Single Family Office
A SFO must:
be a private company (incorporated in or outside Hong Kong) exercising CMC in Hong Kong;
have at least 95% of its beneficial interest being held (directly or indirectly) by members of the family;
provide services to specified persons of the family and the fees for the provision of those services are chargeable to tax; and
fulfill the safe harbour rule whereby at least 75% of the SFO’s assessable profits should derive from the services provided to specified persons of the family.
A specified person in relation to a family means:
an FIHV that is related to the family;
an FSPE in which the FIHV has a beneficial interest (whether direct or indirect);
an interposed FSPE of the FIHV; and
a member of the family.
Management of Family-owned Investment Holding Vehicle by Single Family Office
One or more than one member of a single family will establish or create in or outside Hong Kong an FIHV entity. Entity means a body of persons (corporate or unincorporate) or a legal arrangement and includes a corporation, partnership and trust (including a discretionary trust). The FIHV must not be a business undertaking for general commercial or industrial purposes.
The SFO will manage the FIHV and meet the minimum asset threshold. The FIHV must exercise Central management and control (CMC) in Hong Kong. The FIHV must carry out its core income generating activities (CIGAs) in Hong Kong. The FIHV must have an adequate number of qualified full-time employees and incur an adequate amount of operating expenditure for carrying out the CIGAs in Hong Kong. At a minimum, the FIHV is required to have:
at least two full-time employees in Hong Kong who carry out the activities concerned and have the qualifications necessary for doing so; and
at least HK$2 million operating expenditure incurred in Hong Kong for carrying out the activities concerned.
Outsourcing of CIGAs to the SFO is permitted. The number of qualified full-time employees employed and the amount of operating expenditure incurred by the FIHV, or by the SFO on behalf of the FIHV if the CIGAs are outsourced, must be commensurate with the level of the CIGAs carried out in Hong Kong.
The SFO will carry out the investment activities in relation to the FIHV. The activities include the following:
conducting research and advising on any potential investments to be made by the FIHV;
acquiring, holding, managing or disposing of property for the FIHV; and
establishing or administering an FSPE for holding and administering one or more underlying investments of the FIHV.
A family may hold FIHVs directly or indirectly through a resident company which must be a passive investment holding vehicle not carrying on any trade or business. The company is interposed between the family members and the FIHV. At least one member of the family to which the FIHV is related must have a direct or indirect beneficial interest in the company. Regardless of the extent of the beneficial interest held by the family members in the company, at least 95% of the beneficial interest in the FIHV must be held by family members.
Ownership of Family-owned Investment Holding Vehicle
To associate an FIHV with a single family, one or more than one member of the family must have at least 95%, in aggregate, of the beneficial interest (whether direct or indirect) in the FIHV. Members of the family include a natural person (Person A) and all of the persons related to Person A (whether alive or deceased) mentioned below:
a spouse of Person A (Person B);
a lineal ancestor of Person A (Person C);
a lineal ancestor of Person B (Person D);
a lineal descendant of Person A (Person E);
a sibling of Person A, Person B, Person C or Person D (Person F);
a lineal descendant of Person F (Person G); and
a spouse of Person E, Person F and Person G.
A lineal descendent includes adopted and step children of the person’s spouse (including a deceased spouse) or former spouse.
Minimum Asset Threshold
The aggregate value of assets managed by a SFO for the FIHV (or multiple FIHVs) of a family must be at least HK$240 million.
Assets include the following:
Securities;
Shares, stocks, debentures, loan stocks, funds, bonds or notes of, or issued by, a private company;
Futures contracts;
Foreign exchange contracts under which the parties to the contracts agree to exchange different currencies on a particular date;
Deposits other than those made by way of a money-lending business;
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));
Certificates of deposit (as defined by Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571));
Exchange-traded commodities;
Foreign currencies;
OTC derivative products (as defined by Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571)).
Profits Tax Concessions for Family-owned Investment Holding Vehicles and Family-owned Special Purpose Entities
The Inland Revenue Ordinance (Cap. 112) (IRO) provides profits tax concessions for:
(a) eligible Family-owned Investment Holding Vehicles (FIHVs) managed by Single Family Offices (SFOs) in Hong Kong; and
(b) Family-owned Special Purpose Entities (FSPEs).
Only the assessable profits of FIHVs and FSPEs arising from qualifying transactions and incidental transactions would be eligible for profits tax concessions, which would apply in respect of a year of assessment commencing on or after 1 April 2022.
It is quite common for an FIHV to establish FSPEs for holding and administering the FIHV’s assets. Therefore, profits tax concessions will be provided at both the FIHV level and the FSPE level to the extent which corresponds to the percentage of beneficial interest of the FIHV in the FSPE.
Election Mechanism
An FIHV can elect for the profits tax concession through an election mechanism. The key features of the election mechanism are as follows:
the election must be made in writing;
the election, once made, will apply to all subsequent years of assessment (i.e. no annual election is required); and
the election made is irrevocable.
Qualifying Transactions and Incidental Transactions
An FIHV may enjoy profits tax concession in respect of transactions in specified assets (qualifying transactions) and transactions incidental to the carrying out of qualifying transactions (incidental transactions) subject to a 5% threshold. For the latter, it means that the FIHV’s trading receipts from incidental transactions must not exceed 5% of the total of the FIHV’s trading receipts from qualifying transactions and incidental transactions. The qualifying transactions of an FIHV must be carried out in Hong Kong by or through an eligible SFO of the relevant family, or arranged in Hong Kong by the eligible SFO.
Concessionary Tax Rate
The concessionary profits tax rate for the assessable profits of an FIHV or an FSPE earned from the qualifying transactions and incidental transactions for a year of assessment commencing on or after 1 April 2022 is 0%.
Record-keeping Requirements
A responsible person for a SFO and the FIHV should keep sufficient records to enable the identity and particulars of the beneficial owner(s) of the SFO and the FIHV and to be readily ascertained. Penalties will be imposed on the SFO and the FIHV if they fail to comply with the record-keeping requirements without reasonable excuse.
How We can Support You in Family Office Services
We support:
• Design and build of family offices • Governance and operational structure • Design of reward structures • Tax strategy • Governance • Resolution of disputes with tax authorities
• Tax advice on relocation of family members • Cross-border reporting and information exchange • Developing wealth structures to cater for the needs of global families • Immigration support including visas and citizenship applications • Developing a philanthropic vision and strategy • Design the philanthropic structure to meet the family’s requirements • Ongoing tax advice to maximise value • Access to financial and tax due diligence and tax advice on structuring • Strategic business advice
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