The Hong Kong government has introduced a dedicated profits tax concession regime for eligible Family-owned Investment Holding Vehicles (FIHVs) that are managed by an eligible Single-Family Offices (SFOs) in Hong Kong.
Intended to promote the Hong Kong family office, the Inland Revenue (Amendment) (Tax concessions for family-owned investment holding vehicles) Bill was approved by the Legislative Council on 10 May and was gazetted and came into force on 19 May. It will have retrospective effect from 1 April 2022.
The Ordinance amends the Inland Revenue Ordinance (Cap. 112) (IRO) to provide a 0% concessionary profits tax rate for FIHVs that are managed by eligible SFOs in Hong Kong. This includes profits earned incidental to the qualifying transactions, subject to a 5% threshold.
The tax concession will also be extended to eligible Family-owned Special Purpose Entities (FSPEs) that are owned by an FIHV in proportion to its beneficial interest in the FSPE.
Only the assessable profits of FIHVs and FSPEs arising from qualifying transactions and incidental transactions are eligible for a 0% concessionary profits tax rate, which applies in respect of a year of assessment commencing on or after 1 April 2022.
A qualifying FIHV must satisfy the following conditions:
- Structure: the FIHV must be an entity established or created in or outside Hong Kong that is not a business undertaking for general commercial or industrial purposes. Entity means a body of persons (corporate or unincorporate) or a legal arrangement and includes a corporation, partnership and trust (including a discretionary trust).
- Ownership: the FIHV must relate to one or more than one member of a single family and meet the ownership requirements.
- Normal management or control (NMC): the FIHV must be normally managed or controlled in Hong Kong during the basis period for the year of assessment.
- Management of FIHV: the FIHV must be managed by an eligible SFO and meet the minimum asset threshold.
- Substantial activities requirement: the FIHV must carry out its core income generating activities (CIGAs) in Hong Kong and meet the requirements of qualified full-time employees and operating expenditures.
An FIHV must be managed in Hong Kong by an eligible SFO of the family to which the FIHV is related. To be an eligible SFO of a family, the SFO must:
- Be a private company (incorporated in or outside Hong Kong) that is normally managed or controlled in Hong Kong.
- Have at least 95% of its beneficial interest being held (directly or indirectly) by members of the family (except where a charitable entity is involved).
- Provide services to specified persons of the family during the basis period for the year of assessment and the fees for the provision of those services are chargeable to tax.
- Fulfil the safe harbour rule, whereby at least 75% of the eligible SFO’s assessable profits should derive from the services provided to specified persons of the family.