With ultra-high-net-worth families managing trillions globally, Hong Kong has emerged as Asia’s premier family office hub, competing directly with Singapore. But what truly sets Hong Kong apart? The answer lies in its revolutionary Family Investment Holding Vehicle (FIHV) regime offering 0% tax rates, combined with unparalleled flexibility to use offshore structures. This comprehensive guide reveals how families can optimize their wealth management structures in Hong Kong’s unique tax environment.

Hong Kong’s Territorial Tax System: The Foundation

Hong Kong operates on a territorial source principle—only profits arising in or derived from Hong Kong are taxable. This fundamental difference from worldwide taxation systems creates significant opportunities for family offices. Foreign-sourced dividends, interest, capital gains, and royalties are generally not subject to Hong Kong profits tax, regardless of where the company is incorporated or the residence of its beneficial owners.

Offshore Tax Exemption for Non-FIHV Entities

Both offshore and onshore companies can potentially claim offshore tax exemption on international earnings by filing an Offshore Tax Claim (OTC) with the IRD. Unlike some jurisdictions where offshore status is automatic, Hong Kong requires detailed verification. The OTC review typically takes at least six months but can provide tax exemption validity for 3-5 years once approved.

The FIHV Regime: Hong Kong’s Game-Changer

The Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Ordinance 2023 introduced Hong Kong’s most significant family office development. The FIHV regime offers a 0% tax rate on assessable profits derived from qualifying transactions, applying retrospectively to years of assessment commencing on or after April 1, 2022.

Qualifying Criteria for FIHVs

To qualify for the FIHV tax concessions, several conditions must be satisfied:

• Entity Structure: Can be corporate or unincorporated, including corporations, partnerships, and trusts. There’s no requirement to be a Hong Kong entity—offshore vehicles from BVI, Cayman Islands, or Bermuda may be used.
• Family Ownership: At least 95% beneficial interest must be held by family members. This can be reduced to 75% if at least 20% of remaining interest is held by charitable institutions.
• Management and Control: Must be normally managed or controlled in Hong Kong during the assessment period.
• Minimum Asset Threshold: Aggregate value of specified assets must be at least HK$240 million (approximately US$30 million).

Eligible Single Family Office Requirements

The FIHV must be managed by an eligible single family office meeting substantial activities requirements:

FSIE Regime: Substance Requirements for Non-FIHV Structures

Hong Kong’s Foreign-Sourced Income Exemption (FSIE) regime, effective from January 1, 2023 and refined from January 1, 2024, addresses international tax cooperation concerns. It applies to MNE entities receiving four types of foreign-sourced income in Hong Kong:

1. Dividends: Foreign-sourced dividend income
2. Interest: Foreign-sourced interest income
3. Intellectual Property Income: Income from use of IP rights
4. Disposal Gains: Gains from sale of equity interests, immovables, movables, and all other property

Economic Substance Requirements

To benefit from exemption under the FSIE regime, MNE entities must satisfy one of three exceptions:

• Economic Substance: For foreign-sourced interest, dividends, or disposal gains, adequate economic activities in Hong Kong with employees, premises, and operating expenditure
• Nexus Requirement: For foreign-sourced IP income, linking IP income to R&D expenditure incurred in Hong Kong
• Participation Requirement: For foreign-sourced dividends or disposal gains from equity interests, holding at least 5% equity interests for 12+ months

Offshore vs. Onshore: Comparative Analysis

Pillar Two Global Minimum Tax: Limited Impact

Hong Kong enacted Pillar Two legislation on June 6, 2025, with the Hong Kong Minimum Top-up Tax (HKMTT) and Income Inclusion Rule (IIR) effective from January 1, 2025. However, the impact on family offices is minimal due to the high threshold:

Practical Implications for Large Families

For the small number of families with operating businesses exceeding the €750 million threshold:

• Minimum Effective Tax Rate: 15% minimum effective tax rate could apply even to FIHV 0% income
• Structuring Strategy: Separate operating businesses from passive investment activities where possible
• Compliance: Annual top-up tax returns required for in-scope groups

Strategic Recommendations for Family Offices

Choosing the Optimal Structure

1. For Families with AUM Above HK$240 Million: The FIHV regime provides optimal solution with 0% tax certainty. Use offshore vehicles for FIHV and SFO while establishing required Hong Kong substance through outsourcing.
2. For Families with AUM Below HK$240 Million: Rely on traditional offshore tax exemption or territorial source principles. Pure offshore structures with minimal Hong Kong substance may be appropriate.
3. For Families Part of Large MNE Groups: Carefully structure to separate passive investment activities from operating businesses to avoid Pillar Two complications.
4. For Privacy-Focused Families: Utilize offshore trusts and companies in confidentiality-protective jurisdictions while satisfying FIHV management and control requirements in Hong Kong.

Best Practices for Implementation

• Document Decision-Making: Maintain clear records of where investment decisions are made and management activities occur
• Establish Genuine Substance: Ensure real employees, actual expenditure, and substantive activities—not paper compliance
• Regular Review: Conduct annual structural reviews given evolving tax laws and family circumstances
• Professional Guidance: Engage experienced Hong Kong tax advisors, offshore counsel, and family office specialists

Hong Kong’s family office ecosystem offers exceptional flexibility through its revolutionary FIHV regime, providing 0% taxation certainty while maintaining offshore structuring flexibility. For families with assets exceeding HK$240 million, the FIHV approach delivers optimal tax efficiency combined with the benefits of offshore corporate vehicles. With Hong Kong’s strategic location, robust legal system, and gateway access to mainland China, these advantages position Hong Kong as Asia’s premier destination for sophisticated wealth management solutions. The key is strategic planning that aligns family objectives with Hong Kong’s unique tax framework.