The recent uptick in the number of ultra-high-net-worth individuals (UHNWIs) globally, with a 4.2% increase in 2023 to 626,619 from 601,300 the previous year, highlights a growing trend: the need for sophisticated ways to manage and protect large pools of wealth.
This need is particularly pronounced in Asia, which is likely to see the largest rise in the number of UHNWIs, with growth of 39% in coming years. Amid this new-found urgency, Hong Kong’s natural advantages have made it an epicentre for wealth management.
In this guide, we will focus on why Hong Kong is emerging as a favoured destination for family offices, the benefits of the city’s financial and legal environment, and the crucial steps to establish a family office. For UHNWI families seeking to protect and expand their wealth, understanding how to utilise Hong Kong’s resources is crucial to effective wealth management, not to mention creating a genuine family legacy.
The Rise of Family Offices in Hong Kong
Growing Wealth in Asia
The global increase in UHNWIs has significantly impacted Asia, particularly in Hong Kong. The city is home to approximately 400 family offices, with an additional 30 established in 2023 alone. This culture of wealth is part of the fabric of Hong Kong culture, with one in every 14 adult Hong Kong residents being millionaires.
Reaching into UHNWI territory, Hong Kong has more UHNWIs (12,615) than any other city in the world, creating a wealth concentration is a testament to its long-standing reputation as a financial hub. Given the growth of UHNWIs mentioned earlier and Hong Kong’s favourable tax policies, strategic location, and well-established legal system, its future as a global centre for successful family offices looks bright.
Strategic Government Initiatives
From a legislative standpoint, the Hong Kong government has launched several initiatives to bolster its position as a prime location for family offices, two of which stand out: the Inland Revenue (Amendment) Bill 2022 and the Capital Investment Entrant Scheme.
Inland Revenue (Amendment) Bill 2022
This recent bill is a pivotal move to attract family offices to Hong Kong by offering tax concessions. The legislation is designed to provide tax relief for specific types of income, including profits from qualifying transactions and events related to family offices. These tax benefits are structured to reduce the financial burden on family offices, making Hong Kong an even more appealing base for these entities.
Capital Investment Entrant Scheme
This scheme is key to Hong Kong’s strategy to attract high-net-worth individuals, offering fast-track residency for those investing over HK$30 million (approximately USD $3.8 million) in local assets or stocks. Primarily targeting wealthy global citizens, especially Mainland Chinese, the scheme facilitates their move to Hong Kong, encouraging them to establish family offices. This initiative simplifies the investment process and provides a clear path to residency in Hong Kong.
Advantages of Establishing a Family Office in Hong Kong
Hong Kong’s traditional advantages as a global financial hub are well-known, including its robust financial markets, favourable tax regime, and strategic location as a gateway to Mainland China and Asia. However, when considering the establishment of family offices, it is crucial to highlight the specific benefits Hong Kong offers compared to its regional counterpart, Singapore. While both cities vie for the attention of the world’s wealthiest families, their strategies and offerings differ, providing unique advantages for family offices considering Hong Kong as their base.
Tax and Operational Efficiency
Hong Kong offers more streamlined processes for family offices, notably with its Inland Revenue (Amendment) Tax Concession Bill 2022, which provides automatic tax breaks to qualifying single-family offices (SFOs). This ease of operation contrasts with Singapore, where SFOs must undergo a detailed approval process with the Monetary Authority of Singapore (MAS) to access similar benefits.
Investment Incentives
Hong Kong’s Capital Investment Entrant Scheme, encourages foreign nationals to invest and obtain residency, boosting the city’s talent and capital inflow. This scheme, focusing on investments in technology and innovation, offers a more direct path for family offices to establish and thrive compared to Singapore’s more selective investment climate.
Market Access and Geographic Advantage
Hong Kong’s proximity to the Greater Bay Area provides unique access to one of the most dynamic economic regions, aligning with its focus on cost competitiveness and market accessibility. Conversely, Singapore aims to offer all-encompassing offerings for family offices, emphasising a holistic service environment and stringent fund quality.
In summary, Hong Kong’s approach to attracting family offices is characterised by its emphasis on operational simplicity, direct investment incentives, diversified sectoral growth, and advantageous geographic positioning. Conversely, Singapore adopts a more selective strategy, prioritising the sophistication of funds, comprehensive service offerings, and the development of a global family office ecosystem.
For UHNWIs who prioritise ease of business operations, direct investment opportunities, diverse industry growth, and strategic location, Hong Kong emerges as the preferred destination.
Key Steps to Setting Up a Family Office in Hong Kong
As part of InCorp’s home office advisory services, we often guide our UHNWI clients through the critical considerations for establishing a family office in Hong Kong. The following steps are a brief overview of what to consider, ensuring a structured and effective setup for managing and perpetuating family wealth in Hong Kong.
- Establish Your Family Charter: Crafting a family charter in Hong Kong is the foundation for guiding your family office’s strategic direction. This process involves defining your family’s goals, values, and the legacy you aim to create, considering aspects beyond investment, such as philanthropy and family involvement in governance.
- Asset Management: In Hong Kong, diverse investments from real estate to art require tailored management. Deciding which assets the family office will control and how to optimise them for tax efficiency is crucial, often involving structures like private trusts within the family office framework.
- Service Selection: Hong Kong’s family office landscape offers comprehensive services, from wealth management to concierge and philanthropic activities. Selecting services that align with your family’s needs ensures a personalised approach, with each service managed by specialists.
- Leadership Structure: Your family office’s leadership, including positions like CEO and CIO, should be chosen for their expertise in managing complex family wealth structures. Leveraging the network of a seasoned Hong Kong family office service provider like InCorp can aid in recruiting the right talent.
- Business Plan Development: Crafting a business plan with the assistance of your advisors and family office service provider is essential to define the operational and financial roadmap for your family office in Hong Kong.
- Budgeting and Tax Planning: Initial budgeting sets the financial framework, while tax optimisation is a key advantage in Hong Kong, known for its favorable tax regime for family offices, including potential exemptions and incentives tailored for wealth management.
- Staff Recruitment: Depending on your chosen services, your family office in Hong Kong will need a team of professionals, from financial advisors to legal experts, all of which can be orchestrated by your family office service provider.
- Operational Setup: Establishing the operational infrastructure, including technology and office logistics, is pivotal for a functional family office in Hong Kong, ensuring efficiency and security in all transactions and daily activities.
Where to Next With InCorp
If you are ready to secure your family’s legacy by establishing a family office in Hong Kong, InCorp stands ready to be your trusted partner. With our in-depth, on-the-ground understanding of the local landscape and a commitment to personalised service, we are ideally positioned to help UHNWIs and families achieve their wealth management and legacy goals.
Engage with InCorp for Expert Guidance
- Tailored Strategies: Our expertise in crafting family charters and bespoke asset management plans ensures that your family office aligns with your specific legacy aspirations and financial goals.
- Regulatory Navigation: Benefit from our deep knowledge of Hong Kong’s legal and tax environments, simplifying the setup process and maximising your financial advantages.
- Comprehensive Services: From selecting the right services to structuring your leadership team, InCorp provides a full suite of solutions to meet your family office’s unique needs.
- Operational Excellence: We assist in establishing your family office’s operational framework, ensuring efficient, secure, and effective management of your wealth.
Start your journey toward establishing a family office in Hong Kong with a partner that understands the nuances of wealth management in this prestigious region. Contact InCorp today to discuss how we can enable the creation and management of your family office, tailor-made to nurture and grow your family’s legacy.
Frequently Asked Questions About Family Office in Hong Kong
- A family office is a private entity that centrally manages the financial affairs, investments, and often the personal needs of a single ultra-high-net worth individual or family.
- Rising wealth concentration among UHNWIs, and the need for more privacy, control, and customised wealth management are driving the growth of family offices.
- Hong Kong offers a low tax environment, a strategic location with access to Mainland China, government initiatives favouring family offices, and a robust financial infrastructure.
- The process involves creating a family charter, asset assessment, choosing a business structure, recruiting talent, and partnering with professional advisors for legal and tax guidance.
- InCorp provides comprehensive support, including family charter development, strategic planning, regulatory compliance, talent recruitment, and operational setup.
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