In our third instalment in our series in exploring the technical aspects of family offices in Hong Kong, as well as the tax incentives and SFC licensing aspects for family offices in Hong Kong, we look to the future and examine how family offices in Hong Kong are strategically placed amongst other jurisdictions and how the Hong Kong Government is working towards creating a mutually beneficial environment for family offices to grow and prosper.
Hong Kong is still a well-placed global financial hub
Hong Kong is a bustling metropolis known for its vibrant economy and thriving business landscape. But behind its towering skyscrapers lies a hidden gem that is gaining attention – family offices.
Family offices, private wealth management firms that cater to the needs of affluent families, are becoming increasingly popular in Hong Kong. With the government’s keen push to develop this sector, Hong Kong is fast becoming a global hub for family offices.
As stated in the article published in the South China Morning Post on 6 October 2023, the number of ultra-high-net-worth individuals in Hong Kong last year reached 12,500, making Hong Kong the world’s top city in which wealthy individuals manage their investment portfolios.
A quick recap: what exactly are family offices?
To recap, these are dedicated organizations that provide comprehensive financial, investment, and lifestyle management services to ultra-high-net-worth families. They act as a one-stop-shop for all their financial needs, ensuring the preservation and growth of their wealth for future generations.
Family offices in Hong Kong offer a wide range of services tailored to meet the unique requirements of wealthy families. From investment management and estate planning to philanthropic endeavours and concierge services, Hong Kong strives to provide a holistic approach to wealth management.
The support from the Hong Kong Government
The Hong Kong government recognizes the immense potential of family offices and aims to position the city as a global leader in this sector. They have introduced various initiatives and incentives to attract family offices to set up their operations in Hong Kong.
The Government believe that family offices play a crucial role in driving economic growth and fostering long-term stability. To support this sector, they offer tax incentives, streamlined regulations, and access to a highly skilled workforce. The goal is to create an ecosystem that enables family offices to thrive and contribute to Hong Kong’s continued success as a financial hub.
The SAR Government in this year’s budget allocated HK$100 million to support Invest Hong Kong’s team in attracting and serving more family offices. In October 2023, Financial Secretary Paul Chan outlined a series of measures to develop a favourable and competitive environment for global family offices and asset owners.
They include a new Capital Investment Entrant Scheme, which will channel substantial funds into Hong Kong’s capital market. Efforts also include enabling regulatory measures – including amendments to provide profits-tax exemptions for family‑owned, investment-holding vehicles managed by single family offices (“SFOs”) in Hong Kong.
Financial regulators also issued a circular on streamlining the suitability assessment for sophisticated professional investors, addressing a major regulatory pain point faced by the industry.
In June 2023, InvestHK launched its Network of Family Office Service Providers, which offers members mutual business referral opportunities and facilitates joint efforts in supporting the industry to target markets. The network also assists representation of the industry in policy advocacy and allows the Government to brief the industry on new ideas and policy developments.
A tight race with Singapore
While Singapore is a strong competitor, it’s important to note that Hong Kong still bears advantages. Singapore, known for its political stability and strong rule of law, offers a conducive business environment and efficient regulatory framework. However, Hong Kong’s proximity to Mainland China, its financial infrastructure, and cultural diversity give it an edge in attracting family offices.
As the competition between these two cities intensifies, Hong Kong’s unique advantages as a hub for family offices can shine through. With its strategic location, robust financial market, business-friendly policies, multicultural environment, and exceptional lifestyle offerings, Hong Kong continues to position itself as the premier choice for family offices in Asia and beyond.
Flexibility offered by family legal structures in Hong Kong in comparison to Singapore
In gist, one of the conditions for qualifying for the tax concessions in Hong Kong is that at least 95% of the beneficial interest of each of the asset holding vehicle and its SFO must be owned by one or more “members of a family“. The concept of a “family” under the Hong Kong legal structure is broader than the concept of a “family” compared to Singapore. For example, a person’s lineal descendants and lineal ancestors, his spouse, the siblings of himself and his spouse, and the nieces and nephews of himself or his spouse are all members of a family in Hong Kong. In comparison, a “family” in Singapore includes lineal descendants of a single ancestor, in addition to their spouses, ex-spouses, adopted children and stepchildren.
In Hong Kong, rules and regulations allows up to 5% of the beneficial interest of each of the asset holding vehicle and its SFO to be owned by non-family members. This enables the high net-worth families to incorporate charities in setting up their wealth structures while still being eligible for the tax concessions for SFOs in Hong Kong.
In Singapore, the asset holding vehicle must be a fund in the form of a company incorporated and resident in Singapore in order to qualify for the tax incentives. However, in Hong Kong, both the asset holding vehicle and the SFO can be established in or outside Hong Kong for the purposes of qualifying for the relevant tax concessions. It should be noted however, that there is an additional requirement that both entities’ must be centrally managed and controlled in Hong Kong.
The Greater Bay Area as one of the biggest growth opportunities
The Greater Bay Area (“GBA”), consisting of Hong Kong, Macau, and several cities in Guangdong Province, is emerging as a promising destination for family offices. The GBA’s vast market potential is a significant advantage for family offices.
With a population of over 80 million people and a combined GDP that rivals some of the world’s largest economies, the GBA presents a wide range of investment opportunities across various sectors. It’s one of China’s most open and economically dynamic regions with GDP exceeding US$1.6 trillion and with numerous business opportunities. As restrictions for opening cross-border bank accounts are gradually relaxed, the new cross-boundary wealth management connect scheme will further consolidate Hong Kong’s reputation as an offshore RMB centre and boost the city’s importance in the GBA development blueprint, which is conductive to the growth of cross-border family offices.
The Cross-boundary Wealth Management Connect Scheme in the Guangdong-Hong Kong-Macau Greater Bay Area is one of the key initiatives under the mutual market access schemes between the capital markets of Hong Kong, Macau and Mainland China. It was initially launched in 2021 and it allows eligible PRC, Hong Kong and Macau residents in the Greater Bay Area to invest in wealth management products distributed by banks in each other’s market through a closed-loop funds flow channel established between their respective banking systems. On 28 September 2023, enhancements to the Cross-boundary Wealth Management Connect Pilot Scheme Strengthening Financial Market Connectivity in the GBA were proposed, with full details announced by the Hong Kong Monetary Authority.
The Cross-boundary WMC consists of the Northbound Scheme and the Southbound Scheme:
- Northbound Scheme refers to eligible residents in Hong Kong and Macau investing in eligible investment products distributed by Mainland banks.
- The Southbound Scheme refers to eligible residents in the Mainland China’s GBA cities investing in eligible wealth management products distributed by banks in Hong Kong and Macau.
Another advantage of the GBA is its exceptional connectivity. The region is well-connected through a comprehensive transportation network, including high-speed rail, bridges, and airports. This connectivity allows for seamless travel and efficient business operations within the GBA, enabling family offices to capitalize on the synergies and opportunities across different cities.
The GBA also benefits from favourable government policies that encourage cross-border investments and business collaborations. Governments in the GBA are actively promoting economic integration, easing regulatory barriers, and providing incentives to attract foreign investments. These supportive policies create a conducive environment for family offices to establish and expand their operations in the region.
The GBA’s focus on innovation and technology is another advantage that appeals to family offices. The region is home to leading technology hubs and research institutions, fostering a thriving ecosystem for innovation and entrepreneurship. Moreover, the GBA’s cultural diversity and blend of Eastern and Western influences offer a unique advantage.
A matter of quality
Beyond the business advantages, Hong Kong offers an unparalleled quality of life for families. From world-class education and healthcare facilities to a vibrant arts and culture scene, Hong Kong provides an ideal environment for families to live, work, and enjoy life to the fullest.
As the sun sets on the skyline of Hong Kong, the future shines bright for family offices in this dynamic city. With the government’s unwavering commitment and the city’s unique blend of opportunities, Hong Kong is poised to become the premier destination for family offices in Asia and beyond.
Looking to the future
It is clear that the Hong Kong government is fully committed to implementing a practical and competitive environment and structure which aims at providing significant benefit for family offices looking to relocate or establish in Hong Kong – such developments are encouraging for a city which has endured ever so much in the last four years and looks to revamp and regain its status as a global financial hub.
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This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.
