Partly this is due to Hong Kong’s favourable tax regime, as well as a robust regulatory environment. A trust fund in Hong Kong will be set up and managed according to a well-tested set of laws and regulations, including the The Trust Law (Amendment) Ordinance, the Trustee Ordinance, the Companies Ordinance and elements of common law stretching back centuries.
In consequence, a trust in Hong Kong is regarded as a secure, reliable and effective way for families and individuals to manage their assets.
1. Settlors can retain greater control
Settlors, the class of person who establishes a trust in the first place, can have varying degrees of control over the operation of the trust, depending on the jurisdiction. In some jurisdictions, a trust’s settlor cannot have any control over the day-to-day operation of the trust.
In Hong Kong, that’s not the case. Here, trust settlors can reserve the powers of investment and management of the trust to themselves, meaning settlors can retain greater control over the trust assets.
2. Hong Kong trusts can operate in perpetuity
Trusts usually have a period of existence, called a ‘perpetuity period.’ The ‘perpetuity period’ during which the trust can exist is usually defined in the trust deed that first establishes the trust. However, which periods are permitted is down to which jurisdiction the trust is set up in.
For example, the maximum period of perpetuity for a trust established in New Zealand is 80 years.
In Hong Kong, there is no such limit: trusts can exist indefinitely, and can thus be used to plan for multiple generations ahead, safeguarding capital and permitting longer-term, more strategic planning.
3. Full protection from forced heirship
Some jurisdictions permit full freedom of testation, allowing a person making a will or setting up a trust to confer their assets on whomever they please. Other jurisdictions, however, practice various forms of forced heirship, in which certain individuals are automatically entitled to a portion of a deceased person’s assets. While you can usually place the affected assets in trust, this still affects how you can set up trusts. Hong Kong has no forced heirship laws. When you set up a trust in Hong Kong, you can divide and confer your assets in any way you choose, and assets placed in trust are beyond the legal reach of forced heirs in other jurisdictions.
4. Favorable tax regime
Hong Kong has a tax regime that’s unusually positive for the beneficiaries of trusts. Hong Kong does not treat trusts like businesses so it doesn’t tax them unless they get rent from Hong Kong real estate. Anyway, under the Hong Kong territorial tax system, income derived by a trust from assets outside Hong Kong is not taxable to the trustee, the beneficiaries or the trust entity itself.
In addition, under Hong Kong’s tax system a resident Hong Kong trust which owns assets located outside Hong Kong can remit income and profits from those assets to the Hong Kong-based trust without incurring any taxes in Hong Kong. There is no capital gains tax, no taxes on gifts or the forgiveness of debts, and no goods and services or value-added taxes, and a trust selling property or other assets is also not subject to tax. Thus trusts can transfer income and profits without hindrance or charge.
5. Single jurisdiction, mature trust sector
In Hong Kong, it’s possible to set up a trust in which the trust entity, the trustee, banking and investment activity, legal, and accounting services are all covered by the same jurisdiction and subject to the same law. Since all such entities are familiar with interacting with the others under the aegis of Hong Kong trust law, setting up a trust in Hong Kong can also be more efficient and run more smoothly.
Hong Kong is an excellent place to set up and operate a trust. The legislative environment is supportive, the tax laws generally positive to the aims of trusts, and there is considerable freedom to arrange the trust you want, without compulsory forms of heirship or perpetuity period laws interfering.