Lawyer, Family Office
Concept
A FIHV (family-owned investment holding vehicle) is the structure through which a single family holds its investments and, if a set of conditions is met, pays 0% profits tax in Hong Kong on that portfolio’s income. The regime sits in a dedicated statute — the Inland Revenue (Amendment) (Tax Concessions for Family-owned Investment Holding Vehicles) Ordinance 2023, which came into operation on 19 May 2023 and applies retrospectively from the year of assessment 2022/23.
Mechanically the FIHV is bolted onto the existing Unified Fund Exemption (s.20AM and following of the IRO): it borrows the fund regime’s list of qualifying assets — Schedule 16C to the Inland Revenue Ordinance. What differs is the addressee. Previously, to use the fund exemption a family had to wrap its capital in a fund; the FIHV delivers the same 0% without pretending to be a collective fund — a family investment vehicle managed by the family’s own office is enough.
The relief is self-assessed: the FIHV claims it in its profits tax return, and no separate approval from the Revenue is needed to start. Certainty is obtained up front through an advance ruling under s.88A IRO (the procedure is set out in DIPN 31) — a standard mechanism used precisely to confirm FIHV eligibility. It is not a discretionary grant by the Revenue but the taxpayer’s own position, which can be locked in by a ruling.
Where the regime came from
Before 2023 a wealthy Hong Kong family reached 0% either territorially (offshore income) or by wrapping the portfolio in a structure that fit the fund exemption. Both were awkward: the first invited source-of-income disputes; the second required a fund format where there is no outside investor. The 2023 Ordinance closed that gap with a dedicated track for family capital.
Substantively the relief is simple: assessable profits the FIHV earns on qualifying transactions in Schedule 16C assets (plus incidental income within the historic 5% threshold) are taxed at 0% — provided the structure, ownership and substance conditions are met.
Conditions: who passes the test
Several conditions must be met at the same time for a FIHV to obtain 0%.
- ≥95% of the beneficial interest in the FIHV is held by a single family (members of one family), with limited exceptions.
- The FIHV is normally managed or controlled in Hong Kong (central management & control, CM&C) and is not an ordinary commercial or industrial business.
- It is managed by an Eligible Single Family Office (ESF Office) — itself Hong Kong-resident, controlled by the same family and serving that family.
- Substance in the family office: at least 2 full-time qualified employees in Hong Kong and no less than HK$2 million of operating expenditure in Hong Kong per year.
- Asset threshold: the aggregate value of Schedule 16C assets the ESF Office manages for the family (through one or more FIHVs) is at least HK$240 million at the end of the year of assessment.
- Anti-round-tripping: if a specified Hong Kong resident holds ≥30% beneficial interest in the FIHV (or the FIHV is its associate), the exempt profit can be deemed taxable in that resident’s hands.
What changes in 2026: the Bill
On 12 June 2026 the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026 was gazetted. It is introduced into the Legislative Council on 24 June 2026; once enacted, the enhanced regime takes effect retrospectively from the year of assessment 2025/26. For now it is a bill, not law in force — but the direction is set.
Expansion of Schedule 16C
The Bill widens the list of qualifying assets, directly answering what family offices asked for:
- loans — i.e. private credit as an asset class;
- interests in non-corporate entities (e.g. partnerships) — stakes in PE and fund structures;
- immovable property situated outside Hong Kong;
- digital assets — which in practice means crypto;
- insurance-linked securities, precious metals (up to 20% of the portfolio), certain commodities, and emission allowances / carbon credits.
Removal of the 5% cap and stronger FSPE rules
The Bill drops the split between “qualifying” and “incidental” transactions and the 5% incidental threshold itself: the relief now attaches to “holding of or transactions in” Schedule 16C assets. In parallel, the FSPE (family-owned special purpose entity) regime is strengthened — full relief for a partially-owned FSPE and a wider set of permissible activities, with a symmetric extension of anti-round-tripping.
Application
A typical setup: a family with a portfolio of liquid and private investments of HK$240m+ consolidates them into one or several FIHVs under a single Hong Kong family office. The ESF Office hires an investment team (at least two professionals), genuinely manages from Hong Kong — and the portfolio’s Schedule 16C income (gains, dividends, interest) is taxed at 0%.
The FIHV fits Hong Kong’s territorial system and treaty network and combines with other Hong Kong solutions — from an operating company to holding SPVs. In essence it is a tool to consolidate family capital in one of Asia’s most convenient jurisdictions for the purpose.
Risks
The main limit is conceptual: the FIHV is a Hong Kong domestic relief. It zeroes the Hong Kong tax but does not remove tax in the beneficiaries’ own country of residence.
- US person: for an American, a FIHV as an opaque corporation is the classic CFC/PFIC problem. A controlled foreign corporation drags in Subpart F / GILTI, and a minority holder falls into the PFIC regime; the Hong Kong 0% does not help and can make things worse. For US persons it only works through a transparency overlay — e.g. a check-the-box election so that, for US purposes, the structure is transparent and the US sees the assets rather than the corporate shell.
- Substance is real: two employees, HK$2m of expenditure and CM&C in Hong Kong must actually exist, or the relief is refused.
- Anti-round-tripping and non-qualifying income tests (the immovable property test, plus holding-period / control / short-term tests on interests in private companies) can pull income back into charge.
- The 2026 changes are still a bill. Until enactment, relying on an expanded Schedule 16C and the absence of the 5% cap is premature.
FAQ
Does the family have to be Hong Kong tax-resident?
No. The family itself can be non-resident — the Hong Kong nexus requirements apply to the FIHV and the ESF Office (CM&C and substance in Hong Kong). But tax in each beneficiary’s country of residence is a separate question the FIHV does not solve.
Do we need to set up a separate fund?
No — that is the point of the FIHV. Previously a family had to put a fund structure in place for 0%; now a family investment vehicle qualifies in its own right, without being a collective investment fund with outside investors.
What about crypto and private credit?
Under the rules in force this is a grey area. Bill 2026 (gazetted 12 June 2026) expressly adds digital assets and loans to Schedule 16C — i.e. crypto and private credit. Once enacted, retrospectively from 2025/26; until then it is more accurate to treat it as proposed and keep a margin.
Is the 0% automatic?
No. The relief is self-assessed in the profits tax return when all conditions are met. For certainty, taxpayers take an advance ruling under s.88A IRO — standard practice for these structures.
Is this suitable for an American?
Only with caveats. An opaque FIHV for a US person is CFC/PFIC. For the regime to make sense you need a transparency overlay (e.g. check-the-box), otherwise US rules neutralize the Hong Kong 0%. That is a question for US tax planning, not for the FIHV itself.
Related solutions: Hong Kong company · Beckham Law + Hong Kong · SPV