Hong Kong has a modern and competitive trust law on a par with the standards of other major trust jurisdictions such as UK, Singapore and offshore financial centres in Europe and the Caribbean.
Before 2006, Hong Kong trusts primarily served as a tool for estate tax planning and preservation of wealth. Although Hong Kong abolished estate tax, trusts continue to be a valuable mechanism for tax planning because, in most cases, they remain exempt from Hong Kong taxes. This ongoing tax advantage makes trusts a flexible and efficient vehicle for managing and transferring assets while minimising tax liabilities.
Hong Kong trusts today are widely used for sophisticated international wealth management strategies, leveraging strong legal frameworks and favourable taxation to efficiently structure global family wealth across generations.
Hong Kong trusts include the following features:
Reserved Powers of the Settlor:Settlors of a Hong Kong trust can retain the authority to invest and manage the trust assets for themselves. This enables the settlor of a private business to retain greater control over the company and trust assets and manage them in the manner that they consider appropriate.
Power to appoint agents, custodians and nominees:A trustee may appoint (i) agents to perform most of their duties including the investment of trust assets; (ii) nominees in relation to any of the trust assets; and (iii) custodians for the safe custody of trust assets or title documents. The appointees must be professionals or a company controlled by the trustee Upon appointment of the agent, nominee or custodian, the trustee must keep the arrangement under review, and if necessary, exercise his power of intervention (by giving directions and revoking the appointment) unless such application is inconsistent with the terms of the trust instrument.
Investments:In most cases the trust deed would specify the assets and investments of the trust. In the absence of a provision in the trust deed, a trustee shall make investment decisions in accordance with the range of authorised investments in Schedule 2 to the Trustee Ordinance which are deemed low risk investments including government securities, fixed deposits, listed securities, unit trust and mutual funds and real estate investment trusts.
Perpetuity Period of Trust:With the new amendments in 2013, a Hong Kong trust is now perpetual . The establishment of perpetual trusts is not possible in most major common law jurisdictions.
Forced Heirship Protection:The forced heirship rules of a foreign jurisdiction do not affect the validity of settlements of any movable assets into a Hong Kong trust made by settlors during their lifetime. This allows settlors from jurisdictions with such rules to ensure their chosen beneficiaries receive the trust benefits, preventing heirs from claiming assets against the settlors' wishes. This provision benefits settlors from civil law or Sharia law jurisdictions.
Zero Tax:Hong Kong trusts will generally not be subject to tax in Hong Kong. Under Hong Kong's territorial tax system, income derived by the trust from assets outside Hong Kong will not be taxable to the trustee, the trust entity or the beneficiaries. Hong Kong is, in this regard, not different from other zero tax jurisdictions:
Hong Kong's tax system allows a resident Hong Kong trust which owns assets outside of Hong Kong to remit income and profits from those assets to the trust in Hong Kong without such income being taxable in Hong Kong.
No dividend tax. Hong Kong's tax regime does not tax income from the distribution of dividends in Hong Kong. Dividends which are sourced outside of Hong Kong are not taxable.
No withholding tax. Distributions to beneficiaries from a Hong Kong trust out of income earned either in Hong Kong or outside Hong Kong are not taxable in Hong Kong in the hands of the beneficiaries whether the beneficiaries are in Hong Kong or overseas.
There is no gift duty in Hong Kong. Gifts of property in Hong Kong or the forgiveness of a debt attract no gift duty.
No capital gains tax. A Hong Kong trust selling property or other assets at a substantial profit is not subject to tax in Hong Kong.
No VAT. Hong Kong does not impose any goods and services or value added tax.
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