In his 2021 Budget Speech, the Financial Secretary announced the establishment of a dedicated office at InvestHK to provide support for family offices. At the same time, the Administration undertook to review the tax code to enhance the city’s attractiveness as a hub for family offices.
In our submission to the Government, HKGCC welcomes these efforts. We also suggest ways that Hong Kong can become a preferred destination for ultra-high net worth (UHNW) individuals to manage their wealth and financial affairs.
Family offices are generally well-informed about tax and regulatory regimes around the world, so impactful policy changes are required to encourage them to move location. Hong Kong also faces stiff competition from neighbouring jurisdictions, notably Singapore.
In addition to tax issues, the ability to attract and retain quality talent is also important. Family offices often compete with financial institutions for a limited pool of skilled labour.
The current generation of UHNW families, especially those from the Mainland, generally favour Hong Kong as a family office location. It is, however, uncertain whether future generations share the same sentiment.
Currently, investment income for individuals is exempted from profits tax, but this does not apply to entities such as Personal Investment Companies (PICs), which are often used by family offices. This discourages UHNW families from setting up office in Hong Kong. We suggest that tax treatment for individuals be granted to PICs.
Current tax exemption regimes such as the Unified Funds Exemption require regulated entities to be SFC-licensed. Family offices do not need to be SFC-licensed, so they do not enjoy the tax exemption benefits. We suggest that the scope of these regimes be expanded by including family offices under the definition of “specified persons.”
Institute a Family Office-friendly Regime
Overzealous administration and rigid interpretation of policies are at odds with the Government’s goal of incentivising investment activities in Hong Kong. Despite the introduction of a wide range of tax exemption and concessionary regimes, the narrow interpretation by tax authorities and excessive conditions imposed make applying for such tax benefits more complex.
If the city is intent on promoting itself as a premier hub for family offices, the SAR should send a positive message to the industry by aligning administrative actions with policy objectives.
One-stop Office Services
InvestHK established FamilyOfficeHK in June 2021 to serve as a central point of contact for family offices looking to set up in Hong Kong. We suggest that the office’s portfolio be expanded to initiate programmes, with the objective of attracting family offices to Hong Kong.
This office should also promote an attitude of open-mindedness among civil servants.
Nurture High-quality Talent
There is a chronic shortage of high-quality family office professionals, especially those with expertise in emerging and new investment products. We suggest that efforts be made to attract overseas talent while also investing in the local workforce – for example through degree or diploma courses.
There is also a need to provide a better understanding of the career advancement opportunities for local family office professionals.
Attract Mainland and Overseas Families
We suggest that the Government addresses the needs of Mainland UHNW families by emphasizing Hong Kong’s role as a springboard to international markets while serving as a foothold for their business operations. Easing some of the existing travel restrictions and other pandemic-related measures would also enhance Hong Kong’s competitiveness.
Consideration should also be given to attracting UHNW families subject to high inheritance tax in their home countries, such as France, to set up office in Hong Kong.
Under its Global Investor Programme, Singapore offers Permanent Residence status to qualified family office principals. This offer has been well received in the market, especially for Mainland UHNW individuals. We suggest the Government introduce a similar scheme to maintain Hong Kong’s competitiveness.
This is an abridged version: you can read the full submission on the Chamber’s website or app.