Hong Kong Single-Family Offices Can Apply for License Exemption
On 24 March 2023, the Hong Kong Government issued a Policy Statement on the Development of Family Office Businesses in Hong Kong to create a competitive environment for family offices and asset owners worldwide, outlining a range of measures for the development of family office businesses in Hong Kong.
License Exemption for Single Family Offices
The wealth management industry in Hong Kong will undergo significant changes following the SFC’s decision to exempt single-family offices from the licensing requirements. The SFC has clarified that single-family offices that do not operate on a commercial basis will be eligible for a license exemption.
The new policy is expected to facilitate the growth of family offices in Hong Kong, particularly those serving high-net-worth individuals, and support the Government’s broader strategy to strengthen Hong Kong’s position as Asia’s premier financial center. By reducing the regulatory burden, the exemption will make it easier for single-family offices to operate in Hong Kong.
In addition, the SFC hopes that the move will attract more private wealth management firms to Hong Kong, where demand for family office services has surged in recent years. The exemption is likely to encourage more firms to set up in Hong Kong and take advantage of the potential opportunities offered by the city’s thriving wealth management sector.
This development is also expected to foster competition between family offices and traditional wealth management firms, ultimately benefiting investors through improved services and more competitive pricing. In addition, more private wealth management firms may consider setting up family offices in Hong Kong to take advantage of this exemption. Overall, the SFC’s decision marks an important milestone for the wealth management sector in Hong Kong and could have a profound impact on the industry.
How is a single-family office deemed to be a single-family office?
he SFO does not identify the family, the family office, or what type of relationship can be counted as a family member. Therefore, a single-family office:
can serve non-family members without a license;
enjoys greater flexibility in determining its legal form and services;
What are the conditions for a license exemption?
A single-family office may be exempt from licensing under the SFO if itoperates on a cost-recovery basis with no income other than reimbursement of business expenses; and
operates on a cost-recovery basis with no income other than reimbursement of business expenses; and
does not operate for the purpose of generating profits.
However, multi-family offices usually operate as commercial entities and are more likely to require a license.
When does a family office require a license?
Under the SFO, a family office in Hong Kong requires a licence if it engages in regulated activities and conducts business within Hong Kong.
However, there are two exceptions to the asset management licence for family offices under the SFO. The first exception applies to services provided exclusively to the group companies of the office in relation to the assets of the group. The second exception applies to activities incidental to the trust services of an entity registered under the Trust Ordinance.
Other measures to attract family offices in Hong Kong
As mentioned earlier, the Hong Kong Government has issued a policy statement following the announcement of the new licensing rules. The new policy measures aim to create a competitive environment for global family offices and asset owners in Hong Kong. These measures include
A new Capital Investment Entrant Scheme (CIES). The scheme will include assets permitted under the scheme, such as shares listed in Hong Kong, debt issued by companies listed in Hong Kong, subordinated debt issued by authorised institutions and qualifying collective investment schemes. Approved applicants will be allowed to reside and develop in Hong Kong with their spouse and dependent unmarried children.
Tax benefits: Family investment holding vehicles managed by a single family office in Hong Kong will be exempt from profits tax. The Government will also review the existing preferential tax regime for funds and carried interest.
Market facilitation measures: These include SFC licensing requirements, particularly those catering for family offices. The regulator has established a dedicated communication channel, maintained by its licensing team, to handle family office-related inquiries.
Hong Kong Wealth Succession Academy: The Government will fund the establishment of a new academy under the Financial Services Development Council to provide talent development services for industry practitioners and the next generation of wealth owners.
Art storage facilities at the airport: The Hong Kong Airport Authority is studying the establishment of a storage, display, and appreciation facility for artworks and treasures at the Hong Kong International Airport.
InvestHK’s Family Office Hong Kong team: The role of the Family Office Hong Kong team will be expanded to include services such as promoting philanthropy for wealth owners and assisting with education-related matters.
A new Family Office Service Provider Network: The FamilyOfficeHK team will convene and launch a new Family Office Service Provider Network to provide a two-way channel for the Government and the industry to communicate the latest policy developments.