactions and incidental transactions in the basis period) will be exempt.
• FSPE(s)
  Portion of any assessable profits arising from transactions listed below that corresponds to the percentage of beneficial interest held by the FIHVs (under the same Family Office structure) –
  
  • Assets under Schedule 16C as detailed in Part A. item 1 above;
  • Shares, stocks, debentures, loan stocks, funds, bonds or notes of, or issued by, an investee private company or an interposed FSPE (IFSPE);
  • Items below in relation to item ii in Part B :
    
    • Rights, options or interests;
    • Certificates of interest or participation in, temporary or interim certificates for, receipts for, or warrants to subscribe for or purchase;
  • Any transactions incidental to carrying out the transactions in Part B items i, ii, iii,will be exempt.
• Tax exemption mechanism:
  Reliance on self-assessments of FIHVs and FSPEs with completion of a supplementary form to elect for the tax exemption (Yes/No form, state actual total investment asset value, etc.) to Profits Tax Return.

Once elected for tax exemption, it will apply for all subsequent years of assessment (i.e. no annual election is required) and irrevocable.

No pre-approval from Inland Revenue Department is required. However, after the tax submission, the IRD will review whether the level of the Family Office’s operating expenses and employees are commensurate with the level of the core income generating activities carried out by the Family Office Structure in Hong Kong.

Taxation on ESFO

• Any income derived by an ESFO from FIHVs and the Family for the provision of services shall be on an arm’s length basis and subject to Hong Kong Profits Tax at the tax rate of 16.5%.
• An ESFO will be entitled to the two-tiered Profits Tax Rates Regime (i.e. enjoy lowered tax rate of 8.25% on its first HK$2,000,000 assessable profits) if the ESFO has no connected entity nominated to be chargeable at the two-tiered rates.
  

A simplified mind map is on Portcullis website for illustrative purpose.

The simple requirements and tax exemption mechanism are highly attractive for global high-net worth families to set up their family office structures in Hong Kong.

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Other government measures in support of the Family Offices

The above Tax Exemption is one policy measure for creating a conducive and competitive environment for the businesses of global family offices and asset owners in Hong Kong.

There are other measures outlined in the Government’s “Policy Statement on Developing Family Office Businesses in Hong Kong” dated 24 March 2023 which include:

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1. The Hong Kong Academy for Wealth Legacy
The Government will fund the setup of a new Hong Kong Academy for Wealth Legacy under the Financial Services Development Council. It will be supported by partnerships with the industry, professional service providers, universities, and the dedicated Family Office HK team under Invest Hong Kong (InvestHK). It will offer talent development services to industry practitioners and next-generation wealth owners, with a view to cultivating a deep talent pool for the family office sector in Hong Kong.

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2. Art storage facilities at the airport
The Hong Kong Airport Authority is actively exploring the establishment of storage, display and appreciation facilities for art and treasures at the Hong Kong International Airport, as part and parcel of the Airport City development. It will enable global family offices with capital allocation in art to benefit from the thriving art ecosystem in Hong Kong.

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3. Hong Kong as a philanthropic centre
The goal of Hong Kong is to develop Hong Kong into a philanthropic centre for global family offices and philanthropists to deploy charitable capital benefiting Hong Kong, the Mainland and the overseas. Hong Kong will enhance the processing of applications for recognition of tax exemption status of charities. The Inland Revenue Department (“IRD”) will devise a standard form to facilitate the submission of applications and streamline processing. The IRD will also provide further guidance for applicants to facilitate precise statement of charitable objects.

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We are more than happy to discuss with our clients about the Family Office Tax Regime. Should you have any questions to the above, please feel free to contact:

Pisces Wong
Senior Manager
15/F, BOC Group Life Assurance Tower,
No. 136 Des Voeux Road Central, Central, Hong Kong
Tel: (General) (852) 2525 9991 (Direct): (852) 3173 1046
Email: pisces.wong@portcullis.co

Index
ESFO = Eligible Single Family Office
FIHV = Family-owned Investment Holding Vehicle
FSPE = Family-owned Special Purpose Entities

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PORTCULLIS GROUP
portcullis.co

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香港家族辦公室稅制

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尊贵的客户惠鉴：

香港《2023年税务(修订)(家族投资控权工具的税务宽减)条例》于2023年5月19日刊宪生效，且自 2022 年 4 月 1 日起追溯生效。该法案为香港家族办公室在香港资产管理的税务影响方面提供了确定性。

这法案的修订版本与草案比较, 没有重大变更, 但细节却较为宽松，对合资格的家族办公室架构下合资格交易的利润提供税务豁免。 这显示了香港特别行政区政府推动香港成为全球家族办公室中心之决心!

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A. 税务豁免条件

要获得家族办公室税收制度的税务豁免资格，须满足以下条件

1. ESFO管理的指明资产的最低资产门坎

单一家族办公室为同架构的FIHV和FSPE所管理的「指明资产」总值于以下任何一个时期必须最少为2.4亿港元（约3000 万美元）：

• 有关会计年度完结时; 或
• 上一个会计年度结束时（「首个上一年度」）; 或
• 在首个上一年度的上一个课税年度结束时。

《税务条例》附表16C的指明资产:

1. 证券；
2. 私人公司(（“有关公司”）（另见下文第 5 项）的（或私人公司发行的）股份、股额、债权证、债权股额、基金、债券或票据；
3. 期货合约；
4. 符合以下说明的外汇交易合约：在该合约下，合约各方协议在某特定日期，兑换不同货币；
5. 存款（以放债业务的形式作出的存款除外）；
6. 存放于银行（《证券及期货条例》（第571章）附表1第1部所界定者）的存款（《银行业条例》（第155章）第2(1)条所界定者）；
7. 《证券及期货条例》（第571章）附表1第1部所界定的存款证；
8. 交易所买卖商品；
9. 外币；
10. 《证券及期货条例》（第571章）附表1第1部所界定的场外衍生工具产品; 及
11. 由伙伴基金与创基公司根据创基计划共同投资的获投资公司的股份。

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2. 拥有权

ESFO 和 FIHV 至少 95% 的实益权益应由有关家族成员持有。 父母、配偶、后裔、兄弟、姐妹、侄女、侄子、表亲及其姻亲持有的任何权益都可以包括在计算家庭实益权益中。 子女可以包括此人或其配偶的领养/继子女/非婚生子女。

如ESFO 和 FIHV的 25%实益权益由根据《税务条例》第 88 条获得税务豁免的慈善机构持有，则有关家族成员持有可以减少至 75%。

若架构涉及信托安排（这使得对家族实益权益百分比的评估变得复杂），强烈建议申请「事先裁定」以确认架构符合此要求。

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3. ESFO, FIHVs的成立

ESFO、FIHVs都可以在香港境外成立，但必须在公司注册处注册并在香港取商业登记。 FIHV 可以是任何实体，包括任何法律安排； 属法团或非属法团、合伙和信托（包括全权信托），但 ESFO 必须是私人公司。而且FIHVs不能为一般商业或工业目的而经营的业务实体。

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4. 管理、控制、营运

• ESFO 和 FIHVs两者都是通常在香港境内受管理或控制的。¹;
• FIHV 在财政年度内应满足以下要求 –
  
  •  在香港为进行相关投资活动而每年承付至少 200 万港元(大约26万美元)的营运开支；及
  • 在香港雇用至少 2 名合资格全职雇员。

上述内容应与在香港的投资活动水平相称。

FIHV 可以将上述工作外判给 ESFO 或（由 ESFO 安排）由香港的其他单位执行。

• ESFO至少75%的利润必须来自所管理的家族资产。

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¹通常「管理或控制」的定義尚未最終確定，香港稅務局將適時發布釋義及執行指引。

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5. 就税务豁免的反避税措施

就上述第 1ii 项交易, 若「有关公司」直接/间接持有以下项目, 则有关第 1ii项交易产生的利润将无法享有税务豁免 –

(a) 在香港的不动产；或\
(b) 一家私人公司的股本，而该私人公司直接/间接持有在香港的不动产。

除非，

• 「有关公司」持有的上述不动产及股本的总价值不超过该公司总资产的公允价值的10%，及
• FIHV / FSPE 持有「有关公司」发行的1ii所列出的资产 –
  
  • 至少 2 年；或
  • 如未满2年；及
    
    • FIHV / FSPE对「有关公司」没有控制权； 或
    • FIHV / FSPE对「有关公司」有控制权；
      「有关公司」直接/间接持有的短期资产(即持有少于3年的任何资产, 除了附表16C资产及在香港的不动产）的总价值不超过「有关公司」总资产的公允价值的50%。

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B. 税务影响

关于FIHVs, FSPEs的税务豁免

• FIHV(s)
  应评税利润来自–
  
  •  合资格交易(“QT”) ; 及
  • 属带于 QT 的交易（上限为 FIHV 于有关税务年度内进行的合资格交易和其附带交易中获得的总营业收入之5%）将被豁免。

• FSPE(s)
  以下交易产生的任何应评税利润，会根据被FIHVs(在同一个家族办公室架构下)持有的实益权益百份比而获得税务豁免

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1. 附表 16C 的指明资产，详见上文 A 部分的第 1 项；
2. 某获投资私人公司或某中间家族特体(IFSPE) 的(或由其发行的)股份、股额、债券证、债权股额、基金、债券或票据；
3. 与 B 部分的第 ii 项有关的以下项目：
   
   1. 权利、期权或权益；
   2. 指明证券的权益证明书、参与证明书、临时证明书、中期证明书、收据，或认购或购买指明证券的权证；
4. 任何进行 B 部分第 i、ii、iii 项交易的附带交易。

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• 税务豁免机制：

透过FIHVs 和 FSPEs 的自我评估, 并于年度利得税申报时, 填写利得税报税表之相关附加表格来选择税务豁免（内容大致是「是非」选择题，申明其实际总投资资产价值等）。

一旦选择税务豁免，它将适用于往后的课税年度（即不需要每年选择）并且不可撤销。

税务局的事先批核。 但申请有关税务豁免后，税务局也会一如检视其他税务优惠等, 会亦会检讨家族办公室的营运开支及雇员的水平，是否与家族办公室架构在香港进行的主要赚取收入的活动水平相称。

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就ESFO之评税

• 就ESFO向 FIHV及有关家族成员提供的服务而收取的报酬均须符合「独立交易的原则」, 并缴纳香港利得税，有关利得税税率为 16.5%。
• 若 ESFO 并没有其他关联实体在香港采用两级制利得税率征税，则 ESFO可以两级制利得税率制度课税（即其首二百万港元的应评税利润可享受税率8.25% ）。

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保得利集团网站就有关新税法附载了简单示意图。

以上简单利落的要求和税务豁免机制对全球高净值家族在香港设立家族办公室架构无拟极具吸引力。

其他政府支持家族办公室的措施

上述的税务豁免只是其中一项政策措施，旨在缔造有利和具竞争力的环境，让全球家族办公室和资产拥有人的业务可在香港蓬勃发展。

此外，香港特区政府于 2023 年 3 月 24 日发表的《有关香港发展家族办公室业务的政策宣言》中, 还介绍了其他措施, 包括:

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1. 成立香港财富传承学院
香港政府会资助成立全新的香港财富传承学院，该学院将在香港金融发展局架构下成立，并由业界组织、专业服务提供商、大学和投资推广署(InvestHK)的FamilyOfficeHK专责团队等合作伙伴支持。学院会为行业从业员和财富继承者提供人才培训服务，为本港家族办公室行业壮大人才库。

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2. 推广机场的艺术品贮存设施
香港机场管理局正积极研究于「机场城市」发展项目下，在香港国际机场设立艺术与珍品的贮存、展览和鉴赏设施，让把资产投放在艺术品的全球家族办公室在本港日益兴旺的艺术生态圈中受惠。

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3. 发展香港成慈善中心
本港的目标是把香港发展成为慈善中心，为全球家族办公室和慈善家调配慈善资金，让香港、内地以至世界各地受惠。本港会优化慈善团体申请获豁免缴税的程序。税务局(IRD)会编制标准表格，便利递交申请及简化处理程序，并就申请人拟订规管文书提供进一步指引，以便他们就慈善宗旨作出明确陈述。

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我们非常乐意与我们的客户讨论家族办公室税收制度。 如果您对以上内容有任何疑问，请随时联系 –

黄英妍
资深会计及税务经理
中环德辅道中134-136号中银集团人寿保险大厦15楼
电话: (总机) (852) 2525 9991 (直线) (852) 3173 1046
电邮:Pisces.Wong@portcullis.co

索引
ESFO = Eligible Single Family Office 具资格的单一家族办公室
FIHV = Family-owned Investment Holding Vehicle 家族投资控权工具
FSPE = Family-owned Special Purpose Entities 家族特定目的实体

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保得利集团
www.portcullis.co