Hong Kong Trusts for Estate and Succession Planning

Business patriarchs preparing for the transition to the next generation should take the following three aspects in consideration:

• Ownership structure
• Family governance
• Corporate governance

Hong Kong trusts allow the family business to incorporate these aspects and take an individual approach to a harmonized transition of the generations.

We have listed the 5 reasons why a Hong Kong trust is ideal for estate and succession planning structures:

1.  Reserved Powers to the Settlor: Settlors of a Hong Kong trust are able to reserve the power of investment and management of the trust assets to themselves. This allows the business owner to retain greater control over the company and trust assets and manage them in the manner that they deem fit.

2.  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.

3.  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.

4.  Hong Kong’s unique tax regime: 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 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.
• Hong Kong has no capital gains taxes and any goods and services or value added taxes. A Hong Kong trust selling property or other assets at a substantial profit is not subject to tax in Hong Kong.

5.  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.

Please contact us at hongkong@zetland.biz or + 852 3552 9085 for more information.