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Hong Kong mulls Singapore-style taxes to attract family offices

Hong Kong mulls Singapore-style taxes to attract family offices

Hong Kong’s Private Wealth Management Association (PWMA) is taking a leaf out of Singapore’s book to recommend changes in the domestic tax regime.

In a recently launched white paper, the 45-member association recommended four tax policy initiatives to attract family offices, which have been identified as a key growth engine for the industry.

The recommendations include more offshore funds exemptions, revamping trust taxation, concessionary tax rates and taxes on non-residents.

Speaking to Citywire Asia, PWMA’s managing director Peter Stein said that the proposals are meant to make the financial hub’s already attractive tax environment even more competitive.

‘In Asia, Singapore is considered to be the main competitor to Hong Kong as a private wealth management hub so Hong Kong must ensure that its tax regime facilitates and supports the growth in private wealth management,’ he said.

The fastest tax initiative to implement would be an extension of Hong Kong’s existing offshore funds exemption to also cover assets managed in the jurisdiction, he added.

Currently, profits arising from any funds managed in Hong Kong on behalf of family offices could be exposed to taxes. While Hong Kong’s Financial Services and Treasury Bureau is mulling amendments to the offshore funds exemption, PWMA said they don’t go far enough for typical family office structures.

For example, the proposed new exemption would not apply to an arrangement where the family office is not a qualifying fund, or where the offshore investment holdings of the family office are managed by an associate in Hong Kong.

In Singapore, the income and capital gains made by offshore and onshore funds of family offices are exempt from taxes as long as the assets are managed from Singapore.

PWMA has also asked the government to reform the tax regime for trusts to encourage them to make investments.

In the white paper, the wealth manager body wrote that Hong Kong should consider adopting trust features used in Singapore, such as the income of the trust retaining its character upon distribution to beneficiaries or taxing income in the hands of the beneficiary as opposed to the trust.

Currently, in Hong Kong tax law, profit taxes apply to the trustee when the trust is managed from Hong Kong. In Singapore, trust profits and funds are taxed at the beneficiary level or for those who are residing in Singapore and entitled to the trust’s income.

PWMA also wants concessionary tax rates for trustee companies, fund managers and investment advisors - as is done in Singapore - to encourage family offices to conduct operations from Hong Kong.

Singapore currently provides a concessionary tax rate of 10% to qualifying fund managers and investment advisors.

The association has also asked Hong Kong authorities to ensure that non-resident high-net-worth individuals (HNWIs) remain exempt from taxes to encourage foreign family offices in the jurisdiction.

Explaining the importance of the family office industry, Stein said that close to half of the $1 trillion assets managed by Hong Kong’s private wealth industry comes from corporate and institutional professional investors.

‘We believe much of this figure is made up of family offices of various forms, from single family offices to family offices embedded within family businesses,’ Stein said.

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