Completing Form BIRS20 for family-owned investment holding vehicles in Hong Kong

Form BIRS20 Family-Owned Investment Holding Vehicle Hong Kong

The Inland Revenue Department introduced Form BIRS20 as the prescribed form for a family-owned investment holding vehicle (FIHV) to elect into the concessionary profits tax regime under the Inland Revenue Ordinance (Cap. 112). A qualifying FIHV secures a reduced tax rate on its investment income by filing this election.

What Qualifies as a Family-Owned Investment Holding Vehicle

A family-owned investment holding vehicle is a Hong Kong corporation meeting all of the following conditions for the relevant year of assessment:

• The vehicle is incorporated in Hong Kong and is resident in Hong Kong for tax purposes.
• Throughout the basis period for the year of assessment, the vehicle is beneficially owned, directly or indirectly, by one family group. A family group means individuals connected by blood, marriage or adoption within the degrees of consanguinity specified in the Ordinance.
• The vehicle does not carry on any trade or business other than holding investments and the incidental activities necessary to manage them.
• The vehicle's income consists wholly or mainly of dividends, interest, rental income from immovable property, and gains from the disposal of investments.
• The vehicle has not elected into the two-tiered profits tax regime under section 14C of Cap. 112.

The Inland Revenue Department examines the ownership structure and the nature of the vehicle's activities when assessing eligibility. A vehicle carrying on an active trading business, such as buying and selling goods or providing services to third parties, does not qualify.

BIRS20 Form Guide

Form BIRS20 is the election form a qualifying family-owned investment holding vehicle must submit to the Inland Revenue Department to claim the tax concession. The form requires the taxpayer to provide:

• The vehicle's name, business registration number and tax file number.
• The basis period for which the election is made.
• A declaration that the vehicle meets all the qualifying conditions throughout the basis period.
• Details of the family group that owns the vehicle, including the names and relationships of the ultimate beneficial owners.
• A breakdown of the vehicle's income by type, showing the amount of eligible income for which the concession is claimed.
• A certified true copy of the vehicle's financial statements for the basis period.
• A tax computation showing how the concessionary rate has been applied.

The form must be signed by a director or the company secretary. An authorised representative may sign if the vehicle has appointed one using the prescribed authorisation form.

Family-Owned IHV Tax Concession

The tax concession for a family-owned investment holding vehicle applies to its eligible income. Eligible income includes dividends, interest, rental income from immovable property held for investment, and gains from the disposal of investments. The concessionary profits tax rate is half the standard profits tax rate. For the year of assessment 2025-26, the standard rate is 16.5 per cent, so the concessionary rate for an FIHV is 8.25 per cent on eligible income.

The concession does not apply to income derived from a trade or business carried on by the vehicle. If the vehicle has both eligible and non-eligible income, it must apportion its expenses and compute the tax separately for each category. The Inland Revenue Department may request supporting documents to verify the apportionment.

The election into the concessionary regime is irrevocable for the year of assessment to which it relates. The vehicle must make a fresh election each year by filing a new Form BIRS20 with its profits tax return.

Hong Kong Form BIRS20 Filing Process

Form BIRS20 must be filed together with the vehicle's profits tax return for the relevant year of assessment. The profits tax return for a corporation is Form BIR51. The vehicle must complete Part 8 of Form BIR51 to indicate it is electing into the FIHV concession and attach Form BIRS20.

The filing channels are:

• Electronic filing through the Business Tax Portal. The Inland Revenue Department accepts iXBRL-tagged financial statements and tax computations for electronic filings. From the year of assessment 2025-26, mandatory electronic filing applies to in-scope multinational enterprise groups, but all taxpayers may use the portal voluntarily.
• Paper filing by delivering the completed forms and supporting documents to the Inland Revenue Department's Profits Tax Unit.

The vehicle must file the return and Form BIRS20 within the time specified in the notice of assessment. Late filing may result in penalties and the loss of the concession for that year.

Investment Holding Vehicle Tax Compliance

A family-owned investment holding vehicle must maintain proper books and records to support its claim for the concession. The Inland Revenue Department may conduct a field audit or issue a query letter requesting:

• Share registers and ownership records showing the family group.
• Board minutes and resolutions authorising the investment activities.
• Contracts, bank statements and investment confirmations.
• Rental agreements and property valuation reports for immovable property holdings.

The vehicle should retain these records for at least seven years after the end of the relevant year of assessment. Failure to produce records when requested may result in the concession being denied and penalties imposed.

If the vehicle ceases to meet the qualifying conditions during a year of assessment, it must notify the Inland Revenue Department in writing within 30 days. The concession will be withdrawn for that year, and the vehicle must pay tax at the standard rate on all its income.

Practical Considerations for Advisers

When advising a family-owned investment holding vehicle on Form BIRS20, consider the following:

• Confirm the vehicle's constitutional documents restrict its activities to investment holding. If the objects clause permits trading, the vehicle may need to amend its articles of association.
• Review the ownership structure to ensure all shareholders fall within the definition of one family group. Trusts and foundations that hold shares on behalf of family members may complicate the analysis.
• Prepare the tax computation showing the eligible income separately from any non-eligible income. The Inland Revenue Department expects a clear reconciliation between the financial statements and the tax return.
• File the election on time. A late election will not be accepted, and the vehicle will be taxed at the standard rate.

The Inland Revenue Department publishes guidance notes on its website that explain the FIHV concession in detail. Advisers should refer to the Department's practice notes and the relevant provisions of Cap. 112 when preparing Form BIRS20.