Hong Kong Overhauls Tax, Rules To Attract Family Offices
Hong Kong is competing with rival centres such as Dubai, Singapore and Switzerland to grab a piece of the family office pie. It also wants to signal its ambition to make a complete recovery from the disruptions of recent years.
In a move to boost its fortunes and fight against rivals such as Singapore, Dubai and Switzerland, Hong Kong has launched incentives to encourage family offices and high net worth individuals to do business in the jurisdiction. Measures include a new Capital Investment Entrant Scheme, and programmes to encourage art collectors to store works in Hong Kong.
After a period of lockdowns and other setbacks, Hong Kong is keen to restore its standing as an attractive centre for wealthy individuals and their families. Even before the pandemic, rival locations sought to take business, sometimes by rolling out their own family office offerings (Dubai, Singapore). There has also been an exodus of expats from Hong Kong and some residents since the new national security law was imposed by Beijing in 2022.
"The Policy Statement demonstrates our determination to develop Hong Kong into a leading global family office hub. Developing family office business will be conducive to pool capital from around the world in Hong Kong, bolster our financial market as well as asset and wealth management industry,” financial secretary in Hong Kong, Paul Chan, said in a statement last Friday.
The Capital Investment Entrant Scheme (CIES) sets out permissible assets that can be held, and offers tax breaks on profits for family-owned investment holding vehicles (FIHVs), the government statement said.
“Based on the original CIES, we propose the permissible assets for the scheme to include equities listed in Hong Kong; debts issued or fully guaranteed by companies listed in Hong Kong, by the government, or by other corporations, agencies or bodies wholly or partly owned by the government; subordinated debts issued by authorised institutions; and eligible collective investment schemes (including investment-linked assurance scheme (ILAS)),” the statement said. “Besides assets denominated in Hong Kong dollars, assets denominated in RMB will also be considered. Upon approval, applicants may reside and pursue development in Hong Kong along with his/her spouse and dependant unmarried children,” it said. Further details will be unveiled later.
The statement continued that, subject to approval by the Legislative Council, profits tax exemption will be provided to family-owned investment holding vehicles (FIHVs) managed by single family offices in Hong Kong. The Government will also further review the existing preferential tax regimes for funds and carried interest, it said.
The Securities and Futures Commission has set up a dedicated communication channel maintained by its licensing team for family office-related enquiries both by email or telephone. “Having due regard to investor protection, our regulators will introduce a set of more risk-based measures to streamline intermediaries' suitability assessment and disclosure process for sophisticated or ultra-high net worth individual clients,” the statement said.
The move shows that whatever disruptions and problems there have been, the former British colony is determined to protect its pre-eminent position. The mainland, Hong Kong and Macao are now linked under the recently-launched Wealth Connect system for affluent/HNW clients. According to a 2022 report from Boston Consulting Group, Hong Kong is slated to overtake Switzerland as the world’s largest centre for cross-border flows. (That report was, of course, issued prior to the UBS takeover of Credit Suisse following a run of scandals and missteps by the latter bank, a saga that has hurt Switzerland's reputation.)
The government said it will finance the creation 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 FamilyOfficeHK team under Invest Hong Kong (InvestHK).
The Hong Kong Airport Authority is actively exploring the establishment of storage, display and appreciation facilities for art and treasures at Hong Kong International Airport, as part and parcel of the Airport City development.
The government said it “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,” it said.
The FamilyOfficeHK team under InvestHK will convene and launch a new Network of Family Office Service Providers, covering private banks, accounting and legal firms, trusts and other professional services firms, which provide comprehensive services to family offices. The network will provide a two-way channel between the government and the industry to communicate on the latest policy development, and mobilise the industry's global network to advocate and promote the opportunities in Hong Kong for family offices, the government said.
Chi-man Kwan, group CEO and co-founder of Raffles Family Office, said, “We welcome the Hong Kong government's initiative to introduce the new Capital Investment Entrant Scheme. While optimistic about its potential to attract UHNWs, the scheme's success depends on forthcoming details, including eligibility, investment criteria, and application processes. The scheme's competitiveness must be evaluated in light of other factors, such as tax incentives and the regulatory framework. We look forward to receiving more information to better assess the programme's appeal to investors and the financial community at large.”
“We continue to see rising interest in family offices from our ultra-high net worth clients, whose multifaceted and intergenerational needs would benefit from such a setup. Hong Kong, as an international asset and wealth management centre, has a clear competitive advantage to serve the sophisticated needs of global business families and their family offices as they look to expand their operations in Asia and beyond,” Aik-Ping Ng, head of family office advisory, Asia-Pacific, at HSBC Global Private Banking, HSBC, said.
Chi-man Kwan, group CEO and co-founder of Raffles Family Office, said: “We welcome the Hong Kong government's initiative to introduce the new Capital Investment Entrant Scheme. While optimistic about its potential to attract UHNWs, the scheme's success depends on forthcoming details, including eligibility, investment criteria, and application processes.”
“The scheme's competitiveness must be evaluated in light of other factors, such as tax incentives and the regulatory framework. We look forward to receiving more information to better assess the programme's appeal to investors and the financial community at large,” he added.