As demand for asset management by the "super rich" is shifting to family offices (FO) worldwide, Hong Kong is absorbing that demand. Unlike Korea, where high-net-worth individuals are leaving, Hong Kong is pushing ahead as Asia's leading "family office hub" by touting exceptional tax benefits and an investor-immigration system.
According to InvestHK on the 25th, Hong Kong had successfully attracted more than 200 family offices as of September. In its 2022 policy address, the Hong Kong government declared it would attract at least 200 family offices by the end of this year, and it has already reached the target with about three months left in the year.
A family office is an organization that covers not only the asset management of ultra-high-net-worth individuals (UHNWI) and high-net-worth individuals (HNWI) but also tax and inheritance, succession planning, preservation of family values, and education of heirs. The Western super rich, including Walton Enterprises run by the Walton family of Walmart, the world's largest retail chain, have long operated family offices. As of the end of 2023, more than 2,700 single-family offices had been established in Hong Kong, and more than half of them are known to be ultra-large families that manage more than $50 million (about 73.5 billion won) in assets.
As asset size grows, customized financial services tailored to each family become necessary, and demand for family offices is increasing by the day. According to Deloitte Touche Tohmatsu Limited (DTTL), there were about 8,030 family offices worldwide as of last year, up 31% from 2019. Deloitte Touche Tohmatsu Limited (DTTL) projected the number would rise to 10,720 by 2030.
◇ Family-office-friendly Hong Kong
Hong Kong has the geographic strength of being connected to anyone in Asia and Europe, and, having held its position as one of the world's top three financial hubs for nearly 100 years, has solid "financial infrastructure." From January to October this year, the Hong Kong stock market raised about $26 billion (about 38 trillion won) through initial public offerings (IPOs), ranking No. 1 globally by IPO proceeds. This boom also drew interest from Korea's financial sector. Korean financial institutions transacted more than 1.5 trillion Hong Kong dollars (about 283 trillion won) on the Hong Kong stock market in the first five months of this year, and Korea-based investment banks participated as cornerstone investors in several Hong Kong IPOs.
Global investors have recently been expanding investments in China's artificial intelligence (AI) and advanced technology industries using Hong Kong as a base. Hong Kong serves as a key investment gateway to Chinese big tech corporations such as Alibaba and Tencent, and is assessed as offering both freedom to invest across a range of asset classes and access to assets worldwide. This strategic position is cited as a factor elevating Hong Kong as a "global family wealth hub."
Above all, Hong Kong has a tax regime favorable to wealthy individuals. Hong Kong effectively has "0%" inheritance tax, dividend income tax, and corporate tax. Single-family offices with investment amounts of at least 2 million Hong Kong dollars (about 370 million won) and assets of at least 240 million Hong Kong dollars (about 45.3 billion won) are exempt from corporate tax. It offers an optimal environment for operating family offices whose main purpose is wealth succession and asset management.
Setting up a family office is also simple. If it does not fall under regulated activities under Hong Kong's Securities and Futures Ordinance, establishing a family office requires no separate license or prior approval. In Hong Kong, family offices can receive tax benefits immediately without prior approval, and only need to meet the minimum staffing requirement of two people. This contrasts with Singapore, where tax benefits apply only at least one year after establishment and at least one non-family member must be hired.
Moreover, starting last year, Hong Kong overhauled the Capital Investment Entrant Scheme (CIES), an investor-immigration program essential for setting up family offices, reducing the original two-year investment holding period to six months. If a minimum investment of 30 million Hong Kong dollars (about 5.7 billion won) is maintained for six months, a spouse and children under 18 can reside in Hong Kong with the approval of the Immigration Department. If a single-family office with assets of at least 240 million Hong Kong dollars meets the conditions for tax benefits, up to eight family members can apply for permanent residency through the CIES.
◇ Wealthy individuals flock to Hong Kong
Thanks to these advantages, numerous wealthy individuals are already flocking to Hong Kong. According to a June report by global investment-migration consultancy Henley & Partners, the number of high-net-worth individuals with liquid assets of $1 million (about 1.5 billion won) or more expected to flow into Hong Kong this year will reach 600. In contrast, Korea is expected to see a net outflow of 2,400 high-net-worth individuals over one year. Henley & Partners noted that high-earning executives from rapidly growing high-tech corporations in Shenzhen, China, adjacent to Hong Kong, are based in Hong Kong.
Although the inflow of high-net-worth individuals into Hong Kong has been increasing rapidly recently, Hong Kong has in fact long been a city where asset-rich individuals who accumulated wealth as a "financial hub" have established family offices, going back decades. A representative example is Harilela Hotels, which started as a small tailor shop about 100 years ago and has grown into a global luxury hotel group. The Harilela Group, with about 100 family members, built a family office early on and has systematically carried out asset management and succession.
Group Chairman and CEO Aron Harilela said, "As generations pass, it becomes harder to reach consensus, so introducing strong governance at the board and corporate levels is key to harmony and sustainability," adding, "We found the answer in Hong Kong."
KGK Group, which operates jewelry and real estate businesses, also moved its operations to Hong Kong in 1990 for the continuity of its family business. Vice Chairman Sanjay Kothari said, "We place great importance on wealth planning to ensure intergenerational continuity," adding, "Hong Kong's legal and financial systems are very effective in structuring inheritance and succession plans, and they enable us to promote future growth while maintaining the integrity of the family's business and assets."