Hong Kong’s Strategic Advantage in Cross-Border Wealth Management

Hong Kong has established itself as a premier international financial hub for wealth management and family office establishment, offering a unique combination of regulatory sophistication, tax efficiency, and strategic positioning for cross-border operations. The introduction of the Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Ordinance 2023, which came into effect on 19 May 2023, has significantly enhanced Hong Kong’s appeal to ultra-high-net-worth families seeking tax-efficient wealth structuring.

The city’s territorial tax system, extensive network of double taxation agreements (CDTAs), and proximity to mainland China and other Asian markets make it an optimal location for managing cross-border wealth portfolios. As of 2025, Hong Kong has signed CDTAs with 53 jurisdictions, providing comprehensive relief from double taxation and facilitating international investment flows.

Understanding the Family Office Tax Concession Regime

Legislative Framework and Scope

The Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Ordinance 2023 amended the Inland Revenue Ordinance (IRO) to provide profits tax concessions for:

• Eligible Family-owned Investment Holding Vehicles (FIHVs) managed by eligible Single Family Offices (SFOs) in Hong Kong
• Family-owned Special Purpose Entities (FSPEs)

The regime offers a 0% tax rate on assessable profits derived from qualifying transactions and incidental transactions (subject to a 5% threshold). Importantly, no prior approval from the Inland Revenue Department (IRD) is required, though entities must meet all eligibility criteria.

Eligible Single Family Office (SFO) Requirements

To qualify as an eligible SFO, an entity must meet the following criteria:

1. Legal Structure: Must be a private company (incorporated in or outside Hong Kong)
2. Management and Control: Normally managed or controlled in Hong Kong
3. Ownership: At least 95% of beneficial interest held (directly or indirectly) by family members
4. Service Provision: Provide services to specified persons of the family during the basis period
5. Safe Harbour Rule: At least 75% of the SFO’s assessable profits must derive from services provided to specified family persons
6. Asset Threshold: Manage Schedule 16C assets with aggregate net asset value of at least HK$240 million

Notably, a charitable entity may hold up to 25% of beneficial interest (direct or indirect) in an FIHV and/or eligible SFO, providing flexibility for philanthropic structuring.

Economic Substance Requirements

Compliance with international tax standards requires FIHVs to carry out Core Income-Generating Activities (CIGAs) in Hong Kong. The IRD has established minimum thresholds:

The IRD’s approach does not rely on a rigid formula but considers the overall substance of operations. Outsourcing of activities to the SFO is permitted, provided the service provider meets substance requirements and resources are not double-counted across multiple entities.

Qualifying Transactions and Schedule 16C Assets

Covered Asset Classes

Profits from qualifying transactions – those involving assets listed under Schedule 16C of the IRO – are eligible for the 0% concessionary rate. Schedule 16C assets include:

• Securities: Shares, stocks, debentures, and bonds (including those issued by private companies)
• Futures Contracts: Exchange-traded and OTC derivatives
• Foreign Exchange Contracts: FX forwards, swaps, and options
• Foreign Currencies: Currency holdings and trading
• Deposits: Bank deposits and similar instruments
• Exchange-Traded Commodities: Commodity futures and options
• OTC Derivative Products: Customized derivative instruments

2025 Budget Enhancements: Expanded Asset Coverage

The Hong Kong Government announced in the 2025-26 Budget significant expansions to qualifying transactions, including:

• Emission Derivatives/Allowances: Carbon credits and environmental trading instruments
• Insurance-Linked Securities (ILS): Catastrophe bonds and other ILS issued through insurance securitisation
• Loans and Private Credit Investments: Direct lending and alternative credit strategies
• Digital Assets: Virtual assets as defined under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance
• Interests in Non-Corporate Private Entities: Partnership interests and similar structures

These enhancements reflect the evolving financial landscape and Hong Kong’s commitment to remaining competitive with other family office jurisdictions globally.

Incidental Transactions

Trading receipts from incidental transactions – such as interest income from holding Schedule 16C assets – also benefit from the tax concession, provided they amount to not more than 5% of total trading receipts from both qualifying and incidental transactions.

Hong Kong’s Standard Profits Tax Structure

Two-Tiered Tax Rates

For entities not qualifying for family office concessions, or for non-qualifying income streams, Hong Kong’s two-tiered profits tax system applies:

For connected entities within a group, only one entity may claim the preferential two-tier rates, preventing artificial splitting of businesses to multiply tax benefits.

Territorial Tax Principle

Hong Kong operates on a territorial basis of taxation – only profits sourced in Hong Kong are subject to profits tax. This fundamental principle provides significant advantages for family offices with diversified international portfolios, as offshore income may qualify for exemption if properly structured.

However, the introduction of the Foreign-Sourced Income Exemption (FSIE) Regime effective 1 January 2023 (and expanded 1 January 2024) has added complexity. Under FSIE, certain foreign-sourced passive income received by multinational enterprise (MNE) entities may become taxable unless economic substance or other requirements are met.

Additional Tax Advantages

• No Capital Gains Tax: Disposals of capital assets are generally not taxed
• No Withholding Tax: No withholding tax on dividends, interest, or royalties paid to non-residents
• No VAT/Sales Tax: No value-added tax or sales tax regime
• No Estate/Inheritance Tax: Estate duty abolished in 2006

Investment Vehicle Structures for Family Offices

Comparison of Common Structures

Limited Partnership Fund (LPF) – Recent Enhancements

The LPF structure has gained significant traction among family offices due to:

• Privacy: Registration is optional, allowing families to maintain confidentiality
• Flexibility: Suitable for diverse strategies including PE, VC, real assets, and emerging tokenisation structures
• Streamlined Process: Amendments effective September 2024 simplified registration procedures
• Expanded Scope: Broader range of permissible investments following 2024 updates

Each LPF must maintain a Hong Kong registered office, appoint a local responsible person for AML/CFT compliance, and engage an auditor for annual financial statements.

Structuring Considerations

When selecting an investment vehicle structure, family offices should consider:

1. Tax Efficiency: Qualification for family office concessions vs. standard tax treatment
2. Asset Protection: Segregation of assets and liability limitation
3. Governance: Control mechanisms and decision-making frameworks
4. Privacy: Disclosure requirements and public registry considerations
5. Operational Flexibility: Ability to adjust strategies and capital
6. Cross-Border Recognition: Treatment in other jurisdictions
7. Succession Planning: Transferability and generational transitions
8. Regulatory Compliance: Licensing requirements (especially for regulated activities)

Cross-Border Tax Implications and Planning

Hong Kong’s Double Taxation Agreement Network

As of September 2025, Hong Kong has signed Comprehensive Double Taxation Agreements (CDTAs) with 53 jurisdictions and has commenced or scheduled negotiations with 19 additional jurisdictions. Recent additions include Bangladesh and Croatia (effective for Hong Kong tax from 1 April 2025).

Key CDTA Benefits for Family Offices

Tax Residency Requirements

To claim benefits under Hong Kong’s CDTAs:

• Individuals: Generally must stay in Hong Kong for more than 180 days in a year of assessment, or more than 300 days across two consecutive years
• Companies/Entities: Must be incorporated or constituted in Hong Kong, OR incorporated outside but managed and controlled in Hong Kong

Foreign-Sourced Income Exemption (FSIE) Regime

Effective 1 January 2023 (expanded 1 January 2024), the FSIE regime addresses EU concerns about tax avoidance through double non-taxation. Key points for family offices:

• Scope: Applies to four types of offshore income (interest, dividends, equity disposal gains, IP income) plus other asset disposal gains (from 2024)
• Who It Affects: MNE entities carrying on business in Hong Kong receiving foreign-sourced income in Hong Kong
• Exemptions: Individuals and standalone local companies (non-MNE) NOT subject to FSIE
• Requirements for Exemption: Must meet economic substance requirement, participation requirement, or nexus requirement (depending on income type)
• Self-Reporting: MNE entities must report specified foreign-sourced income in profits tax returns and retain records for 7 years

Family offices structured as MNE entities must carefully navigate FSIE to avoid unexpected taxation of foreign-sourced income. Proper documentation of economic substance in Hong Kong is critical.

Global Minimum Tax (OECD Pillar Two)

Hong Kong has implemented the OECD’s global minimum tax framework for fiscal years starting from 1 January 2025. This affects:

• In-Scope Entities: Multinational groups with annual consolidated revenue of at least EUR 750 million
• Domestic Minimum Top-Up Tax (DMTT): Applies to both foreign and Hong Kong-headquartered MNE groups
• Family Office Impact: Large family office groups within scope should assess whether DMTT may neutralize benefits of FSIE exemptions or family office concessions

Cross-Border Planning Strategies

1. Structure Optimization: Utilize Hong Kong entities for regional coordination while maintaining substance in appropriate jurisdictions
2. Treaty Shopping Awareness: Ensure genuine commercial substance to avoid anti-avoidance challenges
3. Documentation: Maintain comprehensive records of decision-making, CIGAs, and economic substance
4. Intercompany Arrangements: Ensure transfer pricing documentation supports arm’s length pricing
5. Holding Company Jurisdiction: Consider Hong Kong holding companies to access CDTA network benefits
6. Exit Tax Planning: Review implications of changing residence or liquidating structures

Regulatory Compliance and Licensing

Type 9 License – Asset Management

Single family offices managing only family assets are generally exempt from Securities and Futures Commission (SFC) licensing requirements. However, licensing becomes necessary when:

• Providing asset management services to persons outside the immediate family
• Managing funds with external investors
• Holding out to the public as providing investment services

Anti-Money Laundering (AML) and Know Your Customer (KYC)

Family offices must comply with Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), including:

• Customer due diligence on service providers and counterparties
• Ongoing monitoring of transactions
• Record keeping (at least 5 years)
• Reporting of suspicious transactions
• Appointment of compliance officer and AML policies (for larger operations)

Advance Ruling Mechanism

The IRD offers an Advance Ruling system enabling family offices to obtain certainty on tax treatment before implementing structures. On 9 February 2024, the IRD announced Advance Ruling Case No. 73, accompanied by updated guidance on tax concessions for FIHVs.

Advance rulings provide valuable certainty on:

• Qualification as eligible SFO or FIHV
• Economic substance requirement compliance
• Treatment of specific transaction types
• Application of FSIE exemptions

Recent Policy Developments and Future Outlook

2025-26 Budget Initiatives

The Hong Kong Government has demonstrated strong commitment to the family office sector through several 2025-26 Budget proposals:

• Expanded Qualifying Transactions: Addition of emission derivatives, ILS, private credit, and digital assets
• Carried Interest Concession: Extended through 2030 with expanded eligibility for family office arrangements (February 2025)
• Profits Tax Reduction: 100% reduction in profits tax for 2024-2025, subject to HK$1,500 ceiling

Growth Metrics

Hong Kong’s family office sector has shown robust growth:

• 50 family offices assisted to establish or expand in first five months of 2025
• 19% year-over-year increase compared to same period in 2024
• Dedicated FamilyOfficeHK team within InvestHK providing specialized support

Competitive Positioning

Hong Kong competes with Singapore, Switzerland, Dubai, and other jurisdictions for family office business. Key differentiators include:

Outlook and Emerging Trends

Several trends are shaping Hong Kong’s family office landscape:

1. Digital Asset Integration: Growing family interest in cryptocurrency and blockchain investments; Hong Kong’s progressive regulatory approach to virtual assets
2. ESG and Impact Investing: Increasing focus on sustainable investments; upcoming inclusion of emission derivatives in qualifying transactions
3. Greater Bay Area (GBA) Opportunities: Cross-border wealth management connect schemes; investment opportunities in mainland China via GBA
4. Next-Generation Succession: Younger generations seeking professional governance and diversified portfolios
5. Philanthropy: Integration of charitable entities within family office structures (up to 25% permitted ownership)
6. Alternative Investments: Expansion into private credit, infrastructure, real assets supported by enhanced qualifying transactions

Practical Implementation Checklist

Establishing a Tax-Efficient Family Office in Hong Kong

Family offices considering Hong Kong should follow this implementation roadmap:

Phase 1: Planning and Structure Design (Months 1-2)

• Define family office objectives, investment strategy, and governance framework
• Assess family members’ tax residency and cross-border considerations
• Select appropriate legal structure(s) – SFO, FIHV, supporting entities
• Determine if CDTA benefits applicable based on family residency
• Engage Hong Kong tax, legal, and regulatory advisors
• Preliminary assessment of qualifying for tax concessions

Phase 2: Entity Formation and Registration (Months 2-3)

• Incorporate SFO entity in Hong Kong or overseas (if managed from HK)
• Establish FIHV(s) in selected jurisdiction(s)
• Register LPF (if applicable and desired for public record)
• Secure Hong Kong registered office and company secretary
• Open Hong Kong bank accounts (allow time for KYC processes)
• Implement AML/CFT compliance framework

Phase 3: Economic Substance Establishment (Months 3-4)

• Hire at least 2 qualified full-time employees in Hong Kong
• Secure office space (physical presence required)
• Budget for HK$2 million+ annual operating expenditure
• Document that CIGAs conducted in Hong Kong
• Establish decision-making processes with Hong Kong nexus
• Implement systems for tracking substance metrics

Phase 4: Asset Transfer and Operations Launch (Months 4-6)

• Transfer or acquire Schedule 16C assets (minimum HK$240 million NAV)
• Review existing portfolio for qualifying vs. non-qualifying transactions
• Establish custody and prime brokerage relationships
• Implement investment management systems and reporting
• Ensure outsourced service providers meet substance requirements
• Document transfer pricing for intercompany services

Phase 5: Tax and Regulatory Compliance (Ongoing)

• Consider applying for Advance Ruling for tax certainty
• Prepare first profits tax return (18 months after incorporation; annual thereafter)
• Monitor and document compliance with SFO and FIHV requirements
• Maintain contemporaneous records of CIGAs and substance
• Annual financial statement audits
• Track 5% incidental transaction threshold
• Monitor changes to qualifying transaction scope
• Assess FSIE implications if MNE structure
• Review global minimum tax impact if revenue exceeds EUR 750 million

Conclusion

Hong Kong has established itself as a premier jurisdiction for family office establishment and cross-border wealth management through a sophisticated combination of tax efficiency, regulatory pragmatism, and strategic geographic positioning. The introduction of the family office tax concession regime in 2023, combined with ongoing enhancements announced in the 2025-26 Budget, demonstrates the government’s commitment to attracting and retaining ultra-high-net-worth families.

The 0% tax rate on qualifying transactions for eligible FIHVs, when combined with Hong Kong’s territorial tax system, extensive CDTA network, and absence of capital gains tax, creates one of the most tax-efficient environments globally for managing investment portfolios. The achievable economic substance requirements (2 employees, HK$2 million expenditure) strike an appropriate balance between preventing shell operations and accommodating legitimate family offices of varying sizes.

However, successful implementation requires careful planning, genuine substance establishment, and ongoing compliance. Families must navigate the FSIE regime (for MNE structures), understand the interaction with their home jurisdiction tax rules, maintain detailed documentation, and ensure Hong Kong-based core income-generating activities. The expansion of qualifying transactions to include digital assets, private credit, and other modern investment vehicles ensures the regime remains relevant to contemporary wealth management strategies.

As Asia continues to generate wealth at unprecedented rates, Hong Kong’s role as the region’s premier financial hub – combined with proximity to China’s economy and overlapping time zones with major Asian markets – provides strategic advantages beyond tax considerations alone. For families with Asia-Pacific exposure or interests, Hong Kong offers an optimal combination of tax efficiency, financial sophistication, legal certainty, and market access.

Families considering Hong Kong should engage specialized advisors early in the planning process, consider applying for IRD Advance Rulings to obtain certainty, and commit to establishing genuine operations rather than mere presence. When implemented correctly with proper substance and compliance, Hong Kong family office structures can provide compelling tax efficiency, operational flexibility, and strategic positioning for multi-generational cross-border wealth management.