Hong Kong to expand tax waivers for family offices, pension fund investment

Hong Kong will expand its tax exemptions for operators of family offices and funds set up by international organisations, such as the Asian Infrastructure Investment Bank (AIIB), in line with efforts to promote the city as a wealth management hub, a minister told lawmakers on Monday. In a financial affairs panel meeting, Secretary for Financial Services and the Treasury, Christopher Hui Ching-yu, said the government would submit a bill to the Legislative Council within the first half of this year that would make more products that family offices and funds invest in eligible for tax exemptions. These include private credit, gold and other commodities, carbon credit, insurance-linked securities and certain digital assets. At present, only traditional investment products such as stocks and bonds qualify. “By expanding the investment products under tax exemption, the proposed enhancements seek to attract more funds and family offices to set up and operate in Hong Kong, which will help reinforce the city’s position as a leading asset and wealth management hub,” Hui said. The proposed law would also expand the types of funds to get the exemption, from open-ended funds at present to charity funds, pension funds and so-called fund-of-one structures set up by international organisations, such as the AIIB. This initiative is expected to attract sizeable asset owners to set up and manage funds in Hong Kong. Many international organisations, governments, central banks and ultra-high-net-worth individuals are known to establish so-called fund-of-one structures, which are wholly owned funds set up by their issuers to carry out specific investments. The new rule would require a fund-of-one structure to have at least HK$240 million (US$31 million) in qualified assets to enjoy the tax exemption. “The expanded scope of qualifying investments would also complement Hong Kong’s development in areas such as digital assets and trading of precious metals and commodities,” Hui said. If the bill was passed by lawmakers, operators of family offices and funds could apply for expanded tax exemption dating back to the financial year ended March 2026, according to Hui. The government had previously offered exemption for funds in 2019, and introduced tax incentives for family offices in May 2023. Hui said the 2023 tax exemption, along with other measures to attract family offices, helped boost the number of family offices in the city to 3,380 at the end of last year, a 25 per cent increase over the past two years. “When wealthy investors or funds choose the location to set up their family offices, the tax regime is a key consideration,” Hui said. “The 2023 tax incentives have been a proven success, and we want the expansion to help attract more family offices to set up here.” Although several lawmakers showed support for the proposed expansion, they questioned whether the current requirements were sufficient to boost the economy. “The current tax exemption only requires a family office to hire two employees and have incurred an annual operational expense in Hong Kong of HK$2 million,” lawmaker Johnny Ng Kit-chong said. “Will that be too small for some large family offices or large-scale funds?” The Commissioner of Inland Revenue, Benjamin Chan Sze-wai, said the threshold was just the minimum standard. He pointed out that the Inland Revenue would only ensure that larger companies had reasonable headcounts and operational expenses to qualify for tax exemption. “In fact, most of the family offices and funds have hired many professionals in Hong Kong, which has benefited the real economy,” Chan said. Assets under management in Hong Kong grew 13 per cent year on year to HK$35.14 trillion in 2024, just shy of the record HK$35.55 trillion set in 2021, according to the Securities and Futures Commission.