Update: a Mainland China-to-Hong Kong family-office

The window for structuring a Mainland China-to-Hong Kong family-office relocation is narrowing. Regulatory expectations on both sides of the boundary are hardening. Principals who wait for a settled set of rules before acting may find that the cost of delay exceeds the cost of moving under current conditions.

A Mainland China-to-Hong Kong family-office relocation turns on three linked questions under the governing tax and corporate instruments: where does management and control sit after the move, when does Hong Kong tax residence attach, and how does the foreign-sourced income exemption (the FSIE regime, Hong Kong's tax rule requiring economic substance before offshore income is exempt from profits tax) interact with the holding structure being relocated. The FSIE regime has been in force since 1 January 2023; the Pillar Two minimum top-up tax applies to in-scope groups for fiscal years beginning on or after 1 January 2025. Both instruments are live considerations on any cross-border relocation of this kind.

This briefing covers what is pressing, who it affects, and the immediate action.

What the current position requires

Hong Kong taxes profits on a territorial basis. A family office or holding entity relocated from the Mainland to Hong Kong does not automatically attract profits tax on offshore income. It may, however, trigger the FSIE regime if it receives dividends, interest, royalties or disposal gains from a non-Hong Kong source without meeting the economic-substance conditions.

Substance is the operative word. The management-and-control test – which determines where a company is resident for tax purposes under the Inland Revenue Ordinance – follows actual decision-making, not the registered address. If the principal, the investment committee and the key management functions remain on the Mainland after a nominal relocation to Hong Kong, the entity may not achieve Hong Kong tax residence at all. Worse, it may attract adverse attention in both jurisdictions simultaneously.

The sequencing of the move is therefore the critical variable. The order in which the principal relocates, the board reconstitutes, the management meetings shift to Hong Kong, and the operational substance is established determines whether the relocation achieves its stated purpose. Getting that sequence wrong is the most common structural error we see in cross-border matters of this type. The two-tier profits tax rate – 8.25% on the first HK$2,000,000 of assessable profits and 16.5% above – only becomes relevant once Hong Kong residence and source are correctly established.

For principals with holding structures in the BVI or the Cayman Islands above a Hong Kong operating or family-office entity, the economic-substance requirements imposed by those offshore jurisdictions add a parallel compliance layer. Substance in the offshore holding centre and substance in Hong Kong must be addressed together, not as separate exercises.

Who is affected and what to do immediately

This briefing is directly relevant to Mainland-based principals who are considering, or have already begun, relocating a family office, holding entity or investment platform to Hong Kong. It is also relevant to those who completed a nominal relocation some time ago but have not revisited the management-and-control and FSIE positions since the January 2023 regime change.

The immediate actions are practical and sequenced. First, map the actual location of management and control as it stands today – not where the registered address is, but where decisions are made and recorded. Second, assess whether the existing structure satisfies the FSIE economic-substance conditions for each category of offshore income the entity receives. Third, determine the order of steps for the physical and operational move, including the principal's own tax-residence position under the relevant bilateral arrangements between Hong Kong and the Mainland.

In our cross-border practice, we regularly advise principals at precisely this stage – before the relocation is complete and while the structural options remain open. The sequencing advice available at the outset is substantially broader than the remedial advice available after an adverse assessment has been raised.

For more on the broader capital-relocation position, see our Capital Relocation practice overview. For a comparable analysis of the UAE-to-Hong Kong corridor, see our UAE family-office relocation analysis. For fund and investment-platform relocations, see our briefing on relocating a fund or investment platform to Hong Kong.

To discuss the sequencing of your Mainland-to-Hong Kong relocation and the management-and-control position, write to info@lockhartyip.com.

Frequently asked questions

What documents are needed for a Mainland China-to-Hong Kong family-office relocation?

The document set spans corporate, tax and operational records. At a minimum it covers: constitutional documents for all entities in the structure, board and shareholder resolutions establishing Hong Kong decision-making, evidence of management meetings held in Hong Kong, source-of-funds documentation, and the FSIE substance file for each category of offshore income. The exact scope depends on the structure and the jurisdictions engaged.

What are the main risks in a Mainland China-to-Hong Kong family-office relocation?

The primary risk is a mismatch between the legal structure and the economic reality – particularly where management and control remains on the Mainland after the nominal move. This can produce dual-residency exposure, FSIE substance failures, and adverse assessments in both jurisdictions. Secondary risks include timing errors in the sequence and the failure to address offshore-centre substance requirements alongside the Hong Kong position.

What is the first step in a Mainland China-to-Hong Kong family-office relocation?

The first step is a structured assessment of where management and control currently sits and what the existing structure's income flows look like against the FSIE conditions. That assessment maps the gap between the current position and a compliant Hong Kong-resident structure, and sets the sequence of steps. It is substantially more useful before the move begins than after an adverse assessment has been issued.

Speak with Lockhart & Yip

For a scoped view of your matter, contact info@lockhartyip.com. Discuss your matter →

This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.

Update: a Mainland China-to-Hong Kong family-office relocation

What the current position requires

Who is affected and what to do immediately

Frequently asked questions

Speak with Lockhart & Yip

Related