Hong Kong Trusts

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Hong Kong Trusts

Hong Kong has a modern and competitive trust law on 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 were used largely as an estate tax-saving tool. Although estate tax has been abolished in Hong Kong, trusts are still an effective tax saving vehicle since in most cases they will not be subject to any Hong Kong tax.

Hong Kong trusts include the following features:

  • Reserved Powers of the Settlor: Settlors of a Hong Kong trust are able to reserve the power of investment and management of the trust assets to themselves. For example this allows the settlor of a private business to retain greater control over the company and trust assets and manage them in the manner that they deem fit.
  • Power to appoint agents, custodians and nominees: A trustee may appoint (i) agents to perform most of their functions including the investment of trust assets; (ii) nominees in relation to any of the trust assets; (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 authorized investments in Schedule 2 to the Trustee Ordinance.
  • Perpetuity Period of Trust: With the new amendments a Hong Kong trust can last indefinitely. This is particularly useful when planning for multiple generations ahead. 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 will not affect the validity of any settlements of any movable assets into a Hong Kong trust made by settlors during their lifetime. This means that settlors from jurisdictions that prescribe forced heirship rules can now have peace of mind that the trust will benefit their chosen beneficiaries and will disregard any person who would otherwise benefit from their estate under domestic forced heirship rules of their jurisdiction of residence or citizenship. This provision benefits mostly settlers from civil law jurisdictions and asserts that assets in the trust cannot be clawed back by their heirs against their wishes.
  • 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:
    1. 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.
    2. 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.
    3. 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.
    4. There is no gift duty in Hong Kong. Gifts of property in Hong Kong or the forgiveness of a debt attract no gift duty.
    5. 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.
    6. No VAT. Hong Kong does not impose any goods and services or value added tax.
  • Single jurisdiction governance and administration. It is a great advantage to have the trust, trustee, banking and investment, legal and accounting services all based in the same jurisdiction and subject to the same law.

Hong Kong as a trust jurisdiction however lacks the enhanced asset protection benefits (i.e. in divorce or bankruptcy matters) that is offered in Belize or specialization such as the VISTA or STAR trust regimes of the BVI and Cayman Islands.

Basic Features Of Trusts

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Hong Kong Trusts

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Investment Issues

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Professional Advisers

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Zetland's Approach To Trust Administration

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Cost And Fees

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Glossary Of Trust Terminology

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Other Zetland Guides and Info Sheets available on request: Asset Protection; Belize Companies & Trusts; Belize International Foundations; Foundations; Hong Kong Trusts; Hong Kong Visas; Effective Offshore Operations; Seychelles; Mauritius; Singapore Residency; Trusts; Wills and Probate in Hong Kong; Offshore RMB and info sheet on Hong Kong company ongoing obligations.