Recently, Hong Kong is emerging as a 'family office (FO) hub.' A family office refers to a private investment company established for the purpose of managing the assets of so-called 'super-rich' individuals with large financial assets, providing comprehensive asset management services including legal, tax, and succession planning for ultra-high-net-worth individuals. Wealthy individuals in Korea, where the family office industry faces limitations due to high tax burdens, are also showing interest in establishing family offices in Hong Kong.
According to global consulting firm Deloitte, as of last year, more than 2,700 single-family offices (SFOs) are operating in Hong Kong. The assets managed by global family offices gathered in Hong Kong are valued at a minimum of $10 million (about 15 billion won). With low tax rates and minimal regulations, Hong Kong has established itself as a global 'financial hub' for decades and is receiving active government support to also become a family office hub.
In fact, last year the Hong Kong government reintroduced the Capital Investment Entrant Scheme (CIES), which was effectively suspended in 2015. Earlier this year, it reduced the investment maintenance period required before applying for CIES from two years to six months. Additionally, investments made through family-owned investment holding companies (FIHVs) are now recognized as meeting the CIES requirements. This lowers the threshold for investment immigration to attract family offices.
◇Inheritance tax at 0%, minimal tax burden
Hong Kong's biggest advantage is its low various tax rates. Corporations with an annual taxable income of less than 2 million Hong Kong dollars face a mere 8.2% corporate tax rate. The corporate tax rate for companies earning more than 2 million Hong Kong dollars (about 374.22 million won) is also among the lowest in Asia at 16.5%. The personal income tax rate in Hong Kong is also around 15%, lower than in family office competitor Singapore. Thanks to the low tax rates, both corporations and individuals can secure more capital for reinvestment.
In particular, Hong Kong maintains the most favorable tax system for the establishment of family offices with an inheritance tax rate of 0%. Considering that the highest inheritance tax rate in Korea is 50%, Hong Kong could be an attractive alternative for Korean asset owners. Patrick Ip, vice chairman of Deloitte China and international joser partner, noted, "Hong Kong has no gift tax or inheritance tax" and stated, "While the global tax system is complex, Hong Kong maintains a simple tax structure."
There are also separate tax benefits aimed at family offices. Last year, the Hong Kong government introduced a tax relief system for SFOs that focus on single families. Under this system, a 0% corporate tax rate applies to investment management companies (IVHs) operated by SFOs. In addition, capital gains taxes, value-added taxes (VAT), withholding taxes on investments, and dividend taxes common in other countries do not exist in Hong Kong.
Hong Kong's tax system, characterized by clarity and efficiency, is recognized globally. In the annual World Competitiveness Yearbook published every June by the International Institute for Management Development (IDM), Hong Kong was selected last year as one of the most competitive economies in the world. In the 'tax policy' sector, it ranked second globally and first in the Asia-Pacific region.
◇Simple FO establishment process, great living environment
The absence of a legal expiration period for trusts in Hong Kong is another reason why 'super-rich' individuals want to establish family offices there. In countries such as the United States and the United Kingdom, it is common for asset owners to entrust asset management or posthumous inheritance execution to trust companies, but in Hong Kong, trusts can be operated permanently. This allows for the preservation and inheritance of assets across multiple generations. In Singapore, family trusts expire after 100 years, allowing only about three generations.
The process of establishing a family office is also simple. The procedure for setting up a family office in Hong Kong is not different from establishing a company or a trust. Under the condition that SFOs do not engage in activities regulated by the Securities and Futures Ordinance, there is no need to apply for a separate license from the Securities and Futures Commission. Additionally, SFOs are not required to obtain prior approval from government agencies. As a result, SFOs have no obligation to disclose internal information, allowing asset owners to keep sensitive information confidential.
Hong Kong's robust financial infrastructure is also suitable for operating family offices. Over 70 of the world's top 100 banks have established their Asian hubs in Hong Kong. Additionally, there are about 267,000 financial professionals providing services such as accounting, insurance, international tax, asset management, and investment advisory. As a result, Hong Kong serves as a 'connector' that links global markets and investors beyond Asia.
Hong Kong is also an attractive place for global asset owners to reside. Influenced by the British, Hong Kong harmonizes Eastern and Western cultures in various aspects such as gastronomy, art, and sports. Fine dining experiences at Michelin-starred restaurants and yacht sailing in Victoria Harbour are representative examples. James Thompson, founder of the Crown World Group, a multinational corporation based in Hong Kong, said, "Hong Kong is an attractive place for people who seek a balance between work and life because of the diverse cultural experiences it offers."