Setting Up a Family Office in Hong Kong
Like other jurisdictions, there is no legal definition of “family office” in Hong Kong and there are few Hong Kong laws governing the management of a family office. It is generally recognised that a family office is a business entity set up to manage the wealth and affairs of a family or multiple families. The set-up and operation of a family office in Hong Kong will be subject to the laws, regulations and practices generally applicable to companies, partnerships and trusts in Hong Kong.
Type of Entity to Use
The choice of entity is usually either a “company limited by shares” (“Limited Company”) or “company limited by guarantee” (“Private Trust Company”).
The difference between Limited Company
and Private Trust Company is that the former is held by shareholders while the latter is participated by members. Shares of Limited Company will be passed to the estate and distributed according to succession law upon death of the shareholder whilst in the case of Private Trust Company, membership expires on death leaving the remaining members to manage the trust and thereby preserving the continuity of ownership. Unlike Limited Company, particulars of members of Private Trust Company can be kept confidential as they are not required to be filed or disclosed to the public. However, Private Trust Company needs to file annual financial statement with the Companies Registry which is a public document.
There is no specific licensing regime for family offices in Hong Kong. The Securities and Futures Commission issued a Circular on the Licensing Obligations of Family Offices on 7 January 2020. As the licensing regime under Securities and Futures Ordinance (“SFO”) is activity-based and a family office may carry out various investment activities, the following licences may be required :-
Type 1: dealing securities
Type 2: dealing in futures contracts
Type 4: advising on securities
Type 5: advising on futures contracts
Type 9: asset management in Hong Kong
If the services provided by a family office do not constitute a business in a regulated activity, the family office is not required to be licensed under the SFO.
A single family office may rely on the following carve-outs to be exempted from the licensing requirements :
1. In cases where a family appoints a trustee to hold assets of the family trust, and the trustee operates a family office as an internal unit to manage the trust assets, the family office will not need the Type 9 licence because it will not be providing asset management services to a third party.
2. If the family office is established as a separate legal entity which is wholly owned by a trustee or a company that holds the assets of the family, it will not need a Type 9 licence as it will qualify for the intra-group carve-out as a full discretionary investment manager of the securities or futures contracts portfolio. The family office is not required to be licensed for Type 9 regulated activity if it provides asset management services solely to related entities which are defined as its wholly-owned subsidiaries, its holding company which holds all its issued shares or that holding company’s other wholly-owned subsidiaries.
The above carve-outs may not be applicable to a multiple family office.
Simple and Low Tax Regime
One of the attractions of Hong Kong as a jurisdiction to set up a family office is its simple and low tax regime. The maximum profits tax rate for corporations is 16.5%. There is no sales tax, VAT, withholding tax, capital gains tax, estate tax, tax on dividends or interest from savings and wine tax.
Certain tax exemptions which are available to businesses and individuals may also be relevant to family offices :-
1. All privately offered onshore and offshore funds enjoy profits tax exemption for transactions on specified assets regardless of their structure, size or purpose, as long as they meet the conditions for exemption.
2. On all interest income and trading profits derived from Qualifying Debt Instrument (QDI) issued on or after 1 April 2018, regardless of tenor.
3. No stamp duty on the transfer of all ETF shares or units.
Hong Kong is considering to introduce a tax concession for single family office by passing the “Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Bill 2022” (gazetted on 9 December 2022). Pursuant to the bill, a single family office, upon meeting the requirements as stipulated, will be eligible to profits tax exemption on qualifying transactions and incidental transactions subject to a “5% threshold” (ie trading receipts from incidental transactions must not exceed 5% of the total trading receipts from qualifying transactions). The tax concession will apply from the year of assessment 2022/23 and onwards if the bill is passed.
Visa and Immigration
The Hong Kong Government has made various visa schemes available to attract investors, professionals and talents to invest, work and stay in Hong Kong. This would promote Hong Kong as a family office centre.
1. Entrepreneur Visa
The applicant should be in a position to make substantial contribution to the economy of Hong Kong, with factors for consideration such as the business plan, business turnover, financial resources, investment sum, number of jobs created locally and introduction of new technology or skills.
An entrepreneur who wishes to establish or join in a startup business may also apply and the startup business would be considered favourably if it is supported by a government-backed programme which has a rigorous vetting and selection process.
2. Top Talent Pass Scheme (TTPS)
Persons under one of following categories may apply to enter Hong Kong under the TTPS and they are not required to have secured an offer of employment in Hong Kong at application :-
Category A: Persons with annual income of HK$2.5 million or above in the year prior to application;
Category B: Degree graduates of the world’s top 100 universities as defined under the scheme with at least three years of work experience in the five years prior to application;
Category C: Degree holders of the world’s top 100 universities as defined under the scheme graduated within five years prior to application, but have less than three years of work experience, subject to an annual quota which is to be allotted on a first-come, first-served basis.
The TTPS offers a great opportunity for access into Hong Kong.
3. Further, General Employment Policy (GEP) and the Admission Scheme for Mainland Talents and Professionals (ASMTP) have been streamlined such that for vacancies in professions with shortage of local supply, employers are not required to provide proof to substantiate their difficulties in local recruitment in making applications for talent admission. The family office can therefore more conveniently recruit professionals and staff to work for them.
If you have any questions about the above eNews or need legal advice regarding any company/trust/fund set up or compliance issues in Hong Kong, experienced lawyers in our Corporate and Commercial team will be happy to assist you.