It has been well documented that recent global events have served as the catalyst for an escalation in the rivalry between Hong Kong and Singapore, as both cities tussle for supremacy as Asia’s foremost international investment destination. Singapore had a head start and gained some ascendency with an inflow of regional talent, foreign direct investment and the success of its family office incentive in attracting high net wealth individuals, resulting in over 1,100 family offices registering for tax incentives and an influx of ultra-high net worth individuals coming directly from Hong Kong.
Following the rapid surge in family offices in Singapore, the Hong Kong government has introduced a new tax concession for family offices in order to restore Hong Kong’s position as a desirable destination for high net wealth investments.
Subsequent to the issuance of the consultation paper in March 2022  and the passage of the Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Bill 2022 (the “Bill” or “FIHV Tax Regime”) by the Legislative Council on 10 May 2023 , the Bill was gazetted on 19 May 2023 and will take retroactive effect from 1 April 2022.
Under the new FIHV Tax Regime, eligible Family-owned Investment Holding Vehicles (“FIHVs”) managed by eligible Single Family Offices (“SFOs”) in Hong Kong and Family-owned Special Purpose Entities (“FSPEs”) established by eligible FIHV are exempt from Hong Kong profits tax (“HKPT”) on the profits arising from qualifying transactions and incidental transactions.
For comprehensive details of the FIHV Tax Regime in Hong Kong and comparison of the tax regimes in Hong Kong and Singapore, please refer to the downloadable content.
Hong Kong’s competitive advantage
The most immediate and practical advantage of the Hong Kong tax concession is that it automatically applies provided the SFOs meet the minimum criteria, whereas in Singapore, SFOs seeking to benefit from similar tax concessions must seek prior approval from the Monetary Authority of Singapore (“MAS”) first, which can take up to two years. Hong Kong family offices are also able to access more flexible legal structures (including ownership by philanthropic bodies) and less onerous thresholds.
On the contrary, there are still some lingering concerns including restrictions on ownership restrictions, the exclusion of key investment asset classes (such as fixed income, virtual assets and property) and the requirement to control and manage the family office in Hong Kong.
The high net worth investment roadmap
As the second phase of the contest to win over high net wealth investors begins, both cities have indicated that a second wave of reform is underway to further enhance the economics created by new high net wealth investments.
In March this year, the Hong Kong government issued its latest statement of policy outlining its plans to continue the rejuvenation of the economy, announcing plans to introduce a wave of initiatives to facilitate a healthy environment for business and investment to return to Hong Kong. These include a proposed reintroduction and expansion of the Capital Investment Entrant Scheme (“CIES”) to facilitate the granting of residency to high net wealth investors, the development of the philanthropic agenda in Hong Kong by streamlining the recognition of tax-exempt status of charitable entities, and the promotion of further investment opportunities for family offices through a dedicated HK$100 million funding to InvestHK.
With Hong Kong rolling out the red carpet to stem the outward flow of investors, Singapore is now turning its attention to attracting higher quality family offices and channeling wealth back into the local economy. In April last year, Singapore tightened the criteria for SFOs seeking to qualify for tax exemptions. SFOs seeking tax exemptions under section 13O are now required to have minimum Assets Under Management (“AUM”) of S$10 million at the time of the application with a commitment to increase that to S$20m after two years. Further, there are updated requirements around minimum number of local investment professionals, and minimum amount of operating expenditure and AUM allocated to local investments.
Singapore is also planning to implement expanded tax incentives to encompass all investments in non-listed companies operating in Singapore. There are also expansive tax incentives for both projects which are climate-related and which promote philanthropic activity by family offices.
Given the above, the emergence of Hong Kong’s family office incentives, along with the shift in focus from Singapore to attract more preferable investment types, investors should monitor the implementation and refinement of the incentives in Hong Kong and Singapore to assess the optimal location(s) to set up their family office investments.