Hong Kong Trusts: Advantages of Hong Kong for Private Trusts
With Hong Kong’s well-established set of laws and regulations, especially since 2013 when the trust statutes were updated, Hong Kong has been a favoured territory for the setup of trusts. According to survey data published by the Securities and Futures Commission ("SFC”) in July 2019, as of December 2018, assets held under trusts in Hong Kong amounted to HK$4,333 billion (US$553 billion), and non-Hong Kong investors remained a major source of funding for the asset and wealth management business, accounting for 62% of the AUM .
There are a number of reasons why Hong Kong is a leading choice of jurisdiction for setting up a private trust.
Established International Financial and Business Centre
Hong Kong operates well established international financial markets, including in banking and securities, and is a well known international business centre. According to the 2020 Index of Economic Freedom published by the Heritage Foundation, Hong Kong is ranked as top in the world for business freedom, which measures the efficiency of government regulation of business, and has a score of 93.6 for Property Rights, where an upward trend has been noted in the past few years. Overall, Hong Kong is ranked as one of the top 3 jurisdictions in the world in the index.
Hong Kong is a special administrative region of the People’s Republic of China (“PRC”). According to data from the World Bank, the PRC had the second highest GDP in the world in 2018 . Recent initiatives, for example the Shanghai-Hong Kong Stock Connect, continue to strengthen Hong Kong's role as a gateway to the PRC market.
Independent and Robust Legal System
Hong Kong has a separate legal system from mainland PRC. As a common law based system, it is a system that is familiar to trust practitioners and lawyers around the world. Save in respect of constitutional matters, Hong Kong operates under its own legislation. Though there have been criticisms that the National Security Law enacted in 2020 have undermined the independent of Hong Kong's legal system, there is no evidence in private law matters that Hong Kong has lost its independence.
Statutory Improvements to Common Law Trusts
Amendments to the Trustee Ordinance and the Perpetuities and Accumulations Ordinance in 2013 have strengthened the competitiveness of a Hong Kong based trust.
Abolition Of The Rules Against Perpetuities And Excessive Accumulations Of Income
The abolition of the rules means that a perpetuities period and accumulation period are no longer required for non-charitable trusts governed by Hong Kong law. This means that a trust can be of indefinite duration. The absence of a limit on the duration of a Hong Kong trusts enhances its appeal to settlors looking to set up ultra-high value trusts for succession planning over many decades.
Settlor’s Reserve Investment Powers
Hong Kong law now permits the settlor of a trust to reserve investment management powers without invalidating a Hong Kong trust. As a result, a family setting up a trust can maintain a high degree of control over how the trust invests its assets.
Protection From Forced Heirship
Forced heirship laws in some jurisdictions, particularly civil law jurisdictions, mandate the distribution of assets to certain heirs of a deceased. Forced heirship laws deprive an individual of testamentary freedom. Hong Kong trust laws now provide that a transfer of movable property to a trust expressly governed by Hong Kong law will not be invalidated by foreign forced heirship rules. The protection from forced heirship laws makes Hong Kong a more attractive trust domicile, especially for settlors from jurisdictions which have forced heirship laws.
Removal Of Trustees
A court-free process is available for beneficiaries who are of full age and capacity and who are absolutely entitled under a trust to replace existing trustees with new ones without terminating the trust.
How We Can Help
If you are interested in learning more about whether a Hong Kong trust may be right for you, how we can help you to setup a trust or how a trust may be used for tax planning, estate planning or personal asset protection, please contact us.