Bolstered by strong government support and a favourable tax regime, Hong Kong has seen significant growth in the family office sector in recent years. According to the Asset and Wealth Management Activities Survey 2023 published by the Securities and Futures Commission of Hong Kong, assets under management from family offices and private trust clients reached HK$1.45 trillion in 2023, representing a 76% growth from HK$825 billion in 2017.
Earlier last year, Invest Hong Kong, a government department responsible for foreign direct investment, commissioned Deloitte to conduct the first formal market study on single-family offices (SFO(s)) in the city. Based on the number of ultra-high net worth (UHNW) individuals and families in the city, it is estimated that there are over 2,700 pre-existing SFOs in Hong Kong as of the end of 2023, a staggering amount even compared to its regional rival, Singapore, which had a commendable 1,400 SFOs as of the end of 2023.
Hong Kong has long been home to the ‘crazy rich Asians’. According to the Altrata World Ultra Wealth Reports, the city’s UHNW population (ie individuals with over US$30 million in net worth) grew from 9,950 in 2019 to 12,545 in 2023, representing a significant 26.1% growth. Despite a year-on-year drop of 0.4% in 2023 due to:
- an economic slowdown on mainland China, which resulted in weaker returns from China-related assets
- various political reasons which have impacted international investor sentiment, the UHNW population in Hong Kong remains strong and was ranked second globally in 2023, just behind New York. The city’s UHNW population also far exceeds other top UHNW cities, which include the likes of Los Angeles, Tokyo and London. Hong Kong’s strong and resilient UHNW population is the driving force behind the city’s thriving family office sector and while the city is seeing a slowdown in its UHNW population, Hong Kong will likely to continue to be a top choice for the wealthy due to its unique geographic and infrastructure advantages.
The Hong Kong advantage
Hong Kong’s strategic geographic location, robust financial infrastructure and independent judiciary system form the backbone of its success not just in the family offices sector, but in the entire business arena at large. As the largest offshore RMB centre, Hong Kong provides foreign businesses with a gateway into China and a wide range of investment opportunities across Asia and globally.
More significantly, the Hong Kong government has introduced tax incentives and simplified licensing requirements to attract family offices to set up their offices in Hong Kong, details of which are set out below.
Tax concessions on family offices
Renowned for its low tax rates, Hong Kong has introduced amendments (the Amendments) to the Inland Revenue Ordinance (Cap. 112) (the Ordinance), effective May 19, 2023. The new Amendments grant tax exemptions to eligible family-owned investment holding vehicles (FIHVs) managed by eligible SFOs. Eligible FIHVs are fully exempt from paying profits tax on taxable profits from “qualifying” and “incidental” transactions, which include profits derived from trading or holding securities, shares, funds, commodities, and over-the-counter derivatives (Specified Assets) as defined in the Ordinance.
To qualify for tax concessions under the Ordinance, the relevant FIHV and SFO must be “normally managed or controlled in Hong Kong”, with one or more family members holding at least a 95% beneficial interest; or alternatively, if a charitable entity (as defined in section 88 of Ordinance) is a shareholder, family members must hold at least a 75% beneficial interest, and any unrelated persons must hold no more than a 5% beneficial interest. Further, the relevant SFO must meet a minimum asset threshold, whereby the aggregate value of the Specified Assets managed by a SFO for one or multiple FIHV(s) must not be less than HK$240 million.
SFC licensing requirements
The Securities and Futures Commission of Hong Kong published a Quick Reference Guide to licensing requirements for family offices in 2023 (the Guide), setting out the factors that potential family offices should consider when deciding whether they are required to apply for a licence in Hong Kong.
The Guide provides that a family office is only required to be licensed under Hong Kong’s Securities and Futures Ordinance (Cap. 571) if:
- “the services provided by the family office constitute one or more types of regulated activity
- the family office is carrying on as a business
- the business is conducted in Hong Kong”.
In many cases, SFOs in Hong Kong do not operate with the objective of making a profit and tend to only receive reimbursements of operating costs or other incidental expenses from the family that they are serving and will not be considered as carrying on a business from a licensing point of view. Thus, SFOs in Hong Kong are likely to be exempted from licensing requirements.
Outlook
As one of Asia’s oldest family office hubs, Hong Kong has played a pivotal role in developing family wealth management services in the region for over a century. Despite the slowdown in the UHNW population, Hong Kong’s family office sector is set to thrive. The city’s strategic location, robust financial infrastructure and favourable government policies, such as a competitive tax regime, continue to attract the wealthy from across the globe and strengthens Hong Kong’s position as a key hub for wealth management and investment opportunities across Asia and beyond.
