Hong Kong’s Tax Reporting Requirements for Family Offices: Compliance Made Simple

Hong Kong has positioned itself as a leading global hub for family offices through the introduction of the Family-owned Investment Holding Vehicle (FIHV) tax concession regime. With the Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Ordinance 2023 coming into operation on 19 May 2023, single family offices managing qualifying investment vehicles now benefit from comprehensive profits tax exemptions. However, this preferential treatment comes with specific reporting and compliance obligations that family offices must navigate carefully.

This comprehensive guide demystifies the tax reporting requirements for family offices operating in Hong Kong, providing clarity on filing obligations, compliance procedures, and best practices to ensure seamless adherence to regulatory standards.

Understanding the FIHV Tax Concession Regime

What is a Family-owned Investment Holding Vehicle?

A Family-owned Investment Holding Vehicle (FIHV) is an investment entity established for the purpose of holding and managing assets on behalf of a single family. Under Hong Kong’s tax concession regime, an FIHV can be structured as a company, partnership, trust, foundation, or other legal arrangement, established either in Hong Kong or offshore.

The regime provides profits tax exemption at a 0% rate on assessable profits arising from qualifying transactions and incidental transactions. Importantly, the tax concessions apply retrospectively to any years of assessment commencing on or after 1 April 2022, providing relief for family offices that established structures prior to the legislation’s enactment.

Eligible Single Family Offices

An eligible Single Family Office (SFO) must be normally managed and controlled in Hong Kong and provide investment management services exclusively to FIHVs of a single family. The SFO serves as the cornerstone of the tax concession regime, as it must carry out or arrange the qualifying transactions on behalf of the FIHV in Hong Kong.

The definition of “family” for tax purposes is broadly construed to include family members connected by blood, marriage, adoption, or civil partnership relationships. This flexible definition accommodates various family structures and multi-generational wealth planning arrangements.

Eligibility Criteria for Tax Concessions

Before diving into reporting requirements, family offices must ensure they meet the eligibility criteria for the FIHV tax concession regime. Failure to satisfy these requirements will result in the loss of tax benefits and potential reassessment by the Inland Revenue Department (IRD).

Ownership Structure Requirements

At all times during the basis period for a year of assessment, one or more members of the family must hold at least 95% of the beneficial interest (whether direct or indirect) in the FIHV. This threshold may be reduced to 75% when the non-family owner is a charitable institution or trust of a public character exempt from tax under section 88 of the Inland Revenue Ordinance.

Asset Under Management Threshold

The aggregate average value of assets under management for the family-owned structure (either a single FIHV or multiple FIHVs managed by the same SFO) must be at least HK$240 million. This threshold ensures that the regime targets substantial family wealth structures rather than smaller investment arrangements.

Substantial Activities Requirement

In compliance with international tax standards established by the European Union’s Code of Conduct Group and the OECD’s Forum on Harmful Tax Practices, FIHVs claiming tax concessions must demonstrate adequate economic substance in Hong Kong. This requirement mandates that Core Income Generating Activities (CIGAs) be carried out in Hong Kong.

Specifically, the FIHV must meet two quantitative thresholds:

• Employee Requirement: At least two full-time employees in Hong Kong who carry out the relevant activities and possess the necessary qualifications to do so
• Expenditure Requirement: At least HK$2 million in operating expenditure incurred in Hong Kong annually for carrying out the relevant activities

Importantly, these requirements can be satisfied through outsourcing arrangements to the managing SFO. This flexibility allows families to leverage the expertise of professional family office service providers while still meeting the substance requirements.

Management and Control in Hong Kong

Both the FIHV and the managing SFO must be “normally managed or controlled” in Hong Kong. This means that central management and control—typically exercised by the board of directors or equivalent governing body—must be exercised in Hong Kong. The location of board meetings, strategic decision-making, and day-to-day management are all relevant factors in determining where an entity is managed and controlled.

Tax Reporting and Filing Requirements

Profits Tax Return Filing Obligation

Despite benefiting from tax exemptions, FIHVs remain subject to standard profits tax filing obligations in Hong Kong. The IRD issues Profits Tax Returns annually, with the bulk issuance for the 2024/25 year of assessment occurring on 1 April 2025.

The standard filing deadline is three months from the date of issue. For companies with year-ends falling between 31 December and 31 March, returns are typically due in July or August if filed under the block extension scheme. Tax representatives who have properly applied for block extension receive extended deadlines, which the IRD publishes in circular letters at the beginning of each assessment year.

Supplementary Form S20: The FIHV Declaration

The introduction of Supplementary Form S20 represents the cornerstone of FIHV tax reporting. This specialized form must be filed by all taxpayers claiming the tax concession for FIHVs and serves as the primary mechanism for declaring eligibility and providing requisite details to the IRD.

Form S20 requires disclosure of comprehensive information including:

• Particulars of the FIHV and its managing SFO
• Details of any Family-owned Special Purpose Entities (FSPEs) held by the FIHV
• Profits derived from qualifying transactions and incidental transactions
• Aggregate value of assets under management
• Evidence of substantial activities in Hong Kong (employee numbers and operating expenditure)
• Ownership structure demonstrating the requisite family beneficial interest
• Nature and value of qualifying transactions undertaken during the year

All supplementary forms must be submitted electronically through the Business Tax Portal (BTP) or Tax Representative Portal (TRP), irrespective of whether the main Profits Tax Return is filed via paper, electronic, or semi-electronic methods. This mandatory electronic submission requirement applies to all years of assessment from 2019/20 onwards.

The Irrevocable Election

FIHVs must make a written election to benefit from the profits tax exemption. This election is made through the filing of the Profits Tax Return and Supplementary Form S20. Critically, once made, the election is irrevocable and will apply to all subsequent years of assessment.

This irrevocability underscores the importance of careful planning before making the election. Family offices should ensure they can consistently meet the eligibility criteria on an ongoing basis, as the inability to satisfy requirements in future years could result in the loss of tax benefits without the ability to reverse the election.

No Pre-Approval Process Required

Unlike some tax incentive regimes that require pre-qualification or advance approval, Hong Kong’s FIHV regime operates on a self-assessment basis. There is no separate application or pre-approval requirement—a self-declaration that the conditions are satisfied is sufficient to claim the tax concession.

However, this self-assessment approach places the burden squarely on the family office to ensure compliance. The IRD retains the right to audit and challenge claims made in tax returns, and incorrect declarations can result in significant penalties and the withdrawal of tax benefits.

Advance Ruling Option for Tax Certainty

Family offices seeking greater certainty regarding their eligibility for tax concessions may apply to the Commissioner of Inland Revenue for an advance ruling. In February 2024, the IRD issued Advance Ruling case No. 73, marking the first advance ruling on FIHV tax concessions and providing valuable guidance on the interpretation of the regime.

The advance ruling confirmed that eligible FIHVs’ foreign-sourced interest, dividends, and disposal gains will not be considered specified foreign-sourced income under the Foreign-sourced Income Exemption (FSIE) regime and will not be chargeable to profits tax, provided the economic substance requirement is met. This ruling provides important clarity on the interaction between the FIHV regime and the broader FSIE framework.

Filing Methods and Electronic Submission

Three Filing Modes Available

For the 2024/25 year of assessment, the IRD continues to offer three filing modes for Profits Tax Returns:

1. Paper Filing: Traditional hard-copy submission (being phased out)
2. Electronic Filing: Full e-filing through the Business Tax Portal or Tax Representative Portal
3. Semi-Electronic Filing: A hybrid approach combining paper and electronic elements

Mandatory E-Filing for Supplementary Forms

Regardless of the filing mode chosen for the main Profits Tax Return, all supplementary forms—including the critical Form S20 for FIHVs—must be submitted electronically through the BTP or TRP. This requirement ensures efficient processing and data capture by the IRD.

Future Mandatory E-Filing Timeline

The IRD has announced its intention to implement full-scale mandatory e-filing of profits tax returns by 2030. As an intermediate step, all Hong Kong entities that are part of in-scope multinational enterprise (MNE) groups with a Profits Tax filing obligation will be required to e-file their returns for the 2025/26 year of assessment and subsequent years.

Family offices should begin transitioning to electronic filing systems now to ensure readiness for this mandatory requirement and to benefit from the efficiencies that digital tax administration offers.

Record Keeping and Documentation Requirements

Seven-Year Retention Period

Under Section 51C of the Inland Revenue Ordinance, all businesses in Hong Kong—including FIHVs and SFOs—must retain business records for a period of not less than seven years from the date of the transaction. This comprehensive retention requirement applies to all documents relevant to the computation of profits tax, including:

• Financial statements and audited accounts
• Books of account (general ledger, cash books, journals)
• Purchase and sales invoices
• Bank statements and reconciliations
• Investment transaction records and confirmations
• Asset valuation reports
• Employment contracts and payroll records (to evidence substantial activities)
• Operating expenditure receipts and documentation
• Board minutes and resolutions
• Trust deeds, constitutional documents, and shareholder agreements

For FIHVs claiming tax concessions, meticulous record-keeping is particularly critical. Documentation substantiating eligibility—such as evidence of the substantial activities requirement, ownership structure, and the nature of qualifying transactions—must be maintained and readily accessible for potential IRD audits.

Extended Retention for Carried-Forward Expenses

When expenses and losses from previous periods are carried forward to reduce income in subsequent financial years, the retention period is extended. Primary documents for such expenses must be kept not for seven years from the transaction date, but from the moment the expense was offset against income to reduce the taxable base. This extended retention ensures continuity and verifiability across multiple assessment years.

Storage Location and Access Requirements

Business records must be kept in either English or Chinese and may be stored within Hong Kong or at an approved location outside Hong Kong. However, if documents are stored outside Hong Kong, they must be available for inspection by the IRD within seven days of a request.

Failure to provide documents within this seven-day window can result in fines of up to HK$100,000. Given the complex and international nature of family office structures, many of which span multiple jurisdictions, establishing robust document management systems that enable rapid retrieval is essential.

Electronic Record Keeping

Electronic records are fully acceptable under Hong Kong tax law, provided they are securely stored, easily accessible, and meet authenticity and integrity requirements. Many family offices leverage sophisticated document management systems and cloud-based solutions to maintain comprehensive digital archives that facilitate both compliance and operational efficiency.

Compliance Deadlines and Timeline

Annual Filing Cycle

The Hong Kong tax year (year of assessment) runs from 1 April to 31 March. The 2024/25 year of assessment covers the period from 1 April 2024 to 31 March 2025, with returns issued on 1 April 2025.

Key dates for the 2024/25 filing cycle:

• 1 April 2025: Bulk issuance of Profits Tax Returns for 2024/25
• 1 July 2025: Standard filing deadline (3 months from issue date)
• 15 August 2025 (typical): Extended deadline for tax representatives under Block Extension Scheme (date varies by accounting period end)
• 15 December 2025: Further extended deadline for certain accounting periods under special circular arrangements

Block Extension Scheme

The Block Extension Scheme allows tax representatives (typically accounting firms and tax advisors) to obtain automatic extensions for their clients’ tax filings. The IRD publishes the specific block extension deadlines in circular letters at the beginning of each assessment year.

For the 2024/25 year of assessment, the IRD issued a circular extending the manual filing deadline to 15 December 2025 for certain returns under the block extension regime, particularly for accounting dates falling in specific periods. Family offices should coordinate closely with their tax representatives to ensure awareness of applicable deadlines.

Notification of Chargeability

In addition to annual filing obligations, taxpayers must notify the IRD of chargeability to profits tax within four months after the end of the basis period for the first year of assessment in which chargeable profits arise. For newly established FIHVs or those newly coming into the charge to Hong Kong profits tax, timely notification is crucial to avoid penalties.

Penalties for Non-Compliance

Late Filing and Failure to Notify

The IRD takes a serious view of non-compliance with filing obligations. Penalties for late filing or failure to notify chargeability include:

• Fixed Penalty: Up to HK$10,000 for failure to inform the IRD of chargeability within the stipulated timeframe without reasonable excuse
• Additional Tax: Up to three times the amount of tax involved for each offence
• Prosecution: The Commissioner may elect to institute prosecution proceedings for serious or repeated violations

Record Keeping Violations

Failure to comply with record-keeping requirements can result in severe penalties:

• Standard Fine: Up to HK$100,000 for each offence related to record-keeping violations
• Director Liability: Company directors can be held personally liable for record-keeping offences
• Daily Penalties: Continuing fines may be imposed for ongoing violations
• Imprisonment: In serious cases, company owners may face jail time

Incorrect Returns and Tax Evasion

Providing incorrect or misleading information in tax returns triggers progressively serious consequences depending on the nature and intent of the violation:

• Innocent Errors: Up to HK$10,000 fine plus additional tax of up to three times the undercharged amount
• Additional Tax under Section 82A: Offences not involving wilful intent to evade tax are generally dealt with administratively through the imposition of additional tax (a form of penalty)
• Wilful Evasion: HK$50,000 fine, up to treble the undercharged tax, and up to three years’ imprisonment

Extended Audit Periods

The IRD’s enforcement powers extend across significant time periods. A routine field audit can reach up to six prior assessment years. However, in cases involving fraud or wilful evasion, the IRD may reopen assessments for up to ten years, making long-term compliance and accurate record-keeping imperative.

Special Considerations for Family-owned Special Purpose Entities

FSPE Tax Concessions

Family offices frequently establish special purpose entities (SPEs) for holding and administering specific assets. Recognizing this common structure, the FIHV regime provides profits tax concessions at both the FIHV level and the Family-owned Special Purpose Entity (FSPE) level.

The tax concession available to an FSPE corresponds to the percentage of beneficial interest that the FIHV holds in the FSPE. This proportionate approach ensures that multi-tiered structures receive appropriate tax treatment while preventing double taxation or unintended benefits.

Reporting Requirements for FSPEs

When filing Supplementary Form S20, FIHVs must provide detailed information about any FSPEs in the structure, including:

• The percentage of beneficial interest held by the FIHV
• The nature of assets held by the FSPE
• Income derived at the FSPE level from qualifying and incidental transactions
• The flow-through of income to the FIHV

This comprehensive disclosure enables the IRD to verify that tax concessions are being claimed appropriately across the family office structure and that the proportionate approach is being correctly applied.

Anti-Avoidance Provisions and Compliance Safeguards

Anti-Round Tripping Rules

The FIHV regime incorporates sophisticated anti-round tripping provisions designed to prevent Hong Kong residents from artificially routing investments through FIHVs to gain tax benefits that would not otherwise be available. These provisions are complex and center on transactions involving:

• Investee private companies holding Hong Kong immovable property
• Short-term assets (assets held for less than three years before disposal, excluding specified assets and Hong Kong immovable property)

Transactions caught by these exceptions fall outside the FIHV profits tax exemption. However, critically, they do not taint other qualifying transactions of the FIHV or FSPE. This ring-fencing approach allows the regime to target specific abusive structures while preserving legitimate benefits.

General Anti-Avoidance Provisions

Beyond the specific anti-round tripping rules, the general anti-avoidance provisions of the Inland Revenue Ordinance apply to the FIHV regime. The IRD can challenge and disregard:

• Artificial or fictitious transactions
• Dispositions that are not in fact given effect to
• Transactions entered into for the sole or dominant purpose of obtaining a tax benefit

Family offices must ensure that their structures have genuine commercial substance and are not established purely for tax avoidance purposes. The substantial activities requirement serves as a key indicator of genuine economic presence, but overall commercial rationality remains essential.

Recent Developments and Proposed Enhancements

November 2024 Consultation Paper

On 25 November 2024, the Financial Services and Treasury Bureau (FSTB) issued a significant consultation paper outlining proposed enhancements to the FIHV tax concession regime. The consultation period closed on 3 January 2025, and the government is currently reviewing industry feedback to shape final policy amendments.

Key proposed enhancements include:

1. Inclusion of Virtual Assets

The FSTB has adopted recommendations to include virtual assets in the list of Specified Assets eligible for the FIHV tax concession. This forward-looking amendment recognizes the growing importance of digital assets in family wealth portfolios and positions Hong Kong as a progressive jurisdiction for families with cryptocurrency and blockchain-based investments.

2. Removal of 5% Incidental Income Threshold

Currently, the regime permits incidental transactions (those not qualifying as main investment activities) up to 5% of total income to receive tax exemption. The proposed removal of this threshold would provide greater flexibility for FIHVs and simplify compliance by eliminating the need to carefully monitor and allocate incidental income.

3. Expanded Activities for Special Purpose Entities

The consultation paper proposes expanding the permissible activities of SPEs to cover the acquisition, holding, administering, and disposal of investee private companies and/or other SPEs, as well as activities incidental to those functions. This expansion would accommodate more complex family office structures and facilitate multi-jurisdictional wealth planning.

4. Introduction of De Minimis Rule for SPEs

A proposed de minimis rule would allow an SPE’s assessable profits from qualifying transactions to be fully exempt from profits tax if the FIHV holds at least 95% of the beneficial interest (either directly or indirectly) in the SPE. This simplification measure would reduce administrative burden for wholly-owned or substantially-owned structures.

Implications for Compliance

Once enacted, these proposed enhancements will necessitate updates to reporting requirements and Form S20 disclosures. Family offices should monitor legislative developments closely and be prepared to adjust their compliance procedures accordingly. The inclusion of virtual assets, in particular, may require enhanced documentation and valuation methodologies to support tax filings.

Best Practices for Compliance Excellence

1. Implement Robust Documentation Systems

Establish comprehensive document management systems that capture all relevant information for tax reporting from the outset. Retroactively gathering documentation during filing season creates unnecessary stress and increases the risk of gaps or errors. Cloud-based solutions with appropriate access controls enable secure, organized record-keeping across multiple jurisdictions.

2. Maintain Detailed Substance Documentation

The substantial activities requirement is central to FIHV eligibility. Maintain comprehensive records demonstrating compliance, including:

• Employment contracts, organizational charts, and job descriptions for Hong Kong-based staff
• Detailed breakdowns of Hong Kong operating expenditure with supporting invoices and payment records
• Meeting minutes and attendance records showing Hong Kong-based decision-making
• Documentation of investment management activities performed in Hong Kong

3. Conduct Annual Eligibility Reviews

Before each filing deadline, conduct a comprehensive review to confirm that all eligibility criteria continue to be met. This proactive approach identifies potential issues before they result in non-compliance. Key review points include:

• Verification of asset under management threshold (HK$240 million minimum)
• Confirmation of family ownership percentage (95% or 75% if charitable entity involved)
• Assessment of substantial activities compliance (2+ employees, HK$2 million+ expenditure)
• Review of management and control location
• Analysis of transaction types to ensure they qualify under the regime

4. Engage Qualified Tax Professionals

The FIHV regime’s complexity and the significant tax benefits at stake warrant engagement of experienced Hong Kong tax advisors. Professional advisors can provide guidance on eligibility assessment, filing obligations, optimization of tax positions, and representation in any IRD queries or audits.

5. Establish Clear Filing Timelines

Create internal deadlines well in advance of IRD filing deadlines to allow for review, quality assurance, and addressing any issues that arise. A typical timeline might include:

• 6 weeks before deadline: Gather all required documentation and data
• 4 weeks before deadline: Complete draft Form S20 and Profits Tax Return
• 2 weeks before deadline: Internal or advisor review and quality check
• 1 week before deadline: Finalize and submit returns
• Buffer period: Time cushion for unexpected issues or queries

6. Consider Advance Rulings for Uncertain Positions

When facing novel or uncertain tax positions—particularly in relation to complex structures, new asset classes, or cross-border arrangements—consider applying for an advance ruling from the IRD. While this involves additional time and cost, the certainty obtained can be invaluable in managing tax risk.

7. Monitor Legislative and Guidance Updates

Hong Kong’s family office regime is still relatively new and continues to evolve. Subscribe to IRD updates, professional tax service newsletters, and industry publications to stay informed of changes, new guidance, advance rulings, and best practices. The pending enhancements from the November 2024 consultation underscore the importance of staying current.

Interaction with Other Hong Kong Tax Regimes

Foreign-Sourced Income Exemption (FSIE) Regime

Hong Kong operates on a territorial basis of taxation, meaning that only income arising in or derived from Hong Kong is subject to profits tax. The FSIE regime further exempts qualifying foreign-sourced passive income (dividends, interest, disposal gains, and intellectual property income) received in Hong Kong by multinational enterprises, provided specified economic substance requirements are met.

The IRD’s Advance Ruling No. 73 clarified that eligible FIHVs’ foreign-sourced income qualifying under the FIHV regime will not be considered specified foreign-sourced income under FSIE and will not be chargeable to profits tax, provided the FIHV’s economic substance requirement is met. This coordination ensures that family offices are not caught in overlapping compliance regimes and provides clarity on which framework applies to particular income streams.

Unified Fund Exemption Regime

Hong Kong also maintains a comprehensive tax exemption regime for authorized funds and other qualifying investment funds. While family offices do not typically structure as public or widely-held funds, understanding the interaction between the FIHV regime and fund exemptions is important when FIHVs invest in or alongside qualifying funds.

The 2024/25 Budget speech announced plans to enhance preferential tax regimes for funds, single family offices, and carried interest, signaling the government’s commitment to maintaining Hong Kong’s competitive position in asset and wealth management.

Common Compliance Challenges and Solutions

Challenge 1: Demonstrating Adequate Substance

Issue: Meeting the two-employee and HK$2 million expenditure requirements can be challenging for smaller family offices or those using outsourced service providers.

Solution: Leverage the outsourcing provisions by engaging a qualified SFO service provider in Hong Kong that can satisfy the substance requirements on behalf of the FIHV. Ensure service agreements clearly document the arrangement and that the service provider maintains detailed records of staff time and expenditure allocated to the family office mandate.

Challenge 2: Tracking Asset Values for the HK$240 Million Threshold

Issue: Family office portfolios often include illiquid assets, private investments, and alternative investments that lack readily available market valuations.

Solution: Establish a robust valuation policy and obtain periodic independent valuations for illiquid assets. Maintain contemporaneous documentation of valuation methodologies and assumptions. For publicly traded securities, use verifiable market prices from recognized exchanges or data providers.

Challenge 3: Managing Multi-Jurisdictional Structures

Issue: Family offices often employ complex cross-border structures with entities in multiple jurisdictions, creating challenges in determining which entities qualify as FIHVs or FSPEs and ensuring consistent reporting.

Solution: Create comprehensive structure charts documenting all entities, their ownership, management location, and tax characterization. Conduct annual structure reviews to identify any changes and their tax implications. Engage tax advisors familiar with Hong Kong’s FIHV regime and international tax considerations to ensure proper classification and reporting.

Challenge 4: Distinguishing Qualifying from Non-Qualifying Transactions

Issue: The FIHV regime provides exemptions only for specific qualifying transactions (primarily securities, funds, and certain other specified assets). Determining whether particular investments or transactions qualify can be complex, especially for novel asset classes or structured products.

Solution: Maintain a transaction log categorizing each investment by asset type and qualification status. When in doubt about novel asset classes (such as virtual assets prior to the proposed legislative change), seek professional advice or consider applying for an advance ruling. The pending inclusion of virtual assets in the regime highlights the importance of monitoring legislative developments.

Challenge 5: Irrevocable Election Risk

Issue: The irrevocable nature of the FIHV election creates risk if circumstances change and the family office can no longer meet eligibility criteria in future years.

Solution: Conduct thorough due diligence and forward-looking analysis before making the election. Model scenarios that could affect eligibility (such as asset disposals that might bring AUM below the threshold, family ownership changes, or relocation of management functions). Build in buffers and contingency plans to maintain eligibility even if circumstances change.

Conclusion

Hong Kong’s FIHV tax concession regime represents a significant opportunity for family offices to optimize their tax position while benefiting from Hong Kong’s robust legal framework, strategic location, and sophisticated financial services ecosystem. The 0% profits tax rate on qualifying transactions offers substantial savings that can meaningfully enhance long-term wealth preservation and growth.

However, accessing these benefits requires careful attention to compliance obligations. The self-assessment nature of the regime, combined with significant penalties for non-compliance, places the burden on family offices to ensure accurate reporting, comprehensive documentation, and ongoing eligibility.

By understanding the reporting requirements outlined in this guide—from the critical Supplementary Form S20 to record retention obligations and filing deadlines—family offices can navigate the compliance landscape with confidence. Coupled with robust internal systems, qualified professional advisors, and proactive monitoring of regulatory developments, family offices can ensure both full compliance and optimal utilization of Hong Kong’s attractive tax concessions.

As the regime continues to evolve, with proposed enhancements including virtual assets and expanded SPE activities on the horizon, staying informed and adaptable will be key to long-term success. Hong Kong’s commitment to consolidating its status as a leading hub for asset and wealth management, evidenced by ongoing regime refinements and government support, bodes well for the future of family offices in the jurisdiction.