【CityLinkers Business School】Hong Kong Plans to Upgrade Tax Concessions for Funds and Family-owned Investment Holding Vehicles
The draft amendment is expected to be submitted to legislation in the first half of 2026, aiming to further enhance Hong Kong’s competitiveness as an international asset and wealth management center.
The Financial Services and the Treasury Bureau, together with the Hong Kong Monetary Authority, the Securities and Futures Commission, and the Inland Revenue Department, reviewed the situation and, after consulting with the industry, formulated a series of optimization measures.
Firstly, regarding the Unified Funds Exemption (UFE), the definition of “fund” will be broadened.
New categories include pension funds, endowment funds, funds with a government entity or central bank as the sole investor, and “single-investor funds” with assets under management of HK$240 million and where the investor does not interfere in day-to-day management.
The latter is particularly important for institutional investors and ultra-high-net-worth individuals, allowing them to enjoy tax exemptions with a streamlined structure, without the need for complex multi-investor structures.
Secondly, the eligible investment scope for funds and Family-owned Investment Holding Vehicles will be expanded to include offshore real estate, carbon emission derivatives/carbon emission allowances and carbon credits, insurance-linked securities, equity interests in non-corporated entities, loans (including private debt investments), digital assets, precious metals, and certain commodities (with a 15% trading volume cap), aligning with Hong Kong’s strategy of becoming an international commodity trading center and a regional private credit hub.
SPE Full Tax Exemption Relaxed
Regarding tax exemption conditions, the restriction that “casual transactions” must account for less than 5% of total income will be removed, and eligible investment income will be fully exempted. The rules for special purpose entities (SPEs) will be relaxed, allowing SPEs to be fully tax-exempt regardless of fund shareholding ratios, addressing tax pain points related to co-investment. Private company investment-related tests will only apply to equity investments, with debt investments exempted, allowing for more flexible structural designs.
Furthermore, regarding anti-tax avoidance rules, individual tax residents, tax-exempt funds under the UFE regime, tax-exempt life insurance companies, and intermediary entities in which a certain percentage of equity is held by the aforementioned individuals or non-residents will be exempt from anti-tax avoidance provisions. The revised regulations apply to family control vehicles (FIHVs) managed by single-family offices, including a broadened scope of eligible investments, an expanded definition of special purpose entities (SPVs), adjustments to the private company investment test, and updates to anti-tax avoidance provisions.
Family offices can allocate more flexibly in precious metals, commodities, and private credit while maintaining tax exemption status.
Several relaxations have been implemented regarding the spurious interest regime, including the removal of the Hong Kong Monetary Authority’s certification requirements and the deletion of references to threshold rates of return in the definition of eligible spurious interests under the tax regime.
These revisions significantly lower the threshold for fund managers to establish investment management businesses in Hong Kong, and are expected to attract more global asset management institutions.
Regarding the substantive activity requirements, funds and SPVs must maintain an average of no fewer than two qualified employees in Hong Kong, with annual operating expenses of no less than HK$2 million, and must submit accounting information and compliance documentation.
Overall, the 2026 optimization plan significantly enhances the inclusivity and flexibility of the Hong Kong fund and family office regime, responding to practical market needs.
The author suggests that asset managers and family offices review their existing structures as early as possible to assess the need for restructuring to capitalize on the advantages of the new policy. They should also closely monitor the legislative progress and implementation guidelines to ensure a balance between compliance and efficiency.
Written by Paxson Fung, Partner of CityLinkers Group
For original article, please visit: https://www.edigest.hk/1997455
