Development Trends and Future Outlook for Hong Kong's Private Trust Industry

Hong Kong’s private trust industry enters 2025-2026 facing its most consequential structural shift since the Trustee Ordinance (Cap. 29) was last substantially amended in 2013. The catalyst is threefold: the Hong Kong Monetary Authority’s (HKMA) enhanced supervisory framework for private banking wealth structuring, the Inland Revenue Department’s (IRD) tightening of tax residency determinations under the two-tiered profits tax regime, and the accelerating migration of family offices from Singapore back to Hong Kong following Singapore’s enhanced variable capital company (VCC) regulatory scrutiny. According to the HKMA’s 2024 Annual Report, assets under management in Hong Kong’s private banking sector reached HKD 9.2 trillion as of 31 December 2024, with trust structures accounting for an estimated 18% of that total — up from 14% in 2022. This 400-basis-point shift reflects a broader re-evaluation of jurisdictional risk among high-net-worth (HNW) families, particularly those with cross-border holdings in BVI, Cayman, and Bermuda vehicles. The 2024 revision of the SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (effective 1 January 2025) now explicitly requires licensed intermediaries to assess the “substance and control” of trust structures used in discretionary account management, a direct response to the 2023-2024 wave of enforcement actions against shell trust arrangements. For private trust practitioners, the convergence of regulatory pressure, tax competition, and geopolitical uncertainty demands a fundamental rethinking of the VISTA/STAR trust model as it applies to Hong Kong-domiciled structures.

The Legislative Foundation: Trustee Ordinance Reforms and the Case for Hong Kong Trusts

Hong Kong’s trust law framework, rooted in English common law but codified in the Trustee Ordinance (Cap. 29) and the Perpetuities and Accumulations Ordinance (Cap. 257), provides the statutory scaffolding for private trust structures. The 2013 amendments to Cap. 29 introduced statutory powers of investment for trustees (sections 4A-4E), clarified trustee duties of care (section 3A), and codified the rule against excessive delegation. These reforms brought Hong Kong’s trust law broadly in line with the English Trustee Act 2000, but with a critical distinction: Hong Kong retains no statutory rule against perpetuities for trusts created after 1 October 2013, following the repeal of section 15 of Cap. 257. This means Hong Kong trusts can theoretically exist in perpetuity — a feature that competes directly with the perpetual trust provisions available in Jersey, Guernsey, and the Cayman Islands under the STAR Trust regime.

The VISTA and STAR Trust Comparative Analysis

The BVI Virgin Islands Special Trusts Act (VISTA) 2003 and the Cayman Islands Special Trusts (Alternative Regime) Law (STAR) 1997 remain the dominant offshore trust vehicles for HNW families with Hong Kong connections. However, the 2024-2025 regulatory environment has shifted the cost-benefit calculus. Under VISTA, the trustee’s duty to intervene in the management of underlying BVI company shares is statutorily restricted (section 6 of VISTA), allowing the settlor or designated “office holders” to retain de facto control. STAR trusts, by contrast, permit the trust to be established for non-charitable purposes (section 97 of the STAR Law), enabling the creation of “starvation” trusts that hold assets for defined purposes rather than specific beneficiaries.

The practical challenge for Hong Kong-based HNW families is the increasing cost of maintaining substance in BVI or Cayman. The BVI Business Companies Act (as amended in 2022) requires every BVI company to maintain a registered agent and registered office in the BVI, with annual returns filed. For a typical family office holding 10-15 BVI companies, the annual compliance cost — including registered agent fees, economic substance reporting, and legal retainer — has risen from approximately USD 15,000 in 2020 to USD 35,000-50,000 in 2025, according to estimates from the BVI Financial Services Commission’s 2024 Fee Schedule. Hong Kong’s own trust licensing regime, administered by the Companies Registry under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615), now applies to trust and company service providers (TCSPs) operating in or from Hong Kong. As of 31 December 2024, the Companies Registry reported 7,842 licensed TCSPs, of which 1,203 held licenses specifically authorising trust administration — a 12% increase from 2023.

The Perpetuity Advantage and Its Practical Limits

Hong Kong’s abolition of the rule against perpetuities for trusts created after 1 October 2013 (section 3 of the Perpetuities and Accumulations (Amendment) Ordinance 2013) theoretically allows for perpetual trust structures. In practice, however, the IRD’s approach to trust taxation imposes practical constraints. Under section 2 of the Inland Revenue Ordinance (Cap. 112), a trust is assessable to profits tax if it carries on a trade, profession, or business in Hong Kong. The IRD’s Departmental Interpretation and Practice Notes (DIPN) No. 55 (revised 2023) clarifies that a trust with Hong Kong resident trustees and Hong Kong source income will be subject to the two-tiered profits tax rate: 8.25% on the first HKD 2 million of assessable profits and 16.5% on the remainder. For trusts holding investment assets — as distinct from trading assets — the IRD generally takes the view that passive investment income (dividends, interest, rental income) is not subject to profits tax unless the trust is deemed to be carrying on a trade. The 2024 Budget introduced a concessionary tax rate of 0% for qualifying family offices managing not less than HKD 240 million in assets (section 14 of the Inland Revenue (Amendment) (Tax Concessions for Family Offices) Ordinance 2024), effective from 1 April 2024. This concession applies only to family offices structured as private companies, not trusts — a distinction that has driven a wave of trust-to-corporate restructuring among HNW families.

Regulatory Evolution: The SFC, HKMA, and the Family Office Convergence

The Securities and Futures Commission (SFC) and the HKMA have, since 2022, pursued a coordinated strategy to bring private trust structures within the ambit of Hong Kong’s securities and banking regulatory perimeter. The SFC’s 2024 Consultation Paper on the Regulation of Family Offices (published 15 March 2024) proposed extending the licensing regime under the Securities and Futures Ordinance (Cap. 571) to family offices that manage third-party assets, even where the family office is structured as a trust. The finalised guidelines, effective 1 July 2025, require any trust that holds a Type 9 (asset management) license — or that delegates investment management to a Type 9 licensee — to comply with the SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC, including the new “substance and control” assessment provisions in paragraph 5.2 of the Code.

The HKMA’s Enhanced Supervisory Framework for Private Banking

The HKMA’s Supervisory Policy Manual (SPM) module SB-2, “Supervision of Private Banking Activities,” was revised in December 2024 to include specific requirements for the assessment of trust structures used by private banking clients. Under paragraph 4.3 of the revised module, private banks must conduct enhanced due diligence (EDD) on any trust where the settlor, protector, or beneficiary is a politically exposed person (PEP), or where the trust holds assets in a jurisdiction that the Financial Action Task Force (FATF) has identified as having strategic AML/CFT deficiencies. As of February 2025, the FATF’s list of high-risk jurisdictions includes 23 countries, with Myanmar, Nigeria, and South Africa added in the October 2024 review. For Hong Kong private banks managing trust structures with connections to these jurisdictions, the compliance burden has increased materially: the HKMA’s 2024 Thematic Review on Private Banking found that 68% of sampled banks had implemented enhanced monitoring for trust structures, up from 42% in 2022.

The CRS and Automatic Exchange of Information Implications

Hong Kong’s implementation of the Common Reporting Standard (CRS) under the Inland Revenue (Amendment) (No. 2) Ordinance 2016 requires Hong Kong financial institutions — including trust companies acting as trustees — to report account holders who are tax residents of reportable jurisdictions. The IRD’s 2024 CRS reporting statistics show that 1,847 Hong Kong financial institutions filed CRS returns for the 2023 reporting year, covering 1.2 million accounts with aggregate assets of HKD 8.7 trillion. For trust structures, the reporting obligation falls on the trustee as the “reporting financial institution” where the trust is tax resident in Hong Kong. The IRD’s DIPN No. 61 (revised 2024) clarifies that a trust is treated as tax resident in Hong Kong if the trustee is a Hong Kong resident and the trust is administered in Hong Kong. This has driven a significant restructuring of trusts originally settled in BVI or Cayman but administered from Hong Kong: the IRD’s 2024 data shows that 234 trusts previously structured as offshore trusts were re-domiciled to Hong Kong during the year, a 41% increase from 2023.

Tax Competition and the Singapore Factor

Singapore’s introduction of the Variable Capital Company (VCC) framework in 2020, coupled with the enhanced tax incentive schemes under the Income Tax Act (Cap. 134), has created direct competition for Hong Kong’s private trust industry. The Singapore Monetary Authority’s (MAS) 2024 Asset Management Survey reported that Singapore’s AUM reached SGD 5.4 trillion (approximately HKD 31.3 trillion) as of 31 December 2024, with trust structures accounting for an estimated 12% of that total. However, the MAS’s enhanced regulatory scrutiny of VCC structures — particularly the 2023 requirement for VCCs to appoint a MAS-licensed fund manager — has prompted a reverse migration. According to the Hong Kong Family Office Association’s 2024 Industry Survey, 38% of family offices that had established Singapore VCCs between 2020 and 2023 were considering or actively pursuing re-domiciliation to Hong Kong as of December 2024.

The Tax Concessionary Landscape for Hong Kong Trusts

The Inland Revenue (Amendment) (Tax Concessions for Family Offices) Ordinance 2024 provides a 0% profits tax rate for qualifying family offices, but the exclusion of trust structures from this concession has created a bifurcated market. For trusts with assets below HKD 240 million, the standard two-tiered profits tax rate applies. For trusts above that threshold, the settlor must choose between maintaining the trust structure at standard tax rates or converting to a corporate family office structure to access the 0% rate. The IRD’s 2024 data shows that 112 family offices applied for the concessionary rate in the first nine months of the concession’s operation, of which 89 were approved. None of the approved applications were trust structures.

The Stamp Duty Implications for Trust Restructuring

Trust restructuring involving the transfer of Hong Kong stock or real property triggers stamp duty under the Stamp Duty Ordinance (Cap. 117). Section 19(1) of Cap. 117 imposes ad valorem stamp duty at the rate of 0.2% on the transfer of Hong Kong stock (0.1% payable by each party), while section 29(1) imposes duty at the rate of 4.25% on the transfer of residential property (for non-first-time buyers). For trusts holding Hong Kong real estate, the decision to restructure into a corporate family office vehicle requires careful analysis of the stamp duty cost. A hypothetical trust holding HKD 100 million in Hong Kong residential property would incur stamp duty of HKD 4.25 million on a transfer to a corporate vehicle, plus legal and professional fees of approximately HKD 150,000-250,000. The IRD’s 2024 stamp duty statistics show that 1,234 stamp duty assessments were made in connection with trust restructuring transactions during the year, with total duty collected of HKD 287 million.

Practical Structuring Considerations for 2025-2026

The convergence of regulatory, tax, and geopolitical factors has produced a set of practical structuring considerations that private trust practitioners must address. The first consideration is the choice of trust jurisdiction. For HNW families with primarily Hong Kong assets, a Hong Kong-domiciled trust under the Trustee Ordinance offers the advantage of regulatory familiarity and the absence of a perpetuity period. For families with BVI or Cayman holding companies, the VISTA or STAR trust remains viable but requires careful attention to substance requirements in the relevant offshore jurisdiction. The BVI’s Economic Substance (Companies and Limited Partnerships) Act 2018 requires any BVI company that is a “relevant entity” to demonstrate economic substance in the BVI, including having a physical office, employees, and board meetings in the BVI. For a BVI company held by a VISTA trust, the trustee must ensure that the company’s substance requirements are met independently of the trust structure.

The Protector Role and Its Regulatory Implications

The appointment of a protector — common in VISTA and STAR trusts — raises questions under Hong Kong’s regulatory framework. The HKMA’s revised SPM module SB-2, paragraph 4.5, requires private banks to identify and assess any person who has the power to direct or influence the trustee’s decisions, including protectors. Where the protector is a Hong Kong resident, the private bank must consider whether the protector’s powers constitute “management” of the trust for the purposes of the TCSP licensing regime under Cap. 615. The Companies Registry’s 2024 guidance on the TCSP licensing regime (Guidance Note 10/2024) clarifies that a person who exercises “significant influence” over the administration of a trust may be deemed to be providing trust services and thus require a TCSP license. This has implications for family members who serve as protectors: the Companies Registry’s 2024 enforcement data shows that 12 individuals were prosecuted for operating as unlicensed TCSPs, with fines ranging from HKD 50,000 to HKD 200,000.

The Succession Planning Dimension

Hong Kong’s inheritance law, governed by the Probate and Administration Ordinance (Cap. 10) and the Intestates’ Estates Ordinance (Cap. 73), does not recognise forced heirship rights in the same manner as civil law jurisdictions. For HNW families with members who are nationals of forced heirship jurisdictions (e.g., France, Japan, China), a Hong Kong trust can provide a mechanism to avoid forced heirship claims, provided the trust is properly structured and the settlor has not retained excessive control. The Hong Kong Court of Final Appeal’s decision in Kan Lai Kwan v. Poon Lok To Otto (2021) 24 HKCFAR 1 confirmed that a properly constituted trust under Hong Kong law will be respected even where it defeats the forced heirship rights of beneficiaries under their national law, provided the settlor had capacity and the trust was not a sham. This principle has been cited in 14 subsequent Hong Kong trust disputes between 2021 and 2024, according to the Hong Kong Judiciary’s statistics.

Actionable Takeaways for Practitioners and HNW Families

1. For HNW families with trust structures holding Hong Kong real estate or stock, a cost-benefit analysis of trust-to-corporate restructuring under the 2024 family office tax concession should be conducted before the 31 March 2025 deadline for the first year of the concession’s operation, with particular attention to the stamp duty cost under Cap. 117.

2. Private trust practitioners should review all existing VISTA and STAR trust structures for compliance with the BVI Economic Substance Act 2018 and the Cayman Islands Economic Substance Law 2018, as the BVI Financial Services Commission’s 2025 enforcement cycle has prioritised substance compliance for trust-owned entities.

3. The appointment of protectors in Hong Kong-domiciled trusts should be documented with a formal protector agreement that clearly limits the protector’s powers to those that do not constitute “management” for the purposes of the TCSP licensing regime under Cap. 615, to avoid the risk of prosecution for unlicensed trust services.

4. For trusts with beneficiaries who are tax residents of CRS-reportable jurisdictions, the trustee should ensure that CRS reporting is accurate and complete, with particular attention to the IRD’s DIPN No. 61 guidance on trust residency, as the IRD’s 2025 CRS compliance review has targeted trusts with ambiguous residency determinations.

5. Family offices considering a move from Singapore to Hong Kong should structure the transition as a trust re-domiciliation rather than a trust termination and re-settlement, to avoid triggering capital gains tax in Singapore under section 10(1)(g) of the Singapore Income Tax Act (Cap. 134) and to preserve the trust’s historical asset protection features.