The Main Benefits of Hong Kong Trusts, Ten Years On

In October 2016 I published a short list of six reasons to use a Hong Kong trust. It was accurate, and it was also the kind of list that ages badly, because a benefit stated without its conditions eventually gets quoted back at you by someone who relied on it.

So here are the same six points where they actually stand in August 2026, with the conditions attached. All six survive. Every one is narrower than the 2016 version implies, and there is a seventh consideration that was barely mentioned then and now dominates the analysis.

Reserved powers: still available

The Trust Law (Amendment) Ordinance 2013, in force from 1 December 2013, inserted section 41X into the Trustee Ordinance (Cap. 29). It provides that a trust is not invalid only because the settlor reserved to himself any or all powers of investment or asset management functions, and that a trustee acting in accordance with the exercise of such a power is not in breach of trust.

This remains one of Hong Kong's genuine advantages. A business owner can settle the family holding company into trust and keep the investment decisions, and the protection given to the trustee matters as much as the protection given to the trust.

The limit is one of scope. Section 41X covers investment and asset management. It is not a general licence for the settlor to run the trust. Reserve too much, too widely, and the question stops being a Hong Kong law question and becomes a question for a foreign court asking whether there was ever a real disposition.

Perpetual trusts: still available, with a date

Section 47 of the same Ordinance inserted a new section 3A into the Perpetuities and Accumulations Ordinance (Cap. 257). The rule against perpetuities and the rule against excessive accumulations have no effect in relation to instruments to which the new Part applies, and a trust may continue in existence for an unlimited period unless its terms provide otherwise.

Here is the condition the 2016 list omitted. The new Part is headed "Provisions Applicable to Instruments Taking Effect on or after Commencement Date of 2013 Amending Ordinance." The abolition is not retrospective. A Hong Kong trust created before 1 December 2013 is still subject to a perpetuity period. If your family trust predates that date and you have been told it can run indefinitely, that needs checking rather than assuming.

Forced heirship protection: available, on conditions

This is where the 2016 list was most misleading, because it stated the conclusion and none of the requirements.

The relevant provision is section 41Y of the Trustee Ordinance, headed "Transfer of movable property not affected by foreign law of inheritance". A law relating to inheritance or succession of a foreign jurisdiction does not affect the validity of a transfer of movable property to be held on trust. That is the protection, and it is real.

Now the conditions. The trust must be expressed to be governed by Hong Kong law. At all times, each trustee must be an individual ordinarily resident in Hong Kong, a body corporate incorporated in Hong Kong, or a foreign body corporate whose central management and control is in Hong Kong. The protection covers transfers made during the settlor's lifetime. And it applies to movable property — not to land, wherever situated, which will be governed by the law of the place where it sits.

For a family from a civil law jurisdiction, that is still a strong answer. But it is an answer that depends on how the trust is drafted and who is appointed trustee, and it can be lost by a later change of trustee that nobody thought about.

Territorial taxation: still the rule, with a new overlay

Hong Kong charges profits tax only on profits arising in or derived from Hong Kong. A trust is not itself a person for the purposes of the Inland Revenue Ordinance; the trustee is chargeable, and only on profits from a trade, profession or business carried on in Hong Kong.

The overlay is the foreign-sourced income exemption regime, in force since 1 January 2023 and extended from 1 January 2024. It brings specified foreign-sourced income received in Hong Kong into charge unless a substance, participation or nexus test is met — and the Inland Revenue Department has confirmed that a trust can be an "entity" for these purposes and a trustee can be the chargeable "MNE entity".

The critical qualification is that the regime reaches only members of multinational enterprise groups. A standalone private family trust that is not part of an MNE group falls outside it. A trust sitting inside a group structure with operating subsidiaries abroad may not. That distinction is worth establishing before anyone relies on the old shorthand that foreign income of a Hong Kong trust is untaxed.

No capital gains tax, no withholding tax: unchanged

These two hold without qualification. Hong Kong has no value-added or sales tax, no capital gains tax, no withholding tax on dividends and interest, and no estate duty — the last abolished with effect from 11 February 2006. Distributions from a Hong Kong trust to beneficiaries generally fall outside the Hong Kong heads of charge, whether the beneficiary is here or overseas.

The point that now dominates: reporting

The 2016 list said nothing about this, and today it is the first question a well-advised family asks.

Hong Kong has no trust register. There is no requirement to file a trust deed or any trust document with any government authority, and no equivalent of the United Kingdom's Trust Registration Service. Privacy from the public remains a real feature.

Privacy from tax authorities is a different matter entirely. Under the common reporting standard, a Hong Kong trust will be either a reporting financial institution — most commonly where it is an investment entity managed by another financial institution — or a passive non-financial entity. Either way, information flows.

There is an asymmetry here that is frequently stated wrongly, so it is worth stating correctly. Where the trust is itself a reporting financial institution, a discretionary beneficiary is treated as an account holder only in the years in which a distribution is received. Where the trust is a passive non-financial entity and the account is held by a bank, the settlor, trustee, protector, enforcer and beneficiaries are all treated as controlling persons, and discretionary beneficiaries are reportable whether or not a distribution is made in the year. A settlor is reported in either case, and whether the trust is revocable or irrevocable makes no difference.

A trust is not a way of avoiding exchange of information. It is a way of holding and directing wealth, and it should be chosen for that.

Who acts as trustee

Two distinct regimes apply to trustees here and they are often confused.

Anyone acting as trustee of an express trust by way of business must hold a trust or company service provider licence granted by the Registrar of Companies under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, a regime in force since 1 March 2018. Operating without one is an offence.

Separately and voluntarily, a public Hong Kong company may apply to be registered as a trust company under Part 8 of the Trustee Ordinance, which requires issued share capital of not less than HK$3,000,000 and a deposit or bank guarantee of not less than HK$1,500,000 lodged with the Director of Accounting Services. That status is not needed to act as a trustee; it unlocks particular statutory capacities.

The 2013 reforms also made professional trusteeship a more serious undertaking. Section 41W invalidates any clause purporting to exempt a paid professional trustee from liability for fraud, wilful misconduct or gross negligence. Be cautious of a trustee who tries.

Funding the trust

Finally, the cost of getting assets in. Transferring Hong Kong shares into a trust by way of gift is a voluntary disposition inter vivos, attracting stamp duty of HK$5 plus 0.2% of the value of the stock — not the contract note rate that applies to a sale. Hong Kong property carries ad valorem duty at the rates in force, changed again from 26 February 2026 for residential property at the top of the market. Funding is a stamp duty question before it is a trust question, and cheaper to ask in that order.

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This article is general information about Hong Kong trust law and tax as at August 2026. It is not advice on any particular trust or family situation. If you would like an existing structure reviewed, or a new one considered, write to us at [email protected].