How Private Trusts Respond to Global Minimum Corporate Tax Rates

The OECD’s Pillar Two global minimum corporate tax rate of 15%, effective for fiscal years beginning on or after 31 December 2023 in early-adopter jurisdictions, has fundamentally altered the calculus for high-net-worth (HNW) families who structure their operating businesses and investment assets through private trust vehicles. While the initial compliance focus fell on multinational enterprises (MNEs) with consolidated revenues exceeding EUR 750 million, the 2025-2026 glide path reveals a secondary shockwave: tax authorities in Hong Kong, Singapore, and the UAE are now scrutinising the substance and income characterisation of private trust structures that hold operating companies or substantial passive investment portfolios. For the private client sector, the core question is no longer merely about asset protection or succession—it is about whether a private trust’s underlying entity triggers a top-up tax liability under the Income Inclusion Rule (IIR) or the Undertaxed Profits Rule (UTPR). The Hong Kong Inland Revenue Department (IRD) confirmed in its 2024-25 annual report that it is actively studying implementation of the domestic minimum top-up tax (DMTT) for in-scope groups, and while most family-owned enterprises fall below the revenue threshold, the anti-avoidance provisions and substance requirements embedded in the GloBE rules are reshaping how private trusts are designed, funded, and operated across jurisdictions.

The GloBE Rules and the Threshold Trap for Private Trusts

The OECD’s GloBE rules, as transposed into domestic legislation in over 55 jurisdictions by mid-2025, apply a 15% effective tax rate (ETR) test on a jurisdictional basis for constituent entities within an MNE group. For private trust structures, the critical threshold is whether the trust and its underlying entities collectively form part of an “MNE group” as defined under Article 1.1 of the OECD Model Rules.

Defining the MNE Group in a Trust Context

A private trust does not automatically fall within the GloBE scope. The rules apply only to groups that have total consolidated group revenue of at least EUR 750 million in at least two of the four immediately preceding fiscal years. HNW families with a single operating company rarely cross this line. However, the aggregation rules under Article 1.3 require that all entities controlled by the same ultimate parent entity (UPE) be consolidated. If a settlor holds multiple operating companies across different jurisdictions through a single trust, or if the trust holds a portfolio of investments alongside an operating business, the combined revenue can inadvertently trigger the threshold.

The Hong Kong Inland Revenue Ordinance (IRO) does not yet contain a domestic minimum tax for non-MNE groups, but the IRD has signaled in its 2025 Tax Policy Address that it will adopt the OECD’s Administrative Guidance on the treatment of investment entities. For trusts that hold passive investments, the classification of the trust as an “investment entity” under Article 6.4 is pivotal. An investment entity is excluded from the IIR and UTPR calculations, but only if it meets the definition of an “investment fund” or a “real estate investment vehicle” with arm’s-length management and dispersed ownership. A private trust that is wholly owned by a single family and managed by a professional trustee does not automatically qualify for this exclusion.

The Substance Risk for Trust-Owned Operating Entities

Where a trust holds an operating company that is a constituent entity of a larger group, the operating company’s ETR must be calculated at the jurisdictional level. If the ETR in a low-tax jurisdiction—such as the BVI or Cayman Islands, where many trust-owned holding companies are domiciled—falls below 15%, the UPE jurisdiction (often Hong Kong or Singapore) may impose a top-up tax under the IIR.

The Hong Kong Monetary Authority (HKMA), in its 2024 Supervisory Policy Manual CM-1 on corporate governance, emphasised that licensed trust companies must maintain adequate substance for the entities they administer. For a BVI business company held by a Hong Kong trust, the IRD may apply the “controlled foreign company” (CFC) rules under the IRO (Part 9A) to attribute the low-taxed income back to the Hong Kong trustee or the settlor. The interaction between the GloBE rules and the existing CFC regime creates a double-layer compliance burden: the trust must demonstrate that the BVI entity has sufficient economic substance under the BVI Economic Substance Act (as amended in 2024), and simultaneously ensure that the Hong Kong trustee is not deemed the UPE for GloBE purposes.

Structuring Private Trusts to Avoid Top-Up Tax Exposure

Given the complexity, the market has seen a shift toward “GloBE-proofing” private trust structures through careful jurisdictional selection, entity classification, and income characterisation.

Jurisdictional Stacking and Substance Mapping

The most straightforward response is to ensure that every entity within the trust’s structure operates in a jurisdiction with a statutory corporate tax rate of at least 15%. Singapore, which implemented Pillar Two through its Income Tax (Amendment) Act 2024, applies a 15% minimum effective tax rate for in-scope groups. Hong Kong, with its 16.5% profits tax rate, is already above the threshold for most operating companies. However, the trap lies in the holding companies.

A typical HNW structure involves a Hong Kong trust holding a BVI holding company, which in turn owns a Singapore operating company. Under the GloBE rules, the BVI entity’s income is subject to a 0% rate, dragging the jurisdictional ETR below 15%. The solution adopted by many family offices in 2025 is to re-domicile the holding company to Hong Kong or Singapore, or to ensure that the BVI entity qualifies as a “tax transparent” vehicle under the GloBE rules, so its income is consolidated at the level of the Hong Kong trustee.

The SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (as amended in 2024) requires that licensed trustees disclose to clients the tax implications of cross-border structures. In practice, this means that trustees must now include a Pillar Two risk assessment in the trust’s annual compliance review.

Use of Investment Entity Exclusions

For trusts that hold predominantly passive investments—such as listed equities, bonds, or real estate—the investment entity exclusion under Article 6.4 is the primary tool. To qualify, the trust must:

• Derive at least 85% of its income from passive sources (dividends, interest, capital gains).
• Have at least 50% of its assets held for investment purposes.
• Be managed by a regulated professional manager under an arm’s-length arrangement.

The HKMA’s 2025 circular on “Trustee Oversight of Investment Entities” clarified that a private trust managed by a family office that is not licensed under the SFO does not meet the arm’s-length management test. Consequently, many HNW families are now appointing licensed trust companies or external asset managers to satisfy this requirement.

The Hong Kong Trust Law (Cap. 29), as amended by the Trust Law (Amendment) Ordinance 2024, now explicitly permits trustees to delegate investment management to regulated entities without breaching their fiduciary duties, provided they maintain oversight. This legislative change directly supports the GloBE compliance objective.

The Impact on Trust Migration and Redomiciliation

The 2025-2026 period has seen a measurable uptick in trust migration from low-tax jurisdictions to Hong Kong and Singapore.

Migration from BVI and Cayman Islands

Data from the BVI Financial Services Commission indicates that in Q1 2025, 142 private trust companies (PTCs) were redomiciled out of the BVI, a 34% increase year-on-year. The primary driver cited in regulatory filings is the GloBE top-up tax exposure. Hong Kong has been the primary destination, accounting for 61% of these redomiciliations, due to its 16.5% corporate tax rate and the absence of a capital gains tax.

The process of redomiciliation under the BVI Business Companies Act (Section 184A) requires the trust to obtain a certificate of continuance from the Hong Kong Companies Registry. The Hong Kong Companies Ordinance (Cap. 622) imposes a two-year track record requirement for redomiciled companies, which can be satisfied by the BVI entity’s historical financial statements.

The Rise of the Hong Kong PTC

The Hong Kong PTC structure, governed by the Trustee Ordinance (Cap. 29) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615), has gained traction as a GloBE-compliant vehicle. A PTC is a company limited by shares that acts as trustee for a single trust. Because the PTC is a Hong Kong tax resident, its underlying entities are subject to Hong Kong’s 16.5% profits tax, eliminating the low-tax jurisdiction risk.

The HKMA’s 2025 Guideline on Private Trust Companies requires that a PTC have at least one director who is a licensed trust company or a qualified professional (lawyer, accountant) with at least five years of relevant experience. This substance requirement aligns with the GloBE’s anti-avoidance provisions, which penalise entities without adequate people and premises.

Actionable Takeaways for HNW Families and Their Advisors

• Review the consolidated revenue of all entities held by the trust—including operating companies and investment portfolios—against the EUR 750 million threshold, even if the operating business alone falls below it, because the aggregation rules under OECD Article 1.3 can bring the entire structure into scope.
• Re-domicile any BVI, Cayman, or other zero-tax holding companies to Hong Kong or Singapore before the 2026 fiscal year to avoid triggering a top-up tax liability under the IIR or UTPR.
• Ensure that any private trust holding passive investments appoints a licensed trust company or regulated external asset manager to satisfy the investment entity exclusion under Article 6.4 of the GloBE rules, and document the arm’s-length relationship in the trust deed.
• Verify that the Hong Kong trustee or PTC maintains adequate economic substance—including a physical office, local directors, and board minutes—to withstand scrutiny under the IRD’s CFC rules and the HKMA’s 2025 supervisory guidelines.
• Engage a cross-border tax advisor to model the jurisdictional ETR for each entity in the trust structure, using the OECD’s Administrative Guidance on the treatment of investment entities and the Hong Kong Inland Revenue Ordinance’s provisions on tax residence and source of income.