The much-anticipated “Tax (Amendment) (Family Investment Control Tool Tax Relief) Bill 2022” (hereinafter referred to as the “Tax Relief Ordinance”) was passed on its third reading in the Legislative Council of the Hong Kong Special Administrative Region (hereinafter referred to as “Hong Kong SAR”) on May 10, 2023, and will come into effect on the day of its publication on May 19, 2023.
The Tax Relief Ordinance will be retroactively effective from the tax year starting on April 1, 2022. This is an important measure to enhance Hong Kong’s attractiveness as a hub for family offices (hereinafter referred to as “family offices”) and an international financial center, enrich Hong Kong’s capital pool, and create more business opportunities for the financial industry and other professional sectors. It is also a significant change for private clients and family wealth investment management and succession arrangements.
We have compiled the key points of tax relief regulations, application requirements, and practical methods for you, providing a clear overview and giving you a competitive edge.
The Inland Revenue Department of the Hong Kong Special Administrative Region has added new items to the Profits Tax Return Form for the fiscal year 2022-2023, allowing taxpayers to declare whether they are a First-time IncoME (FIHV) or a First-time Sole Proprietor Establishment (FSPE), and whether they choose to apply for preferential treatment for the relevant profits. FIHVs that choose to apply for preferential treatment also need to fill out the newly released IR1479 form, which provides the tax authorities with detailed information for assessing the taxpayer’s eligibility for preferential treatment.
01 What are the key points of the Tax Concession Ordinance?
The tax relief regulations have referred to the regulations of other tax jurisdictions, conducted extensive research and investigation over the past year, and adopted the opinions of the members of the Bill Committee and industry representative organizations (including Ernst & Young). The formal issuance of the tax relief regulations highlights the following four aspects, bringing more flexibility and operability to ultra-high-net-worth individuals and their wealthy families for investment and wealth management through the establishment of SFOs in Hong Kong, as well as for inheritance arrangements:
Flexible Control
The Hong Kong operational requirements for eligible SFOs and FIHVs have been changed from “centralized management and control” to “usually managed or controlled,” facilitating wealthy families outside Hong Kong to transfer the operations of their eligible SFOs and FIHVs to Hong Kong and manage or control them as usual in Hong Kong.
Sharing Good Deeds
Charitable entities exempted from tax under Article 88 of the tax regulations can directly or indirectly hold up to 25% of the beneficial interests in eligible SFOs or FIHVs (family members hold at least 75% of the beneficial interests; unrelated persons hold no more than 5% of the beneficial interests), better taking care of the family’s participation and contributions to charity.
Elastic Control
Understanding that it is not feasible to record all possible control structures involving specified trusts that meet the 95% beneficial interest requirement, the introduction of presumed provisions considered and accepted by the Commissioner of Taxation, accepting various control structures that meet the ≥95% beneficial interest requirement, including multi-layered specified trusts.
Diversified Investment
The applicability of tax relief for qualified transactions is considered separately for each investment matter, not affected by other transactions that do not meet the requirements, to increase the clarity of applicable tax exemptions, which is beneficial for families to carry out diversified investments.
As leading international financial centers, both Hong Kong and Singapore are popular destinations for setting up family offices, suitable for families with different purposes and backgrounds. Families with larger asset management scales may also consider establishing family offices in both locations to manage the assets and wealth held by different family investment control tools (Hong Kong: FIHV; Singapore: Qualifying Asset Holding Entity, QAHE).
Generally speaking, a single family office that manages the family’s own investments does not need to obtain a financial license, and setting up a single family office in Hong Kong does not require prior approval from the Inland Revenue Department of the Hong Kong Special Administrative Region. The purpose of establishing a family office varies from one family to another. We suggest that when establishing a family office in Hong Kong, the following main steps can be considered:
This is the first initiative implemented by the government at the end of March in the “Yu Ze Xiangjiang” high-level forum, in the “Policy Declaration on the Development of Family Office Business in Hong Kong”. We believe that after the introduction of the tax relief regulations, the Hong Kong government will continue to implement the other seven major policy measures, including:
► Introducing a new “Capital Investor Entry Scheme” to further enrich the talent pool and attract more new funds to settle in Hong Kong
► Providing convenient market measures
► Establishing the Hong Kong Wealth Inheritance Academy to train talents
► Promoting art storage facilities
► Promoting charitable affairs
► Investing 100 million yuan in the Hong Kong Special Administrative Region Investment Promotion Agency over the next three years to attract more family offices to Hong Kong
► Convening and establishing a new network of family office service providers, etc.
If you have any needs or related questions, please contact the VERTU private assistant.
