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23 May 2023

Hong Kong passes bill on tax concessions for Family-owned Investment Holding Vehicles

  • A bill passed in Hong Kong on the tax concessions for family-owned investment holding vehicles has retroactive effect from 1 April 2022.
  • Taxpayers engaged in asset and wealth management activities may want to review their investment structure and assess eligibility for the tax concessions.

The Hong Kong "Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Ordinance 2023" (the New Law) was gazetted on 19 May 2023 and will take retroactive effect from 1 April 2022. The New Law introduces a dedicated tax-concession regime for Family-owned Investment Holding Vehicles (FIHVs) managed by eligible single-family offices (ESFOs) in Hong Kong. Upon making an irrevocable election in writing, an FIHV managed by an ESFO in Hong Kong will be taxed at a 0% concessionary tax rate on its assessable profits derived from qualifying transactions and incidental transactions, subject to a 5% threshold.

The New Law enacts the key provisions outlined in our earlier Global Tax Alert1 (highlighting the proposed bill) and incorporates the following flexibilities proposed in the Committee Stage Amendments:

  • Changes the requirement that the FIHVs and the ESFOs be "centrally managed and controlled in Hong Kong" to "normally managed or controlled in Hong Kong"
  • Allows a 25% maximum ownership threshold for tax-exempt charities in FIHVs/ESFOs
  • Clarifies that nonqualifying investments of FIHVs or Family-owned Special Purpose Entities in a private company will not taint their tax-exempt profits derived from qualifying transactions
  • Empowers the Commissioner of Inland Revenue to consider, in cases of multi-layered family trusts, the 95% beneficial interest requirement in FIHVs and ESFOs as deemed satisfied based on all the circumstances of a case

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong

Ernst & Young LLP (United States), Hong Kong Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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ENDNOTE

Document ID: 2023-0927

 

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