HONG KONG SAR, CHINA Law and Practice Contributed by: Alfred Ip, Hugill & Ip
1. Tax 1.1 Tax Regimes
as the United Kingdom, the United States or France, where complex exemption thresholds, annual allow - ances and reliefs must be carefully navigated. For Profits Tax purposes, certain categories of income benefit from specific exemptions or concessionary treatment. Qualifying profits derived by a Family- owned Investment Holding Vehicle (FIHV) managed by a single-family office that meets prescribed con - ditions are subject to a 0% concessionary tax rate. This attractive regime was introduced in 2023 and expanded in the 2025/26 Budget to include digital assets, gold, and funds-of-one, representing a tar - geted incentive to attract ultra high net worth families to establish their wealth management operations in Hong Kong. The Inland Revenue Department (IRD) administers these concessions, and qualifying con - ditions include minimum net asset value thresholds, substance requirements and restrictions on the types Income tax planning in Hong Kong is largely driven by the territorial principle and the absence of capi - tal gains tax. The primary objective is to ensure that income and gains are structured to arise offshore, or to fall within the scope of the concessionary regimes available. A common strategy involves holding invest - ments through offshore companies or trusts that gen - erate capital appreciation rather than trading profits, thereby keeping returns outside the Hong Kong Profits Tax net. However, practitioners must be alert to the Foreign- Sourced Income Exemption (FSIE) regime, which was significantly expanded with effect from 1 January 2024 (the “FSIE 2.0” regime) in response to the European Union’s concerns about Hong Kong’s tax framework. The expanded regime now covers foreign-sourced dividends, interest, income from intellectual property, and disposal gains (including gains on shares and oth - er equity interests). For such income to remain exempt from Profits Tax when received by a Hong Kong entity, the entity must satisfy either an economic substance requirement, a participation exemption condition, or a nexus requirement (for IP income). This has materially increased the compliance burden for holding struc - of permissible investments. 1.3 Income Tax Planning
Hong Kong operates one of the world’s most straight - forward and competitive tax regimes, a feature that is central to its enduring appeal as a private wealth management hub. The system is built on a strictly territorial basis: only income arising in or derived from Hong Kong is subject to tax. This foundational principle means that offshore income, capital gains, and foreign-sourced investment returns are generally outside the scope of Hong Kong taxation, creating a highly favourable environment for high net worth individuals and their wealth structures. Critically, Hong Kong levies no estate duty, inherit - ance tax, wealth tax, or gift tax. Estate duty was for - mally abolished in February 2006 under the Estate Duty (Amendment) Ordinance, a landmark reform that cemented Hong Kong’s position as a premier succes - sion planning jurisdiction in Asia. There is equally no capital gains tax, no dividend withholding tax, and no tax on interest income earned by individuals. The three principal direct taxes are Salaries Tax, Prof - its Tax, and Property Tax, each governed by the Inland Revenue Ordinance (Cap. 112). Salaries Tax applies to income from employment, an office, or a pension arising in Hong Kong, with progressive rates ranging from 2% to 17% on net chargeable income, capped at a standard rate of 15% on net income before personal allowances. Profits Tax applies to persons carrying on a trade, profession, or business in Hong Kong, with a two-tiered regime of 8.25% on the first HKD2 million of assessable profits and 16.5% on the remainder for corporations (7.5% and 15% respectively for unincor - porated businesses). Stamp duty is levied on transfers of Hong Kong immovable property and Hong Kong stock under the Stamp Duty Ordinance (Cap. 117). 1.2 Exemptions As Hong Kong does not impose estate duty, inherit - ance tax, gift tax, or capital gains tax, the concept of statutory exemptions for wealth transfer taxes is largely inapplicable. Wealth may be transferred freely between generations, whether by lifetime gift or on death, without triggering any domestic transfer tax lia - bility. This stands in stark contrast to jurisdictions such
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