HK's family office hub hopes get another push with new tax regime
The passing of the tax concession for family-owned investment holding vehicles bill by Hong Kong’s Legislative Council is another step towards wooing family offices to set up shop in the city and could yet help the financial hub in competing with rival Singapore.
The bill, which provides profits tax concessions on qualifying transactions of family-owned investment holding vehicles managed by single family offices in Hong Kong, was passed on May 10 and is set to become law on May 19.
“The tax concession on family-owned investment holding vehicles provides families with certainty of tax treatment of their assets as they appreciate in value,” Edith Ang, head of family advisory, Asia Pacific at HSBC Global Private Bank, told AsianInvestor, recently.
Industry experts welcomed the final version of the bill.
“Both the family-owned investment holding vehicle and the family office are required to be 'normally managed or controlled' in Hong Kong (this was a welcome amendment to the first draft of the bill which required 'management and control' of both entities in Hong Kong),” Katie Graves, partner in the private client and tax team at legal firm Withers, told AsianInvestor.
“Provided that an overseas family hires sufficient professionals to manage the investment activities of the FIHV in Hong Kong, this requirement should generally be met even if the key strategic decision makers remain abroad, making the regime attractive to overseas families.”
HOPING FOR MORE
The government is hoping the new tax regime will encourage family offices to set up and operate in Hong Kong, create new business opportunities for the asset and wealth management sector and generate demand for other related professional services.
“When family offices decide where to set up their operations and locate their investments, tax treatment is often a key factor influencing their decisions, Financial Services and Treasury Secretary Christopher Hui told the Asian Financial Forum in January.
“From a macro, policy-level perspective, we are hoping to see family offices create more high-quality job opportunities for our talent, and bring more investments into innovation and technology startups, venture capital as well as private philanthropy,” Hui said.
While each family office may have different needs, there are some essential aspects that most family offices value: "a sophisticated financial services environment, ease of doing business across borders, and convenience of communication and travel,” noted Nick Chan, head of multi-family office at Rockpool Capital.
“There’s a geographical component too: for example, Hong Kong is strategically situated within North Asia and is a gateway to the Greater Bay Area and China as a whole – making it a top choice for families looking to tap into opportunities in this region. But most fundamental of all, a family office needs to be based close to its clients,” he said.
MORE WORK NEEDED
Hong Kong plans to target strategic locations such as mainland China, the Middle East, Europe and Southeast Asia to attract family offices, Christine Ho, deputy global head of FamilyOfficeHK, told AsianInvestor earlier this year.
FamilyOfficeHK is a team under Invest Hong Kong dedicated to being a one-stop shop for family offices interested in establishing a presence in the city.
The government has previously said it wants to attract up to 200 large family offices to Hong Kong by 2025 and has announced several measures in recent months to support that goal.
These include a capital investment entrant scheme aimed at attracting talent and new business by granting residency to individuals who make an investment of over HK$10 million ($1.27 million) in local markets, excluding property, and an academy to nurture talent to manage wealth via a planned Hong Kong Academy for Wealth Legacy.
Family offices recently told AsianInvestor that as the industry grows, there will a growing need for skilled professionals including those in sustainability, technology and digital investing.
Still, Hong Kong has a lot of catching up to do as rival Singapore has also attracted the attention of family offices in recent years, especially as Hong Kong’s business activities fell amid tight Covid-19 restrictions.
Singapore’s family office numbers have ballooned in the past few years, driven by wealth flows from mainland China.
A brain drain in Hong Kong has also led to a talent shortage in many sectors, particularly financial services, and family services are no exception, Patrick Tsang, chairman of single family office Tsangs Group, told AsianInvestor.
There are opportunities for Hong Kong to come back on par with Singapore, Alex Chan, partner, Treasure Capital, said at a panel discussion at AsianInvestor’s Family Office Briefing in Hong Kong in late March.
“We see opportunities in Hong Kong working with other countries and other regions, for example, for family offices in Middle East or strategic partners in Europe, it could be very interesting value proposition for them to set up outposts here, whether it's in Singapore or Hong Kong.”
Rockpool's Chan also noted that most family offices serious about growing in the Asia Pacific region are looking to set up a presence in Hong Kong if they don’t already have one -- and that was the case long before the recent announcement.
Additional contribution from Shusi He