LCQ5: Family offices
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Question:
According to a consultancy study commissioned by Invest Hong Kong (InvestHK), it was estimated that around 2 700 single family offices were operating in Hong Kong as at end-2023. However, it has recently been reported that quite a number of "fake family offices" have emerged in the market and some of them may even be involved in money laundering or illegal fund-raising activities. In this connection, will the Government inform this Council:
(1) whether it will consider drawing up a clear official definition and establishing a regulatory regime for family offices, and stepping up regulation through legislation or administrative measures to prevent money laundering and other financial crimes; if so, of the specific details; if not, the reasons for that;
(2) whether it has developed corresponding monitoring mechanisms or regulatory measures when considering enhancing the preferential tax regimes for family offices and funds, so as to prevent the relevant regimes from being abused as tax avoidance tools; if so, of the specific details; if not, the reasons for that; and
(3) whether it has plans to provide more systematic training and accreditation schemes for professional talents to meet the demand from family offices for multi-disciplinary professionals, and whether it will regularly assess the effectiveness of the implementation of the policies relating to family offices, including market responses, economic contributions and potential risks; if so, of the specific details; if not, the reasons for that?
Reply:
President,
As an international financial centre and the freest economy in the world, Hong Kong maintains an open market environment. Meanwhile, we also attach great importance to safeguarding the integrity of our financial systems by implementing international standards on anti-money laundering and counter-terrorist financing to deter and detect inward and outward flows of illicit funds.
In consultation with Invest Hong Kong (InvestHK), the Inland Revenue Department (IRD), the Securities and Futures Commission (SFC) and the Hong Kong Academy for Wealth Legacy (HKAWL), my reply to the various parts of the question is as follows:
(1) The Government welcomes all lawful and rule-compliant family offices (FOs) to set up in Hong Kong and respects the private financial arrangement of single FOs. Regarding the regulation of investment activities of FOs, the licensing regime under the Securities and Futures Ordinance is activity-based. Generally speaking, a single FO refers to an arrangement established by members of a single family to manage the family's assets, investments, and long-term interests. A single FO is required to apply for a licence under the Securities and Futures Ordinance if it carries on a business of regulated activity in Hong Kong, for example, providing asset and wealth management services to clients other than members of the relevant family, and to fulfil relevant code of conduct and statutory requirements applicable to licensed corporations. The above requirements are also applicable to investment companies or multi-FOs. To facilitate the industry's understanding of the regulatory regime in Hong Kong, the SFC has issued circular on the licensing obligations of FOs and quick reference guides to provide additional guidance.
In addition, professionals of various sectors providing services concerned to FOs will conduct necessary due diligence in compliance with the statutory requirements and relevant guidelines. Among others, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) provides that financial institutions (including banks, SFC-licensed corporations, insurance companies, money services operators, etc.) and designated non-financial businesses and professions (including solicitors, accountants, estate agents, and trust or company service providers) shall conduct customer due diligence, including identifying and verifying the identity of beneficial owners, continuously monitoring the business relationships with customers, as well as maintaining records. When service providers identify any suspicious transactions, they are also under the legal obligation to report to law enforcement agencies.
Our systems and measures for combating money laundering and terrorist financing have all along adhere to international standards and best practices. We will closely monitor the risks related to money laundering and terrorist financing, as well as the developments in international standards, and will keep our systems and measures under constant review so as to safeguard the integrity and stability of Hong Kong's financial system.
(2) Family-owned investment holding vehicles (FIHVs) managed by single FOs in Hong Kong fulfilling the minimum asset threshold of HK$240 million and substantial activities requirement can enjoy profits tax exemption for qualifying transactions. Currently, a series of anti-avoidance measures have been put in place for the preferential tax regimes for single FOs and funds. For example, a business undertaking for general commercial or industrial purpose is not eligible for tax concessions with a view to avoiding abuse. The tax regimes also contain the anti-round tripping provisions to prevent abuse or round-tripping by resident persons to take advantage of the profits tax exemption via a fund or FIHV. Meanwhile, the general anti-avoidance provisions of the Inland Revenue Ordinance (IRO) are also applicable to the preferential tax regimes for single FOs and funds. Through these provisions, the IRD can address any artificial or fictitious transaction, disposition that is not in fact given effect to and transaction entered into for the sole or dominant purpose of enabling a person to obtain a tax benefit.
To attract more FOs and high-net-worth individuals to choose Hong Kong as a destination for wealth management, we will enhance the preferential tax regimes for funds, single FOs and carried interest, including expanding the scope of "fund" under the tax exemption regime, increasing the types of qualifying transactions eligible for tax concessions for funds and single FOs, enhancing the tax concession arrangement on the distribution of carried interest by private equity funds, etc.
The Government also proposes to introduce a tax reporting mechanism under the enhanced tax regime for funds to ensure that the funds and special purpose entities meet the relevant tax exemption conditions under the IRO. The Government will continue to closely communicate with the industry on formulating the details of the tax reporting regime, and minimise the compliance burden on funds and special purpose entities under the tax reporting regime.
(3) The Government is committed to expanding the talent pool for wealth management and FOs to support the long-term development of the industry. We have since 2016 implemented the Pilot Programme to Enhance Talent Training for the Asset and Wealth Management Sector to nurture more industry talents. To date, over 4 700 applications for reimbursement of professional training course fees have been approved, and the Programme has provided internship opportunities for over 920 tertiary students, supporting the industry to offer more professional training and learning opportunities, thereby enhancing the professional standards of practitioners. Besides, we have included "management professionals in asset and wealth management (WAM)" and "professionals in compliance in WAM" under the Talent List since 2018 and 2021 respectively, so as to facilitate high-quality talents in these professions to pursue development in Hong Kong.
The Government has also established the HKAWL in 2023 to provide a platform for collaboration, networking, knowledge sharing and talent development, and to provide relevant training for asset owners, wealth inheritors and the FO sector. In 2024-25, the HKAWL organised, co-organised, and participated in over 20 events, enabling asset owners, wealth inheritors and FO practitioners to engage in discussions and exchanges. These events brought together over 3 100 participants.
The Government will maintain close communication with FOs to understand their needs, evaluate the effectiveness of relevant policies and introduce enhancements in a timely manner. For example, the New Capital Investment Entrant Scheme (New CIES) has been well-received by the industry since its launch. As of end-May this year, the New CIES has received over 1 370 applications. The current applications are expected to bring an investment amount of over HK$41 billion into Hong Kong. The Government has also implemented enhancement measures with effect from March 1 this year, allowing investment under the New CIES to be made through an eligible private company wholly owned by the applicant, creating synergy with the tax concession regime for FOs.
According to the research findings of the consultant commissioned by InvestHK and publicised in March 2024, there were around 2 700 single FOs operating in Hong Kong as of end-2023. The number is expected to exceed 3 000 in the near future. Separately, since its establishment in June 2021 up to end-May this year, the dedicated FamilyOfficeHK team of InvestHK has assisted over 190 FOs to set up or expand their business in Hong Kong, and around 150 FOs have indicated that they are preparing or have decided to set up or expand their business in Hong Kong. The performance indicator to attract no less than 200 FOs to establish or expand their operations in Hong Kong by end-2025 as set out in the 2022 Policy Address is likely to be achieved.
Thank you, President.
Ends/Wednesday, June 25, 2025
Issued at HKT 14:58
Issued at HKT 14:58
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