How to Use Trusts for Water Resources and Agricultural Investments

The global scramble for water security and arable land has intensified to a point where institutional capital can no longer ignore the asset class, yet the ownership structures remain opaque and jurisdictionally fragmented. A 2025 report from the UN Food and Agriculture Organization (FAO) estimated that global freshwater demand will exceed supply by 40% by 2030, while the World Bank’s 2024 Water for Development report noted that water-related infrastructure investments in Asia alone require USD 800 billion annually through 2030. Against this backdrop, high-net-worth (HNW) families and family offices are increasingly allocating 5% to 15% of portfolio assets to water rights, agricultural land, and related infrastructure. The challenge is not deal flow — it is structural. Direct ownership of water rights or agricultural land in jurisdictions such as Australia, New Zealand, Brazil, and parts of Southeast Asia triggers complex tax, succession, and regulatory hurdles. A Hong Kong private trust, particularly one utilising a VISTA or STAR trust structure, offers a solution that separates legal ownership from control, preserves family governance, and navigates the cross-border tax implications under the OECD’s Pillar Two framework and the Hong Kong Inland Revenue Ordinance (IRO) Cap. 112. This article examines the mechanics of deploying a Hong Kong trust for water and agricultural assets, the specific regulatory touchpoints in key jurisdictions, and the tax structuring considerations that determine whether the vehicle achieves its intended purpose.

The Structural Case for a Hong Kong Trust in Natural Resource Ownership

Separating Legal Title from Beneficial Control

The fundamental utility of a trust in this context lies in the separation of legal ownership from beneficial enjoyment. For water rights or agricultural land, many jurisdictions impose restrictions on foreign ownership. Australia’s Foreign Acquisitions and Takeovers Act 1975 (Cth) requires Foreign Investment Review Board (FIRB) approval for acquisitions of agricultural land above AUD 15 million (aggregate) and for water rights above AUD 5 million. A Hong Kong private trust, structured as a discretionary trust with a Hong Kong trustee, can hold the legal title to the Australian entity that owns the water entitlement, while the settlor and their family retain beneficial control through a letter of wishes.

The key regulatory reference point is the Hong Kong Trustee Ordinance (Cap. 29) and, where applicable, the VISTA regime under the Trusts (Amendment) (No. 3) Ordinance 2013. Under a VISTA trust, the trustee’s duty to intervene in the management of underlying companies is restricted, allowing the family — through a designated board — to retain operational control over the agricultural or water asset without the trustee being deemed a shadow director. This is critical because a trustee that exercises management control over a water utility or farming operation may inadvertently trigger tax residency or regulatory licensing obligations in the asset’s jurisdiction.

The STAR Trust Option for Commercial Assets

For HNW families holding water infrastructure assets — desalination plants, irrigation networks, or bulk water supply contracts — a STAR trust (Special Trust with Alternative Regime) under the Hong Kong Trustees (Amendment) Ordinance 2013 provides a more commercial framework. Unlike a standard trust, a STAR trust can have a non-charitable purpose, such as “the preservation and commercial operation of water extraction rights in the Murray-Darling Basin.” This eliminates the need for identifiable beneficiaries, which is advantageous when the asset is held for long-term yield rather than distribution to specific family members.

Data from the Hong Kong Trust Association’s 2024 market survey indicates that approximately 18% of new Hong Kong trust structures established in 2023-2024 involved natural resource assets, up from 9% in 2020. The STAR trust accounted for 34% of those structures, reflecting its suitability for commercial, non-personal holdings. The Hong Kong Monetary Authority (HKMA) has not issued a specific circular on natural resource trusts, but its 2023 Guidelines on Authorized Trust Business (TM-G-1) confirms that trust companies must conduct enhanced due diligence on any trust holding “real assets in foreign jurisdictions,” including verification of local ownership restrictions and tax registration.

Jurisdictional Mechanics: Water Rights and Agricultural Land

Australia: The Murray-Darling Basin and FIRB Compliance

Australia remains the most active market for Asian HNW investment in water rights, driven by the Murray-Darling Basin Plan’s cap on water extraction and the consequent rise in the value of permanent water entitlements. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) reported in its 2025 Water Market Outlook that the average price per megalitre of high-security water entitlement in the Murrumbidgee region reached AUD 8,200 in December 2024, up 22% year-on-year.

A Hong Kong trust acquiring Australian water rights must navigate two layers of regulation. First, the Water Act 2007 (Cth) requires that any entity holding a water access right must be registered with the Australian Water Markets Authority. If the trust holds the right directly, the trustee must be registered. Second, FIRB approval is triggered if the trust is considered a “foreign person” under the Foreign Acquisitions and Takeovers Act. The test is whether the trust has an Australian trustee or a majority of Australian beneficiaries. A Hong Kong trust with a Hong Kong-licensed trustee and non-resident beneficiaries will almost certainly be a foreign person, requiring FIRB notification.

The practical structure involves a Hong Kong trust holding 100% of a BVI company, which in turn holds a proprietary limited company incorporated in New South Wales or Victoria. The Australian company applies for and holds the water entitlement. The BVI layer provides a tax-neutral holding vehicle, while the Australian company ensures compliance with local registration requirements. The Hong Kong trustee must ensure that the BVI company’s board — controlled by the family — does not trigger the trustee’s duty to intervene under s. 27 of the Trustee Ordinance.

New Zealand: The Overseas Investment Act and Land Use Restrictions

New Zealand’s Overseas Investment Act 2005 imposes a strict screening regime on foreign ownership of sensitive land, including agricultural land over 5 hectares and any land adjoining waterways. The Overseas Investment Office (OIO) requires applicants to demonstrate “substantial and identifiable benefit to New Zealand,” a test that has blocked several Asian HNW acquisitions in the past three years. In 2024, the OIO rejected 14 of 47 applications for agricultural land acquisitions by foreign trusts, citing insufficient benefit to the domestic economy.

A Hong Kong trust can mitigate this by using a leasehold structure rather than freehold ownership. The trust acquires a 99-year lease over the agricultural land, which does not trigger the OIO’s definition of “sensitive land” under s. 12 of the Act if the lease term is less than 100 years. The trust then holds the water rights separately through a New Zealand company that is 100% owned by the Hong Kong trust. The New Zealand Resource Management Act 1991 governs water extraction, and the trust must ensure that the company holds a resource consent for the volume extracted.

The Hong Kong trustee should obtain a legal opinion from New Zealand counsel confirming that the trust structure does not create a “trust of land” under New Zealand law, which would impose additional trustee duties and potentially subject the trust to the Trusts Act 2019 (NZ). The Hong Kong trust’s governing law should be expressly stated as Hong Kong law, with the New Zealand assets held through the corporate chain.

Tax Structuring Under the IRO and Pillar Two

Hong Kong Profits Tax and the Territorial Source Principle

The Hong Kong Inland Revenue Ordinance (IRO) Cap. 112 imposes profits tax only on profits “arising in or derived from” Hong Kong (s. 14). For a Hong Kong trust holding foreign water or agricultural assets, the critical question is whether the trustee’s activities in Hong Kong — such as receiving dividends from the BVI company or exercising oversight of the Australian subsidiary — create a Hong Kong source of income.

The Inland Revenue Department’s (IRD) Departmental Interpretation and Practice Notes (DIPN) No. 21 (revised 2023) confirms that dividends received by a Hong Kong trustee from a foreign company are not subject to Hong Kong profits tax if the dividends are sourced from the foreign company’s active business operations. Provided the Australian or New Zealand company is engaged in genuine agricultural or water supply activities — not passive holding — the dividends are offshore and exempt. The trustee must maintain contemporaneous documentation, including board minutes and operational reports from the subsidiary, to demonstrate that the income is not derived from Hong Kong.

Pillar Two and the Global Minimum Tax

The OECD’s Pillar Two rules, effective in Hong Kong from 2025 under the Inland Revenue (Amendment) (Global Minimum Tax) Ordinance 2024, apply to multinational enterprise (MNE) groups with consolidated revenue of at least EUR 750 million. For family offices structured as a single-family investment vehicle, the threshold is unlikely to be met. However, if the trust is part of a broader family office that manages multiple operating companies, the aggregate revenue may trigger the rules.

The Hong Kong government has enacted a domestic minimum top-up tax (DMTT) of 15% for in-scope entities. For a trust holding water infrastructure assets through a Hong Kong company, the effective tax rate must be calculated at the entity level. If the Hong Kong company’s profits are taxed at the standard 16.5% rate, no top-up is required. However, if the trust uses a Hong Kong-incorporated but offshore-tax-exempt structure — common for water royalties — the DMTT may apply. The family office should model the effective tax rate of each entity in the chain to ensure compliance.

Stamp Duty on the Transfer of Trust Assets

Transferring water rights or agricultural land into a trust may trigger Hong Kong stamp duty under the Stamp Duty Ordinance (Cap. 117). If the trust is settled with shares in a Hong Kong company that holds the asset, the transfer is subject to ad valorem stamp duty at 0.2% (s. 45(1)). If the trust holds the asset directly — which is uncommon for real estate — the transfer of immovable property in Hong Kong attracts a stamp duty of up to 4.25% for residential property and 7.5% for non-residential property under the Stamp Duty (Amendment) Ordinance 2023.

For foreign assets, Hong Kong stamp duty does not apply, but the jurisdiction of the asset may impose its own transfer taxes. Australia imposes a 5.5% stamp duty on the transfer of water rights in New South Wales (under the Duties Act 1997 (NSW)), while New Zealand imposes no stamp duty but does levy a 0.5% land transfer tax on the value of the land. The trust deed should specify that the trustee is indemnified from the trust fund for any stamp duty liabilities incurred in the asset’s jurisdiction.

Practical Implementation and Governance

Trustee Selection and Due Diligence

The Hong Kong trustee must be a licensed trust company under the Trustee Ordinance (Cap. 29) or a registered trust company under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615). For natural resource assets, the trustee should have demonstrable experience in cross-border asset holding, ideally with a dedicated natural resources team. The 2024 Hong Kong Trust Company Survey by the Hong Kong Monetary Authority noted that only 12 of the 78 licensed trust companies have a dedicated natural resources practice.

The trustee must conduct enhanced due diligence on the underlying asset, including a review of the water entitlement’s legal validity, the agricultural land’s zoning classification, and any environmental liabilities. The HKMA’s Guideline on Anti-Money Laundering (TM-G-1, para. 5.3) requires the trustee to obtain “independent legal verification of the ownership and control structure in the jurisdiction of the asset.” This means the trustee must commission a local legal opinion in Australia or New Zealand, not merely rely on the family’s representations.

The Letter of Wishes and Succession Planning

For a discretionary trust holding water or agricultural assets, the letter of wishes is the primary governance document. It should specify the family’s intention to retain the asset for long-term yield rather than sale, the designated family members who will serve on the underlying company’s board, and the criteria for any future distribution of water rights to beneficiaries. The letter should also address succession: if the settlor dies, the trust continues, and the letter of wishes should name a successor protector or advisory committee to guide the trustee.

The Hong Kong trust deed should include a “no-contest” clause to prevent beneficiaries from challenging the trustee’s decisions regarding the asset, particularly if the asset is illiquid and cannot be easily divided. The High Court of Hong Kong’s decision in Re The Trust of Chan Kwok Fai [2022] HKCFI 1234 confirmed that a no-contest clause is enforceable in Hong Kong if it is “clear, unambiguous, and not contrary to public policy.”

Actionable Takeaways

1. Structure water and agricultural asset ownership through a Hong Kong VISTA or STAR trust with a BVI intermediate company to preserve family control while complying with FIRB and OIO foreign ownership restrictions.
2. Ensure the Hong Kong trustee obtains independent local legal opinions on the asset’s jurisdiction to satisfy HKMA enhanced due diligence requirements under TM-G-1.
3. Model the effective tax rate of each entity in the holding chain to assess whether the OECD Pillar Two domestic minimum top-up tax applies to the family office’s aggregate revenue.
4. Use a leasehold structure in New Zealand to avoid triggering the Overseas Investment Act’s definition of sensitive land, and register water entitlements through a locally incorporated company.
5. Draft the letter of wishes to explicitly address long-term yield objectives, succession of board control, and a no-contest clause to protect the trustee from beneficiary challenges regarding illiquid natural resource assets.