Hong Kong Tax Newsflash

Proposed enhancements to family office tax concessions

Published date: 26 April 2023

The Hong Kong SAR government proposed to make some amendments to the Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Bill 2022 (Bill) after taking into account the views and comments collected by the Bills Committee.  

In this article, we highlight the proposed amendments.  For the features of the family office tax concession, please refer to our Hong Kong Tax Newsflash Issue 166.


Proposed amendments to the family office tax concessions

Management and control 

The original Bill required the central management and control of eligible single family offices (ESF Offices) and family-owned investment holding vehicles (FIHVs) to be exercised in Hong Kong. Central management and control refer to the highest level of control and direction over the operations of an entity.  For families based outside Hong Kong, it may be impractical for their top management or senior members to exercise central management and control in Hong Kong.  In order to facilitate more FIHVs (especially those established outside Hong Kong) to fulfil the condition to enjoy the profits tax concessions, the government proposed to relax the requirement by requiring the ESF Offices and FIHVs to be normally managed1 or controlled2 in Hong Kong.  In other words, the requirement would be fulfilled if the management of daily operations or the highest level of control of the ESF Offices and FIHVs were exercised in Hong Kong. 

Ownership of ESF Offices and FIHVs

The original Bill required the beneficial interest of an ESF Office and FIHV to be at least 95% held by one or more than one member of a single family.  This limited the room for structures involving charitable entities to enjoy the tax concession.

Proposed amendments for structures involving charitable entity3

To cater for families’ philanthropic purposes, the government proposed that a Section 88 tax exempt charitable entity may hold up to 25% of beneficial interest (direct or indirect) in an ESF Office and/or an FIHV and still eligible for the tax concession, subject to the following ownership requirement:

  • at least 75% of the beneficial interest of the ESF Office and/or FIHV is being held (direct or indirect) by one or more than one member of a single family; and 
  • not exceeding 5% of the beneficial interest of the ESF Office and/or FIHV (direct or indirect) is held by one or more than one unrelated person4.

Proposed amendments for structures involving “specified trust”5

Considering that there may be holding structures involving multiple specified trusts or multiple layers of specified trusts, the government proposed to provide flexibility for the Commissioner of Inland Revenue to determine whether the 95% beneficial interest requirement6 have been fulfilled, having regard to all the circumstances of the case particularly the relationship between the entities in the structure.  


Clarification on the application of tax concessions

The government clarified that qualifying transactions will not be affected by the non-qualifying transactions (in other words, no “tainting” effect).  For example, if some of the FIHV's transactions in a private company fail to meet the relevant requirements (i.e. immovable property test, holding period test, control and short-term asset test), the tax-exempt status of the profits from other qualifying transactions would not be tainted.


Our comments

We are pleased that the government has responded to the industry and practitioner feedbacks and refined the family office tax concessions.  It would allow more FIHVs to enjoy the tax concessions and attract more wealthy families, especially those not based in Hong Kong and families with philanthropic cultures, to establish their family offices in Hong Kong. Having said that, there are still some areas which are subject to clarification, e.g. how the threshold for economic substance should be determined if there are multiple FIHVs, the application of anti-avoidance provisions on the transfer of assets or businesses to an FIHV, etc.  We hope the Inland Revenue Department will provide clarification in its guidelines.  


1 “Management” refers to management of daily business operations, or implementation of the decisions made by top management, etc.

2 “Control” refers to control of the whole business at the top level, including formulating the central policy of the business, making strategic policies of the company, choosing business financing, evaluating business performance, etc.

3 "Charitable entity" means a charitable institution or trust of a public character that is exempt from tax under section 88 of the Inland Revenue Ordinance.

4 "Unrelated person” in relation to a particular family means: (a) an entity in which no member of the family has a beneficial interest (whether direct or indirect); or (b) a natural person who is not a member of the family. An “unrelated person” does not include a charitable entity.

5 “Specified trust” is a trust created or established under a trust instrument under which there is one or more than one specified beneficiary and/or one or more than one class of persons or entities any of the members of which is a specified beneficiary.

6 The original Bill provided that, if the aggregate percentage in value of the relevant estate of a specified trust is at least 95%, members of the family who are qualified beneficiaries of the trust, and those other family members who are entitled to benefit from the trust estate, are taken to have at least 95% of the beneficial interest in the specified trust.  

Tax Newsflash is published for the clients and professionals of Deloitte Touche Tohmatsu. The contents are of a general nature only. Readers are advised to consult their tax advisors before acting on any information contained in this newsletter.

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