Hong Kong’s proposed reform of the family office tax regime: A major step toward a multi asset investment platform

The long-awaited Bill detailing the proposed amendments to Hong Kong's preferential tax regimes for funds, family-owned investment holding vehicles (FIHVs), and carried interest was finally gazetted on 12 Jun 2026 (the "Bill"). The first reading of the Bill is scheduled on 24 Jun 2026 at the Legislative Council. 

While the reforms span three preferential tax regimes, we will focus on changes to the existing family office tax concession framework.

Key changes 

• Changing the calculation of the minimum asset threshold from the 'Net Asset Value Rule' to an 'asset value' requirement. (i.e. shareholders' loans made to the FIHVs will not be deducted in calculating the value of the FIHV.  
• Expanding Schedule 16C and the list of investments which qualify for the tax exemption to reflect contemporary investment strategies.
• Removing references to 'qualifying transactions' and 'incidental transactions' and any 'incidental transaction threshold' to simplify the qualification for the tax exemption. 
• Clarifying the scope of activities for an entity to qualify as a Family-Owned Special Purpose Entity (FSPE) and expanding the tax exemption treatment to all of its income, even if the FIHV owns a partial interest in the FSPE only. 
• Expanding the tax exemption treatment for FIHVs and FSPEs on disposal gains derived from their ownership of 'equity interests' in investee entities (rather than just shares in investee companies), provided that certain 'tests' are met.
• Refining the anti-roundtripping rules to attribute profits of the FIHV and FSPEs to certain types of entities (e.g. money lenders and insurers), which carry on business in Hong Kong. 

Some further details of the proposed changes are highlighted below: 

Replacing the concept of NAV with 'asset value' 

The 'net asset value (NAV)' test (i.e. requirement that the NAV of the FIHV managed by the family office in Hong Kong must be at least HK$240 million or more at the end of each basis period)¹ is proposed to be replaced by a broader and more flexible 'assets value' concept. In practical terms, the revised drafting simplifies the calculation and reduces distortions arising from accounting treatments, particularly in respect of liabilities such as shareholder loans, and makes it easier for qualifying family office structures to satisfy the minimum asset requirement. With the changes, beneficial owners may contribute to their FIHVs by way of loans rather than capital contribution, which may facilitate tax planning for the owners. The Legislative Council has clarified² that loans from parties other than shareholders (e.g. bank loans) will continue to be deducted. Further clarification on how 'asset value' is recognised would be welcomed. 

Expanding the list of investments which qualify for the tax concession 

The amendments fundamentally recast the basis on which profits of an FIHV qualify for exemption by removing the existing concepts of 'qualifying transactions' and 'incidental transactions'³ and instead granting relief on 'profits derived from Schedule 16C assets'. This shift is directly linked to the simultaneous expansion of Schedule 16C assets⁴, which now expressly encompasses: 

• insurance linked securities, 
• equity interests in non corporate entities (such as partnerships),
• loans,
• immovable property situated outside Hong Kong, 
• digital assets⁵, 
• precious metals⁶, 
• certain commodities in connection with and incidental to the trading of OTC derivatives products or futures contracts⁷, and 
• carbon credits, emission allowance and derivatives⁸

thereby extending the regime well beyond traditional securities and financial instruments. 

At the same time, Schedule 16L is introduced⁹, which specifically carves out income derived from stock or shares of a private company that is attributable to property trading or property development in respect of immovable property in Hong Kong from the tax exemption regime to ensure that property trading or development income will not benefit from the regime.

Removing incidental transactions

Under the existing law, exempt profits from 'incidental transactions' are subject to a restrictive 5% threshold¹⁰. The Bill removes this framework entirely, eliminating the need to characterise receipts as core or ancillary, or to monitor compliance with an arbitrary quantitative cap. From a practical perspective, this will likely promote certainty, particularly for FIHVs with diversified portfolios generating mixed income streams (e.g. interest or coupon income from loans or structured products).

Management by the Single Family Office

The proposed amendments clarify that as long as the Schedule 16C assets are 'primarily managed in Hong Kong' and are 'managed by or through an ESF Office [eligible single family office] of the family that manages the FIHV'¹¹, profits derived from such assets by the FIHV will be exempt if other conditions are met. Further clarification on what is meant by 'primarily managed by' would be welcomed, in particular, the extent of management activities (from strategic to pure administrative) required to be undertaken by the ESF Office in Hong Kong.

Proposed amendments related to FSPEs 

The Bill clarifies the permitted activities of an FSPE. Under the current law, an FSPE refers to a vehicle established 'solely' for holding and administering underlying Schedule 16C assets¹². The proposed amendments make clear that an FSPE is an entry that solely acquires, holds, administers and disposes of Schedule 16C assets, executes legal documentation relating to such activities, as well as carries out activities that are incidental to those functions. 

Additionally, all profits of the FSPE would be tax-exempt even if it is only partially held by an FIHV, which is managed by its ESF Office in Hong Kong. Under the existing regime, exemption is only available to the extent of the FIHV’s beneficial ownership interest in the FSPE¹³, such that where an FSPE has investors other than the FIHV, only the portion of the FSPE's profits which are attributable to the FIHV would benefit from the concession. The proposed amendments¹⁴ remove this proportional limitation and provide that, where an FSPE satisfies the relevant statutory conditions, the FSPE may benefit from the tax exemption with respect to the entirety of its eligible profits. This removes technical uncertainty and ensures that the use of SPEs, common in practice for ring fencing risk or facilitating co investment, does not, in itself, jeopardise eligibility for the exemption.

Tax exemption to profits of an FIVH / FSPE derived from its 'equity holdings' in 'relevant entities'

Under the current regime, FIHVs and FSPEs may enjoy tax exemption on gains when they dispose of their interests in private or 'relevant companies', even if these companies do not hold Schedule 16C assets, provided that certain tests are met¹⁵. This exemption is expanded by the following proposals: 

The first is the added definition of 'equity interest'¹⁶ which extends beyond traditional share capital to encompass interests carrying rights to profits, capital or reserves and recognised as equity under applicable accounting standards.  The gains from the holding and disposal of such 'equity interest' by the FIHVs/FSPEs may now qualify for tax exemption¹⁷, rather than just gains from the disposal of interests in 'relevant companies'. 

The second is the clarification to the 'tests' which have to be fulfilled in order for gains derived from the disposal of the 'relevant companies' or 'relevant entities' to be tax-exempt.  The regime continues to impose an immovable property test designed to exclude cases in which the underlying company or entity derives substantial value from Hong Kong immovable property. The holding period test is also retained, which provides tax exemption if the FIHV/FSPE has held the investment in the relevant company or entity for a minimum period of 2 years prior to disposal.

Where the holding period test cannot be met, the FIHV and FSPE may still rely on the short term asset test and the control test, despite previous proposals to remove these tests. Tax exemption still applies if the FIHV/FSPE does not actually have control of the investee company or entity (where 'control' is expanded to refer to the exercising of control via ownership, voting powers or powers conferred by other agreements¹⁸ over the investee company or entity). The short-term asset test also remains such that if the investee company or entity holds at least 50% of its investments (in non-Schedule 16C assets) for 3 years prior to the disposal of its interest by the FIHV/FSPE, profits tax exemption continues to apply to the FIHV/FSPE.

Refining the anti-round-tripping rules 

The reforms revisit the anti–round-tripping rules, which are designed to prevent Hong Kong resident entity investors from accessing the tax exemptions through the family office regime. Under the proposed rules, a portion of the profits of FIVHs (as well as FSPEs), which would otherwise be tax exempt, would be attributed to certain of their investors and would still be subject to tax in the hands of those investors¹⁹. 

The proposed amendments introduce certain categories of investors - financial institutions, insurance companies, and persons carrying on a money lending or intra group financing business who would specifically be caught under these anti-round tripping rules. To the extent that 20% or more of the interest of the FIHVs or FSPEs is held by these businesses, the portion of the profits derived from loans provided via the FIHVs or FSPEs structure would be attributed to these businesses and be subject to profits tax.  

However, investors of the FIHV or FSPEs who are natural persons or 'specified entities'²⁰ continue not to be subject to these rules. 

Implementation

The Bill, if passed at the Legislative Council, would be effective from the tax year starting 1 April 2025. The Inland Revenue Department has announced²¹  a transitional measure that taxpayers who are eligible for the enhanced tax exemption proposed under the Bill may submit their tax returns for the year of assessment 2025/26 on the basis that proposed amendments are adopted.

It should be noted that other requirements such as the 'substance' requirements (minimum local employees and expenditure) and the 'Safe Harbour Rule' for the family office structure to qualify for tax exemption remains unchanged, though further clarification and refinement on how these rules should apply would be welcomed.

A more competitive platform for global family capital

Taken together, the proposed changes represent a significant strengthening of Hong Kong’s value proposition for family offices. The regime becomes more flexible and better aligned with modern investment strategies in the global economy. 

For family offices already established in Hong Kong, the reforms create opportunities to optimise existing structures and broaden investment scope. For those considering entry, they enhance the jurisdiction’s attractiveness as a base for managing global assets.

It remains to be seen if further refinement of the proposals outlined in the Bill will be rolled out at the Legislative Council debate.