Hong Kong Family Office Tax Incentives: The FIHV Regime Explained

Hong Kong has made significant strides in positioning itself as the premier family office hub in Asia. Central to this effort is the Family-owned Investment Holding Vehicle (FIHV) profits tax exemption, introduced in 2022/23 and operative from the year of assessment 2022/23 onwards. This tax concession sits alongside the existing Single Family Office (SFO) manager exemption and provides a powerful incentive for ultra-high-net-worth families to establish, or migrate, their investment holding structures to Hong Kong. This guide explains how the FIHV regime works, its eligibility requirements, and how it compares to alternative approaches.

Background: Why the FIHV Regime Was Introduced

Prior to the FIHV regime, Hong Kong's tax exemption for investment funds (the unified funds exemption under Sections 20AM–20AX of the Inland Revenue Ordinance) was generally not available to closely held vehicles — i.e., funds owned by a small number of investors — unless they met specific conditions. This created a significant gap: family holding companies and family trusts investing in stocks, bonds, and other financial assets could not readily access the profits tax exemption that was available to institutional fund managers.

The FIHV regime addresses this gap by extending a profits tax exemption to qualified family-owned investment holding vehicles, bringing Hong Kong in line with competitive family office jurisdictions such as Singapore (which has its own family office incentives under Sections 13O and 13U of the Singapore Income Tax Act).

Key Features of the FIHV Regime

Who Can Benefit?

The FIHV regime is available to a family-owned investment holding vehicle that satisfies the following conditions:

1. Family ownership: The FIHV must be wholly owned (directly or indirectly) by a single family. A "family" means an individual, their spouse, and their lineal descendants (and spouses of lineal descendants) up to a specified degree. Trusts for the benefit of such family members can also satisfy the ownership test if the family controls the trust.
2. Holding vehicle nature: The FIHV must be an investment holding vehicle — i.e., it holds investments and does not carry on any trade or business in Hong Kong other than the holding and management of qualifying investments.
3. Investment manager: The FIHV must engage a single family office (SFO) or a licensed corporation (SFC-licensed asset manager) to manage its investments in Hong Kong. Critically, the investment manager must be subject to the SFO manager exemption or be SFC-licensed and must carry on a substantial activity in Hong Kong.
4. Substance in Hong Kong: The SFO or investment manager must spend a minimum of HK$2 million on eligible expenses in Hong Kong in each year of assessment (e.g., staff costs, office rent, professional fees). This substance requirement ensures that the incentive benefits families with genuine economic activity in Hong Kong.
5. Asset threshold: The FIHV (together with associated FIHVs and the SFO) must hold assets with a value of at least HK$240 million at the time of application. This threshold ensures the regime targets families with substantial wealth.

Qualifying Transactions

The profits tax exemption applies to profits from qualifying transactions carried out by the FIHV. Qualifying transactions broadly mirror the types of transactions covered by the unified funds exemption and include:

• Transactions in shares, stocks, debentures, loan stocks, funds, bonds, and notes of, or issued by, a public company listed on a recognised stock exchange
• Transactions in shares, stocks, debentures, loan stocks of, or issued by, a private company incorporated outside Hong Kong
• Transactions in futures contracts, currencies, and deposits
• Transactions in foreign exchange contracts
• Transactions in OTC derivative instruments
• Transactions in exchange-traded derivatives
• Transactions in units or shares of collective investment schemes

The exemption also covers incidental transactions that are incidental to the carrying out of qualifying transactions, subject to a 5% cap on the total value of incidental transactions.

Importantly, the FIHV regime does not cover profits from direct investment in Hong Kong real property (property is explicitly excluded from qualifying transactions). Families seeking property investments in Hong Kong will need to structure those separately outside the FIHV.

Non-Qualifying Transactions

Profits from non-qualifying transactions remain subject to profits tax in the normal way. The FIHV must maintain adequate records to separately identify profits from qualifying and non-qualifying transactions.

The Single Family Office Manager Exemption

Separate from the FIHV regime (which benefits the holding vehicle), there is also an exemption for the SFO itself (as manager). Under Section 20AC of the Inland Revenue Ordinance (as amended), a corporation that carries on the business of managing qualifying investments in Hong Kong for and on behalf of a FIHV may be exempt from profits tax on its management fees, provided:

• The corporation is wholly owned (directly or indirectly) by a member of the same family as the FIHV's family
• The corporation is not carrying on any other trade or business in Hong Kong
• The requisite substance conditions (HK$2 million eligible expenditure, etc.) are satisfied

This means that both the FIHV (the investment vehicle) and the SFO (the management vehicle) can be structured to achieve a very low effective tax rate on the family's Hong Kong investment returns.

How the FIHV Compares to the General Funds Exemption

The key differences between the FIHV regime and the general unified funds exemption are:

Feature	FIHV Regime	General Funds Exemption
Target	Family-owned single-family vehicles	Investment funds (including private funds)
Ownership restriction	Single family only	None (any investors)
Investment manager	SFO or SFC-licensed manager	SFC-licensed manager (as a rule)
Substance requirement	HK$2 million eligible expenditure	Depends on specific conditions
Asset threshold	HK$240 million minimum assets	No minimum asset threshold
Property investments	Excluded	Excluded (generally)
External investors	Not permitted	Permitted

How the FIHV Compares to Singapore's Family Office Schemes

Singapore has been an active competitor for Hong Kong in attracting family offices, particularly through its Section 13O and Section 13U incentive schemes. A comparison:

Feature	Hong Kong FIHV	Singapore 13O / 13U
Minimum AUM	HK$240 million (~SGD 40 million)	SGD 10 million (13O) / SGD 50 million (13U)
Local investment requirement	None	Yes (minimum local investment ratio)
Annual expenditure	HK$2 million	SGD 200,000 (13O) / SGD 500,000 (13U)
Approval required	IRD approval	MAS approval
Scope	Broad qualifying transactions	Approved list; generally broad

Hong Kong's FIHV regime is broadly competitive with Singapore's schemes. Hong Kong's advantages include its proximity to Mainland China assets, the common law legal system, and the CEPA framework for access to Mainland markets. Singapore's advantages include its longer track record, a broader range of financial institutions and advisers experienced in family office establishment, and the lower per-family minimum for the Section 13O scheme.

Practical Structuring Considerations

Typical FIHV Structure

A typical Hong Kong family office structure under the FIHV regime might look as follows:

• Family trust: An offshore discretionary trust (e.g., BVI or Cayman) for the benefit of family members. The trust owns the FIHV.
• FIHV: A Hong Kong-incorporated holding company that holds the family's investment portfolio (stocks, bonds, private equity, etc.). The FIHV applies for and maintains FIHV status.
• SFO management company: A separate Hong Kong-incorporated company (owned by a family member or the trust) that employs the investment professionals and manages the FIHV's portfolio. The SFO applies for the SFO manager exemption.
• Sub-holding companies: Separate entities (Hong Kong or offshore) for specific asset classes or geographies, owned by the FIHV

Application Process

To access the FIHV regime, the family must submit an application to the Inland Revenue Department, providing:

• Evidence of family ownership structure
• Details of the FIHV's assets (to demonstrate the HK$240 million threshold)
• Details of the SFO or investment manager
• Evidence of Hong Kong substance (eligible expenditure projections)
• A detailed description of qualifying and non-qualifying investment activities

The IRD reviews applications and, once approved, the FIHV is treated as an "eligible FIHV" and may file its profits tax returns on the basis that qualifying transaction profits are exempt.

Ongoing Compliance

FIHV status must be maintained on an ongoing basis. The family must ensure:

• Annual eligible expenditure of at least HK$2 million
• Assets remain above the HK$240 million threshold
• No non-family members acquire ownership interests in the FIHV
• The SFO or investment manager remains in place and compliant
• Qualified profits and non-qualified profits are accurately segregated and reported

Is the FIHV Regime Right for Your Family?

The FIHV regime is well-suited to families that:

• Have substantial investment assets (above HK$240 million) managed or to be managed from Hong Kong
• Are willing and able to establish a genuine Hong Kong presence (SFO team with HK$2 million+ annual expenditure)
• Have investment portfolios primarily in qualifying financial assets (stocks, bonds, funds, derivatives)
• Have family members who wish to be based in Hong Kong or are considering relocating (leveraging talent admission schemes)

Families with significant real property portfolios, business operations (as opposed to passive investments), or those unwilling to establish substantive Hong Kong operations may find the FIHV regime less suitable, or may need to structure their Hong Kong operations carefully alongside other holding structures.

Conclusion

The FIHV regime is a significant and well-designed tax incentive that places Hong Kong on a competitive footing with Singapore for attracting family office wealth. Combined with the SFO manager exemption, Hong Kong's common law legal system, its deep financial markets, and its unparalleled access to Mainland China, the FIHV regime forms part of a compelling package for families considering their long-term base for wealth management in Asia.

Alan Wong LLP advises family offices and ultra-high-net-worth families on FIHV structuring, SFO establishment, and ongoing governance and compliance. Contact us to discuss your family office requirements.