The Private Wealth & Private Client Review: Hong Kong


Hong Kong, formally known as the Hong Kong Special Administrative Region of the People's Republic of China, is in a unique position: although it is part of China, it has a separate and different legal system. This system is called 'one country, two systems'. As a former British colony, Hong Kong inherited the English common law system and much of Hong Kong's legislation is based on English legislation. Article 5 of the Basic Law2 allows Hong Kong to maintain its separate legal and judicial system for 50 years after its handover back to China on 1 July 1997. Chinese and English are both official languages of Hong Kong.

Apart from having a separate legal system from China, Hong Kong also has a separate financial and banking system, which is mainly regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Hong Kong continues to be a major financial centre and plays a major role in the world's financial industry. According to figures released by the Hong Kong Stock Exchange, Hong Kong recorded 154 initial public offerings (IPOs), raising HK$398 billion during 2020.3 For the 19th consecutive year, the Hong Kong market was one of the world's top five in IPO fundraising. Hong Kong is also one of the freest economies in the world, making it attractive and easy for businesses to set up in Hong Kong.

Hong Kong has one of the highest concentrations of high-net-worth individuals in the world. It is the only city in the world that has its own separate Forbes rich list. In addition to Hong Kong's own high-net-worth individuals, China's high-net-worth individuals are also increasingly turning to Hong Kong, not only for shopping, but also for their succession and estate planning needs. An increasing number of Chinese companies have also applied for listing in Hong Kong, especially after the relaxation of rules in China in 2013, which made it easier for Chinese companies to list on the Hong Kong Stock Exchange. This makes Hong Kong not only the gateway to China, but also the gateway from China to the outside world.

In recent years, a series of strategic incentives were initiated by the government to cement Hong Kong's role as a leading private wealth hub. 4 In February 2020, the Hong Kong Financial Services Development Council, a committee established by the government, published its first survey paper, which identified areas that underpin Hong Kong's competitiveness as a leading private wealth management hub in Asia, including transparent regulations, diverse private wealth management product offerings, availability of professional talents and proximity to mainland China and the rest of the Asian market. In June 2021, FamilyOfficeHK was established by Invest Hong Kong (InvestHK) to promote Hong Kong as the ideal location in which Hong Kong and overseas enterprises can set up a family office presence.


i Taxation in Hong Kong

Unlike many other jurisdictions, Hong Kong has a territorial taxation system that means Hong Kong only imposes tax on income and profit arising in Hong Kong. Therefore, in most cases, the issue of whether an individual or company is subject to Hong Kong tax depends on whether the income or profit arises in or derives from Hong Kong.

The two main pieces of legislation dealing with taxation in Hong Kong are the Inland Revenue Ordinance (IRO) and the Stamp Duty Ordinance (SDO). The main forms of tax imposed in Hong Kong are set out below.

Salaries tax

As its name suggests, salaries tax is imposed on salaries received by individuals – an individual is subject to salaries tax if he or she receives income arising in or derived from Hong Kong from any office, employment of profit or pension.5 The tax residency of an individual is usually irrelevant when determining whether an individual is subject to Hong Kong salaries tax.

Salaries tax is essentially the only form of income tax levied on an individual and, unlike some other jurisdictions, Hong Kong does not have a general income tax that is imposed on the individual's income. Where an individual also receives other forms of income, such as rental income, this rental income is subject to property tax (see below), but the individual can elect for a personal assessment of his or her total income where he or she will be taxed based on the aggregate total of his or her income.

Individuals are taxed at either a progressive rate, ranging from 2 to 17 per cent, or a flat rate of 15 per cent, depending on which method of calculation provides the lower amount of tax payable. When determining the income taxable under either salaries tax or personal assessment, the individual's allowable allowance (such as personal allowance and child allowance) and allowable deductions (such as contributions to the Hong Kong mandatory pension scheme, premiums paid under a qualifying voluntary health insurance scheme policy or a qualifying deferred annuity insurance policy and donations to charities) are deducted from the individual's total income.

In addition, unlike many other jurisdictions, the taxes payable by an individual (either under salaries tax or personal assessment) are not deducted at source (i.e., not deducted prior to payment to the individual by the employer). An individual is responsible for paying his or her taxes to the Hong Kong Inland Revenue Department (IRD). Every year, the IRD issues a notice of assessment to individuals, and individuals are required to complete and file the notice of assessment to the IRD. The IRD will then calculate the amount of salaries tax payable by the individual.

Other forms of income received by individuals such as dividends, interest and distributions from trusts are not usually subject to tax in Hong Kong.

Profits tax

Profits tax is imposed on every person who is carrying on a trade, profession or business in Hong Kong in respect of the profits arising in or derived from Hong Kong from the carrying on of the trade, profession or business in Hong Kong.6 Therefore, profits tax is often seen to be similar to corporate tax. Like salaries tax, the tax residency of the company is usually irrelevant when determining whether a company is subject to Hong Kong profits tax. However, issues such as where the directors are based and where the directors' meetings are held are relevant factors when it comes to determining whether the profit is arising in or derived from Hong Kong. The company's place of incorporation is also irrelevant when determining whether a company is subject to profits tax, although it is generally assumed that a Hong Kong company will be subject to profits tax, and therefore the IRD will send Hong Kong companies a profits tax return every year for assessing the profits tax payable by the company. The current rate of profits tax is 8.25 per cent on assessable profits up to HK$2 million and 16.5 per cent on assessable profits over HK$2 million.7

A person is defined widely to include a corporation, partnership, trustee, whether incorporated or unincorporated, or body of persons.8 The inclusion of trustee but not trust in the definition of a person and the wording of the profits tax-charging provision makes it unclear whether the trustee of a trust, particularly in relation to discretionary trusts, will be subject to profits tax on the trust income, because any profit generated by the trustee as the trustee of a trust belongs to the trust and not the trustee. Where the trust is a bare trust, the profit is considered as belonging to the beneficiary, and therefore it is the beneficiary who will be subject to profits tax on the profit, not the trustee.9

Like individuals, income in the form of dividends and interest is not usually subject to tax.

Property tax

Property tax is a tax imposed on the net assessable value of land and buildings in Hong Kong. Net assessable value is calculated based on the consideration received for the use of land or buildings less any allowable deductions. In other words, property tax is charged on rental income received less allowable deductions. The current rate of property tax is 15 per cent.

Where the land or building is owned by a corporation and the rental income received by the corporation is subject to profits tax, the corporation can apply for an exemption from property tax.

Stamp duty

The SDO imposes stamp duty on leases of Hong Kong immovable property, transfer of Hong Kong immovable property and transfer of Hong Kong stocks such as shares.10 The rate of stamp duty on leases depends on the length of the lease and the annual rental payable under the lease. The rate of stamp duty on the transfer of Hong Kong immovable property depends on the value of the property transferred or the market value of the property transferred as assessed by the IRD. The rate of stamp duty on Hong Kong stocks is usually 0.13 per cent of the amount of consideration paid and 0.13 per cent of the consideration received payable by the transferee and transferor, respectively.

In the past few years, as part of an effort by the government to cool rising property prices in Hong Kong, a number of additional stamp duties have been imposed in relation to immovable property transactions. A special stamp duty is imposed on individuals and companies that resell residential property within 36 months of purchase. The rate of stamp duty depends on the length of time the property was held for before it is resold. Another stamp duty is the buyer's stamp duty, whereby a stamp duty of 15 per cent is imposed on companies and non-Hong Kong individuals (i.e., individuals who are not Hong Kong permanent residents) purchasing Hong Kong residential properties. In addition, the ad valorem stamp duty imposed on individuals or companies buying residential properties on or after 23 February 2013 has, since 5 November 2016, been increased to a flat rate of 15 per cent.11 There is an exemption in that this will not apply where the purchaser is a Hong Kong permanent resident, does not own other residential properties in Hong Kong (at the time of the purchase) and acquires only one residential property under a single instrument. Where the individual purchases a second residential property and subsequently sells the first residential property within 12 months, the purchaser will be rebated the additional higher rate of stamp duty paid; in other words, they will only have to pay the normal rate of stamp duty instead of the higher rate of stamp duty.

Other taxes

Hong Kong does not have gift tax, estate duty (which was abolished in 2006) or capital gains tax. Although Hong Kong does not have capital gains tax, gains made from trading, such as buying and selling of shares or properties, may be considered to be profit and therefore be subject to Hong Kong profits tax. Hong Kong also does not have any form of sales tax, such as goods and services tax and value added tax.

ii Cross-border issues

Hong Kong's territorial system of taxation means that an individual's tax residency and domicile are usually not relevant when determining taxability; hence, there is no definition for tax residency under the IRO and a lack of case law on the issue of tax residency. In relation to companies, a company's tax residency is also not usually relevant when determining taxability. This lack of definition of tax residency under Hong Kong law may create issues when dealing with certain cross-border issues because international agreements such as double tax treaty agreements use the concept of tax residency when determining taxability. However, the IRD will issue a certificate of resident status to Hong Kong residents who need proof of resident status.12

Since Hong Kong's return to China, Hong Kong has entered into double tax treaty agreements with 45 countries.13 Hong Kong has also entered into tax information exchange agreements with the United States and six Nordic jurisdictions. Hong Kong also signed a Model 2 intergovernmental agreement with the United States on 13 November 2014 to facilitate compliance with the US Foreign Account Tax Compliance Act. Since 30 June 2016, the legislative framework for implementation of automatic exchange of financial account information (AEOI) came into force. On 7 June 2017, the number of reportable jurisdictions for AEOI was expanded from two to 75.15.14 The first round of AEOI with these jurisdictions was conducted in September 2018. Consequently, the legislation was further amended to increase the number of reportable jurisdictions for AEOI from 75 to 126 with effect from 1 January 2020.16.15 The first round of AEOI with the expanded list of jurisdictions is expected to be conducted in September 2021.


In recent years, Hong Kong has seen a number of wealthy families go through the process of passing wealth from the first generation to the second generation. In a number of cases, this transfer of wealth has ended up with second generation family members going to court to settle their disputes over the distribution of the family wealth, or family members and beneficiaries challenging the validity of wills. These cases have also been widely publicised by the media. This has prompted individuals to consider the need to put in place some form of succession mechanism to ensure the smooth succession of wealth from one generation to the next and to protect the family's privacy and confidentiality.

Because of the low tax rates in Hong Kong, and especially after the Hong Kong estate duty was abolished, tax planning is not usually a driving factor when it comes to estate planning for individuals who are resident in Hong Kong and whose family members are also resident in Hong Kong. For many of these individuals and their families, succession planning and wealth preservation are often the reasons for planning.

i Wills

In Hong Kong, individuals are generally free to decide how their assets are to be distributed through the use of wills because Hong Kong does not have forced heirship rules. However, the Inheritance (Provision for Family and Dependants) Ordinance allows dependants, such as the spouse, former spouse (who has not remarried), parents, offspring and other persons related to the deceased to challenge the deceased's will on the basis that the disposition of the deceased's estate under the will, the law relating to intestacy, or a combination of both, is insufficient to make reasonable financial provision for that person.16

ii Intestacy

Where an individual dies without leaving a will, his or her estate will be distributed in accordance with the Hong Kong intestacy rules set out in the Intestates' Estates Ordinance.17 If the deceased leaves a spouse but no issue, parent or sibling, all the assets are inherited by the spouse. If the deceased leaves a spouse with issue, then the spouse will inherit all personal chattels, HK$500,000 and half of the residue estate, with the other half of the residue estate going to the issue. If the deceased leaves a spouse with no issue, then the spouse will inherit all personal chattels, HK$1 million and half of the residue estate, with the other half going to parents, or siblings if the parents are not living. If the deceased leaves no spouse but issue, then the issue will inherit in equal shares. If the deceased leaves no spouse and no issue, then the parents will inherit in equal shares. If there are no parents, then the siblings (failing which grandparents, failing which uncles and aunts) will inherit in equal shares.

iii Marital property and divorces

In addition to wanting to prevent family disputes, wealthy individuals and families are also becoming increasingly concerned about the division of assets in the case of a family member getting divorced. The Hong Kong courts have very much followed the approach of the English courts when it comes to determining how matrimonial properties are to be divided in the case of a divorce. The Hong Kong courts will start with the 'yardstick of equality' approach, so the starting point is to assume each party is entitled to half of the matrimonial property.18 This approach was also taken in the Hong Kong case of Kan Lai Kwan v. Poon Lok To Otto.19 In relation to prenuptial agreements, Hong Kong courts have stated that Hong Kong should follow the principles on prenuptial agreements proclaimed in the English case of Radmacher v. Granatino,20 which means that prenuptial agreements are not legally binding in Hong Kong but are persuasive.21

The Hong Kong courts also recently adopted the test set down by the English courts in Charman v. Charman22 in determining whether trust assets should be treated as a financial resource. The Hong Kong Court of Final Appeal stated that the test to be applied is 'to decide whether a discretionary trust is a financial resource of one of the parties, the Court asks whether, if that party were to request the trustee to advance the whole or part of the capital or income of the trust to him or her, the trustee would, on the balance of probabilities, be likely to do so'.23 This means that assets held by a trust can be considered matrimonial property and therefore subject to division when parties divorce.

These factors, combined with recent high-profile divorce cases involving wealthy families, which were widely reported by the media, have also resulted in wealthy families looking to find ways to protect their family wealth should one of the family members get divorced.

An interesting feature of Hong Kong matrimonial law is that, prior to the passing of the Marriage Reform Ordinance, until 1971 concubines were legally recognised, and therefore these concubines and their children also had a legal right to the estate under Hong Kong law.

Hong Kong does not recognise civil unions or same-sex marriages, but in recent years, there has been increasing interest in this area with certain groups lobbying for the passing of legislation to allow for same-sex marriages. Judgments have been given in Hong Kong courts recently regarding the rights entitlement of civil unions or same-sex marriages legally registered in a jurisdiction outside Hong Kong, including their eligibility for spousal dependent visas to stay in Hong Kong,24 their entitlement to benefits under the Civil Service Regulations and joint tax assessments as couples under the Inland Revenue Ordinance,25 their right to apply for public housing as an ordinary family26 and their rights to inherit under the Intestates' Estates Ordinance and the Inheritance (Provision for Family and Dependants) Ordinance.27

iv Other succession issues

One issue with Hong Kong having a separate legal system from China is where Hong Kong-resident individuals own assets in China, such as Chinese immovable property. Because of restrictions on the ownership of Chinese assets, it is often difficult if not impossible to transfer these assets into an offshore trust (even if the trust is a Hong Kong trust). This means these individuals often have to deal with the succession of their Chinese assets through a separate Chinese will.

Wealth structuring and regulation

i Commonly used vehicles for wealth structuring

Offshore trusts and offshore companies are commonplace when it comes to structuring wealth for Hong Kong individuals and families. Hong Kong trusts were not often used because, compared with the trust law of offshore jurisdictions, Hong Kong trust law was considered to be outdated and not as user-friendly. However, since Hong Kong amended its trust law in December 2013, Hong Kong trusts are gaining interest and the use of Hong Kong trusts is becoming more common.

It is also more common to establish private trust companies in these offshore jurisdictions. One reason for this is because offshore companies provide greater confidentiality, as Hong Kong companies are required to file information about their shareholders and directors with the Hong Kong Companies Registry, and this information is publicly available. Offshore private trust companies were commonly used to act as the trustee of private unit trusts in trust structures established for Hong Kong estate duty planning.

Hong Kong does not have a foundation law, and foundations are not as commonly used as trusts for estate planning purposes. One reason for this may be because trusts have always been more widely used and recognised in Hong Kong.

ii Hong Kong trusts

The main piece of legislation governing Hong Kong trusts is the Trustee Ordinance, which was amended in December 2013.28 The amendment brought in a number of significant changes to Hong Kong trust law. There is now a statutory duty of care imposed on trustees, whereby trustees are required to exercise a level of care and skill that is reasonable in the circumstances, taking into account the trustees' special knowledge, experience or professional status.29 A statutory control on trustees' exemption was also added whereby remunerated trustees acting in a professional capacity are not allowed to exclude their liability for wilful misconduct, gross negligence or fraud.30 A number of provisions relating to trustees' powers and trustees' rights to remuneration were also amended.31 The new Hong Kong trust law allows the settlor to reserve the investment and asset management of the trust to himself or herself without this invalidating the trust.32 Foreign forced heirship rules will also not affect the validity of transfer of movable property to trusts that are expressly governed by Hong Kong law.33 The Perpetuities and Accumulations Ordinance was also amended, abolishing the rules against perpetuities and excessive accumulation of income,34 which means non-charitable trusts governed by Hong Kong law and set up on or after 1 December 2013 are no longer required to have a perpetuities period and accumulation period. The rule against excessive accumulation of income continues to apply to Hong Kong charitable trusts.35

The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (as amended in 2018) established a new regulatory regime for trust or company service providers (TCSPs). From 1 March 2018 onwards, a company that carries out the business of providing trust or company services in Hong Kong must apply for a trust or company service provider licence (TCSP licence). This includes all companies providing services such as acting, or arranging for another person to act, as trustees of express trusts or as nominee shareholders for companies not listed on a recognised stock market, as well as providing other company services such as incorporating companies, acting, or arranging for another person to act, as director or company secretary of companies or providing registered offices or correspondence addresses. The directors, partners and other controllers of these companies must satisfy a fit and proper test and are required to comply with certain statutory customer due diligence and record-keeping requirements.36

In addition to applying for a TCSP licence, some companies that provide trusteeship services also choose to register as a trust company under the Trustee Ordinance.37 A company applying for registration as a trust company under the Trustee Ordinance must be a Hong Kong public company with an issued share capital of at least HK$3 million, which has to have been fully paid up in cash. The trust company must also satisfy certain other requirements and pay a sum of not less than HK$1.5 million to the director of accounting services as security for the depositors and creditors of the trust company. There are certain activities, such as acting as an executor or applying for the grant of probate of the will or letters of administration of the estate of a deceased person, that a trust company cannot undertake unless it is a registered trust company under the Trustee Ordinance.

Except for the requirement to apply for a TCSP licence, service providers of trusteeship services are largely unregulated in Hong Kong when it comes to them providing trustee services in Hong Kong, unless the company is registered as a Hong Kong trust company under the Trustee Ordinance. Having said that, many service providers, such as the subsidiaries of banks and independent trustee companies, have a tendency to use offshore jurisdictions when establishing trusts and are, therefore, regulated by the relevant authority in those offshore jurisdictions. This lack of barrier to entering into the Hong Kong trust industry may be one reason for the increasing number of offshore independent trustee companies setting up in Hong Kong in recent years.

Regardless of whether an offshore trust or Hong Kong trust is used, there are no legal restrictions on the transfer of Hong Kong assets to entities such as companies and trusts. However, the transfer of certain Hong Kong assets, such as shares in Hong Kong companies and Hong Kong immovable property, will be subject to stamp duty. The introduction of additional stamp duties on the transfer of Hong Kong properties (as mentioned previously) has made it less attractive for individuals to transfer Hong Kong properties to, or own them through, corporate entities or trusts. The transfer of non-Hong Kong assets such as the shares in an offshore company are, in most cases, not subject to Hong Kong stamp duty or any other form of Hong Kong taxes, as Hong Kong does not have gift tax. This is one of the reasons why it is common to see offshore companies being used as holding companies to hold Hong Kong assets such as shares in Hong Kong companies or Hong Kong immovable properties. As for the general taxation of trusts, see 'Profits tax' in Section II.i.

Outlook and conclusions

Hong Kong has always been home to a large number of high-net-worth individuals and their families. Some of these families have already experienced a transfer of wealth from the first generation to the second generation, some more successfully than others. China, on the other hand, has not yet experienced this transition and is therefore increasingly looking to Hong Kong and other countries for successful models, as well as hoping to learn from others' failures. This has resulted in demand for service providers and advisers who will be able to assist these high-net-worth individuals and their families with succession and estate planning needs, particularly those who are able to speak Chinese.

Since the amendment of the Hong Kong Trustee Ordinance, there has been increasing interest from service providers and individuals in using Hong Kong law as the governing law of trusts. As mentioned above, trust companies in Hong Kong are largely unregulated other than the requirement to apply for the TCSP licence and, if necessary, for registration as a Hong Kong trust company under the Trustee Ordinance.

Apart from the amendment of the Trustee Ordinance, Hong Kong company law was also amended, and the new Companies Ordinance came into effect on 3 March 2014. The new Companies Ordinance brought in a number of changes, such as the requirement that there be at least one director who is an individual in a private company, which could potentially affect the use of Hong Kong companies when structuring for wealthy individuals and their families.

Hong Kong charities law is also currently largely unregulated and is undergoing reform. The Law Reform Commission of Hong Kong issued a report in December 2013 that set out a number of recommended changes to the Hong Kong charities law, including introducing a clear statutory definition of what constitutes a charitable purpose, requiring charitable organisations that solicit public donation or have sought tax exemption to be regulated, and creating a set of specifically formulated financial reporting standards for charities.

With the new legislation and the entering into of more agreements (such as double tax treaties and tax information exchanges) with other countries, Hong Kong is moving towards more regulation and greater transparency.


1 Ian Devereux is a consultant and Silvia On is a partner at Charles Russell Speechlys LLP.

2 Article 5, the Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China.

3 Hong Kong Stock Exchange website:

4 Hong Kong Financial Services Development Council website:

5 Subsection 8(1), Inland Revenue Ordinance (Cap 112).

6 Subsection 14(1), Inland Revenue Ordinance (Cap 112).

7 Schedule 8B, Inland Revenue Ordinance (Cap 112).

8 Section 2, Inland Revenue Ordinance (Cap 112).

9 Case No. D37/93 [1994] HKLY 1163.

10 Section 4 and First Schedule, Stamp Duty Ordinance (Cap 117).

11 Hong Kong Inland Revenue Department website (

12 Hong Kong Inland Revenue Department website (

13 Hong Kong Inland Revenue Department website (

14 Hong Kong Inland Revenue Department website (

15 The Government of the Hong Kong Special Administrative Region (

16 Section 3, Inheritance (Provision for Family and Dependants) Ordinance (Cap 481).

17 Section 4, Intestates' Estates Ordinance (Cap 73).

18 See DD v. LKW (2010) 13 HKCFAR 537.

19 (2014) 17 HKCFAR 414, [2014] HKEC 1174, [2014] HKFLR 329.

20 [2010] UKSC 42, [2011] 1 AC 534.

21 See SPH v. SA [2014] 4 HKC 271.

22 [2005] EWCA Civ 1606, [2006] 1 WLR 1053.

23 Kan Lai Kwan v. Poon Lok To Otto (n 19) at Paragraph 29.

24 QT v. Director of Immigration (2018) 21 HKCFAR 324.

25 Leung Chun Kwong v. Secretary for the Civil Service (2019) 22 HKCFAR 127.

26 Infinger, Nick v. Hong Kong Housing Authority [2020] 1 HKLRD 1188.

27 Ng Hon Lam Edgar v. Secretary for Justice [2021] 1 HKC 580

28 Amended by the Trust Law (Amendment) Ordinance 2013.

29 Section 3A(1), Trustee Ordinance (Cap 29) as amended by the Trust Law (Amendment) Ordinance 2013.

30 Section 41W(3)(a), Trustee Ordinance (Cap 29) as amended by the Trust Law (Amendment) Ordinance 2013.

31 Part 3 and Part 4B, Trustee Ordinance (Cap 29) as amended by the Trust Law (Amendment) Ordinance 2013.

32 Section 41X, Trustee Ordinance (Cap 29) as amended by the Trust Law (Amendment) Ordinance 2013.

33 Section 41Y, Trustee Ordinance (Cap 29) as amended by the Trust Law (Amendment) Ordinance 2013.

34 Section 3A, Perpetuities and Accumulations Ordinance (Cap 257) as amended by the Trust Law (Amendment) Ordinance 2013.

35 Section 3B, Perpetuities and Accumulations Ordinance (Cap 257) as amended by the Trust Law (Amendment) Ordinance 2013.

36 Part 5A, Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) as amended by the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance 2018.

37 Part 8, Trustee Ordinance (Cap 29) as amended by the Trust Law (Amendment) Ordinance 2013.

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