Business families globally face complex, shifting tax landscape, increased interest in family offices in mainland China and Hong Kong, finds KPMG analysis

Business families globally face complex...

New KPMG Private Enterprise Global Family Business Tax Monitor explores tax implications of transferring family businesses and assets between generations. Neither mainland China nor Hong Kong SAR impose gift or inheritance taxes but there may be complex tax requirements

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HONG KONG, October 29, 2020 – More high net worth families in Hong Kong and mainland China are setting up family offices as a way to manage their assets and address any potential challenges of passing these assets down to the next generation, according to recent analysis by KPMG.  

Charting a path for the future,” the 2020 KPMG Private Enterprise Global Family Business Tax Monitor, provides in-depth perspectives on the varied and changing tax environment for family businesses in Hong Kong SAR, mainland China and around the world, along with insight on how families can best prepare for transitioning their business to the next generation. The report highlights how the impact of COVID-19 could increase the pressure on families in the coming years.

Karmen Yeung, Partner, KPMG Private Enterprise in China, says:  “An increasing trend in mainland China and even more so in Hong Kong (SAR), is establishing a family office to operate the family business and manage assets. Family members often don’t have the knowledge to work through governance, legal, tax and succession issues and, therefore are looking for outside expertise. Especially for families that have assets in multiple countries, the family office model can help them to better understand and manage the complex rules they are subject to around the world.”

The Tax Monitor details the various tax treatments, across 54 countries, for the intra-family transfer of a family business valued at EUR10 million or more. Of the 54 countries surveyed, 14 have a specific inheritance tax that applies and 16 have a gift tax that would apply to lifetime transfers of a business. Mainland China and Hong Kong SAR are not among them, but Hong Kong does impose a stamp duty on assignments or leases of immovable properties, transfers of stocks and issues, and bearer instruments, says Alice Leung, Partner, Corporate Tax Advisory, KPMG China.

The findings of the Tax Monitor are relevant to a majority of wealthy families. Few high net worth families operate in a single country but are spread out across multiple jurisdictions. Managing this complexity requires strong support systems and understanding of the requirements of many different tax systems.

While there are tax reliefs in most jurisdictions that can lessen the burden on families transferring their business, many of these are coming under increased scrutiny and families need to be prepared for change.  For example, in the US, families transferring a business currently benefit from a gifts and estates exclusion of USD11.58 million, but there is the potential for the exclusion to be modified or eliminated after 2026.  Similarly, families in the UK benefit from business property relief (BPR) in transferring a business, but there are proposals that could modify or remove this relief. 

Tax planning for the transfer of a family business needs to be part of an overall planning process and the Tax Monitor provides a blueprint to follow that encompasses establishing robust family governance, including a family constitution, as well as ensuring the next generation is prepared to assume control of the business. COVID-19 has added to the urgency of managing family businesses and carefully planning any generations transfers.

Tom McGinness, Global Leader, KPMG Private Enterprise Family Business, KPMG Private Enterprise, UK, says: “The impact of COVID-19 is also prompting families to take stock of the sense of purpose and values of their business. Family businesses tend to take a long-term view and have a strong sense of community.  Increasingly, families are considering the broader societal impact of their business and their role in addressing issues from climate change to inequality and education.”

Learn more by accessing the full report.

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About KPMG China

KPMG member firms and its affiliates operating in mainland China, Hong Kong and Macau are collectively referred to as “KPMG China”. KPMG China is based in 27 offices across 25 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Hefei, Jinan, Nanjing, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Tianjin, Wuhan, Xiamen, Xi’an, Zhengzhou, Hong Kong SAR and Macau SAR.  Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 147 countries and territories and have more than 219,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG’s appointment for multidisciplinary services (including audit, tax and advisory) by some of China’s most prestigious companies.

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