Hong Kong - Profits tax concession offered for family investment holding vehicles

As part of the Hong Kong government’s initiative to promote family office businesses, a profits tax exemption is being offered to family-owned investment holding vehicles (FIHVs) that are managed in Hong Kong and meet certain other requirements. The Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Bill 2022 was passed on 10 May 2023 and became effective on 19 May 2023. Eligible FIHVs can now benefit from the tax concession with effect from year of assessment (YOA) 2022/23, i.e., retroactively as from 1 April 2022.

This article summarises the features of the profits tax exemption and what it means in practice.

Eligibility for tax concession

To be eligible for the profits tax exemption, an FIHV must, at all times during a YOA, be an entity that:

  • Is normally managed and controlled in Hong Kong;
  • Is at least 95% beneficially owned by member(s) of a single family (if the non-family owner is a charitable institution, family ownership can be reduced to 75%);
  • Is not a business undertaking for general commercial or industrial purposes;
  • Is managed by an eligible single-family office (ESF); and
  • Carries out its core income generating activities (CIGAs) in Hong Kong and at least meets the minimum asset threshold and substantial activity requirements (i.e., the  assets under management by an ESF must include at least HKD 240 million of “Schedule 16C” assets (e.g., securities, stock, debentures, bonds or notes of, or issued by, a private company); and under the substantial activity requirement, an FIHV must have (i) at least two full-time employees in Hong Kong who have the necessary qualifications and can carry out the CIGAs for the FIHV; and (ii) at least HKD 2 million in operating expenditure incurred in Hong Kong in carrying out the relevant activities).

Family-owned special purpose entities (FSPEs) set up and held by an eligible FIHV solely for holding and administrating Schedule 16C assets and/or investee private companies also are eligible for the profits tax concession.

An ESF is a private company:

  • Whose central management and control is exercised in Hong Kong;
  • That is at least 95% beneficially owned by member(s) of the family that holds the FIHV(s) (if the non-family owner is a charitable institution, family ownership can be reduced to 75%);
  • That provides services to specified persons (ie FIHV(s), FSPE(s), interposed FSPE(s) or member(s) of the family) and the fees for the provision of those services are chargeable to tax; and
  • That meets the safe harbour rule, under which more than 75% of its profits are derived from the services provided to FIHVs, FSPEs and/or specified family members.

Qualifying profits

Profits derived by an eligible FIHV from transactions in Schedule 16C assets (i.e., qualifying transactions) and subject to a 5% threshold, profits from transactions incidental to the carrying out of qualifying transactions (i.e., incidental transactions) can benefit from the 0% concessionary profits tax rate. For an FSPE, profits from transactions in Schedule 16C assets and qualified incidental transactions; specified securities of or issued by an investee private company or an interposed FSPE; rights, options or interests in those specified securities; and certificates of interest or warrants to subscribe for, or the purchase of, those specified securities also are eligible for the concessionary rate. (Currently, the Hong Kong tax authorities consider dividends and interest income as incidental income based on their view that such income arises from the holding of equity and fixed income instruments.) Tax professionals anticipate that uncertainty in this area will be clarified through legislative amendments.

Anti-avoidance provisions

The profits tax concession will not apply in certain circumstances, similar to the exceptions under the existing fund exemption regime (for prior coverage, see the July 2020 tax alert). The exceptions are complex but are centred on investee private companies holding Hong Kong immovable property and short-term assets. Transactions caught by these exceptions will fall outside the family office profits tax exemption but will not affect other qualifying transactions of the FIHV/FSPE.

Compared to the fund regime, the anti-round-tripping provisions, which operate to deem tax-exempt profits of the FIHV/FSPE as assessable profits of a resident person if the conditions are fulfilled, are modified to exclude resident individuals and certain resident entities as defined (i.e., ESFs and broadly passive holding entities used by family members to hold an interest in the FIHV).

The tax concession also will not apply if the Commissioner of Inland Revenue determines that (i) the main purpose, or one of the main purposes, of an FIHV or FSPE in entering into an arrangement; or (ii) the main purpose, or one of the main purposes, of a person making a transfer of an asset or a business to the FIHV or FSPE, is to obtain a tax benefit for any person.


An FIHV will have to make a written election to benefit from the profits tax exemption, and once made, the election will be irrevocable. A specific supplementary form will be required to be filed along with the FIHV’s profits tax return to report particulars about itself, its FSPEs, profits, asset value and local substance.

A responsible person for an FIHV and ESF should keep sufficient records to enable the identity and particulars of the beneficial owners of the FIHV/ESF to be readily ascertained. FIHVs and FSPEs will be able to request advance rulings under the existing mechanism to confirm their eligibility for the tax concession.


We welcome this encouraging development in Hong Kong’s tax law for family offices, particularly because the government has incorporated feedback provided by various stakeholders during the consultation process. There are a number of complexities to navigate in terms of how the tax concession will operate and how it will interact with other Hong Kong tax rules or regimes, including the application of the transfer pricing rules to related party transactions between an ESF and its affiliates, the recently refined foreign-source income exemption regime (for prior coverage, see the article in the August 2022 issue of Corporate Tax News) and hopefully in the near future, more certainty on determining the taxability of capital gains.

Family offices operating or planning to operate in Hong Kong should consider evaluating their structures and operation models if they plan to avail of the tax concession in Hong Kong.

Agnes Cheung
BDO in Hong Kong

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