🇭🇰Hong Kong FIHV: Tax Concessions for Family-Owned Investment Vehicles

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 is required of the FIHV itself (core income generating activities may be outsourced to the ESF Office, but the thresholds still apply): 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.

The heart of the conditions is substance that is not on paper. Two real employees, HK$2m of spend and genuine management from Hong Kong are not a formality — they are what separates a FIHV from a “letterbox” that will be refused the relief.

Who counts as a “member of the family”

Schedule 16E to Cap. 112 builds the list around a specific individual: the spouse; lineal ancestors of both spouses; the individual's lineal descendants, adopted children and step-children included; siblings of the individual, of the spouse and of their lineal ancestors — that is, uncles and aunts of any generation; descendants of those siblings — cousins and their lines; and, finally, the spouses of those descendants, siblings and their lines — but not the spouses of lineal ancestors. Death does not sever the link — a deceased spouse’s lines stay inside the perimeter. After a divorce, the ex-spouse and the relatives connected through them remain “members of the family” for the year of assessment in which the marriage ends and for the following one.

The stakes are the ≥95% beneficial interest test (direct or indirect), which is fed by precisely this list and must hold at all times; the narrow exception is an s.88 IRO charity holding up to 25% with the family at ≥75%. An unmarried partner, or relatives of the listed persons’ spouses, fall outside the definition: each such holder consumes the 5% allowance, and slipping below the threshold removes the 0% entirely.

The 50-FIHV cap and the irrevocable election

A family may set up any number of vehicles, but no more than 50 FIHVs managed by the same ESF Office can benefit from the concession. For most families that is ample headroom, yet with deep segregation — a separate vehicle per strategy, asset class or family branch — the count runs up faster than expected.

Entry into the regime is by election: made in writing, in practice in the profits tax return; it applies to all subsequent years of assessment with no annual renewal — and it is irrevocable. There is no way back out of the choice, so the modelling comes first: the share of incidental income, immovable property, exit horizons for private companies, the holder mix years ahead. Certainty before electing comes from the same s.88A advance ruling.

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 received its first reading in the Legislative Council on 24 June 2026 (LegCo Brief). As at 2 September 2026 it remains a bill, not law in force: per the Financial Services and the Treasury Bureau reply of 12 August 2026, the Bill is under scrutiny by the LegCo Bills Committee with the clause-by-clause examination completed, and the Government targets resumption of the second reading debate within the second half of 2026. Once enacted, the enhanced regime takes effect retrospectively from the year of assessment 2025/26 (periods from 1 April 2025).

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.

A separate clarification concerns the HK$240m threshold: asset value for the test is not reduced by loans from holders of a beneficial interest in the FIHV or FSPE — shareholder loans do not cut the AUM (KPMG).

A worked example: 0% and the 5% cap in numbers

A family consolidates its portfolio into a FIHV with a NAV of HK$300 million — clear of the HK$240m threshold. A year of assessment under the rules in force:

• qualifying transactions — disposals of Schedule 16C shares and bonds: receipts of HK$29m, profits of HK$24m → 0%;
• bond interest — incidental income: receipts of HK$1m, i.e. 3.3% of total receipts (HK$30m), within the 5% cap → 0%;
• had incidental receipts been HK$2m against the same qualifying receipts (≈6.5%), the whole of the incidental income — not just the excess — would fall out of the concession and be taxed at the standard 16.5%.

Result: profits tax payable — nil. Once Bill 2026 is enacted (as at 2 September 2026, still a bill), the qualifying/incidental split and the 5% cap itself disappear, retrospectively from 2025/26.

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 diagram below shows the ownership and the payments in that setup: where the zero rate applies and where ordinary profits tax remains.

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.

How the ESF Office itself is taxed

The zero rate is addressed to the FIHV and does not extend to the office — the regime in fact requires the opposite: the management fee the ESF Office earns from the FIHVs and the family’s specified persons must be chargeable to profits tax (s.14 IRO). The fee is taxed under the general rules: the standard 16.5%, or 8.25% on the first HK$2 million of assessable profits where the two-tier scale is available (only one company in a group of connected entities can take the two-tier rates). The office and the FIHV are related parties, so the fee sits under the arm’s length principle of Hong Kong’s transfer pricing rules (s.50AAF IRO): a nominal fee is vulnerable to adjustment, and the safe harbour separately requires ≥75% of the office’s assessable profits to come from services to the family. Price the structure with this friction in mind: 0% on the portfolio — ordinary profits tax on the fee for running it.

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 as at 2 September 2026 (Bills Committee stage; second reading debate targeted for the second half of 2026). Until enactment, relying on an expanded Schedule 16C and the absence of the 5% cap is premature.

Bottom line: the FIHV delivers a clean 0% on a family portfolio’s income in Hong Kong — given a real family office, ≥95% family ownership and HK$240m of assets. It is a strong tool for non-US families; for US persons it only makes sense with a carefully designed transparency overlay, otherwise CFC/PFIC eat the benefit.