Imagine a family trust, established in Hong Kong to preserve wealth across generations, holding a global portfolio. It enjoys no tax on dividends from London, no capital gains from New York, and no inheritance levy on the assets passed to beneficiaries. This is the powerful reality of Hong Kong’s trust framework. Yet, a single misstep—like the trustee actively trading a portfolio of Hong Kong stocks—can trigger a significant and unexpected profits tax bill. The system’s elegance lies in its simplicity, but its stability demands precise navigation. This guide cuts through the complexity, providing a clear map of Hong Kong’s tax rules for trusts and estates based on the latest 2024-25 regulations.

The Foundational Principles: How Hong Kong Taxes Trusts

Hong Kong’s tax system is strictly territorial. This means a trust is only subject to Hong Kong tax on profits or income that have a source in Hong Kong. The Inland Revenue Ordinance (IRO) does not have a separate “trust tax.” Instead, for tax purposes, the trustee is viewed as the legal owner of the trust assets. When a settlor transfers assets into a Hong Kong trust, there is no gift or transfer tax. However, the trustee assumes the responsibility to report and pay tax on any Hong Kong-sourced income the trust generates.

The Profits Tax Threshold: Passive Holding vs. Active Business

This is the most critical distinction in Hong Kong trust taxation. A trust that passively holds investments (e.g., shares, bonds, property for long-term appreciation) is not carrying on a business. Capital gains from the disposal of such assets are not taxable in Hong Kong.

However, if the trustee’s activities are “systematic and organised” with the intent to make a profit, the Inland Revenue Department (IRD) may deem the trust to be carrying on a business. This subjects the net profits to Profits Tax. For corporations, this is a two-tiered rate: 8.25% on the first HK$2 million of assessable profits, and 16.5% on the remainder.

Estate Administration: Tax Duties of the Executor

With estate duty abolished, the primary tax concerns during estate administration relate to the deceased’s outstanding liabilities and income generated by the estate assets before distribution. The executor is personally responsible for ensuring all Hong Kong taxes of the deceased are settled. Furthermore, if the estate itself generates Hong Kong-sourced income (e.g., rent from a property, or business income if a sole proprietorship is continued), the executor must manage the tax obligations for that income.

Structuring and Strategic Considerations

Stamp Duty on Asset Transfers into Trusts

Transferring Hong Kong-situated assets into a trust may trigger stamp duty. The most common concern is with Hong Kong stock or immovable property.

• Hong Kong Stock: A transfer to a trustee is a conveyance and is subject to stamp duty of 0.1% from both the transferor and the transferee (0.2% total), plus a HK$5 fixed duty.
• Hong Kong Property: Transferring a property into a trust is subject to Ad Valorem Stamp Duty. Rates range from HK$100 (for properties up to HK$3 million) to 4.25% for higher-value properties. Special Stamp Duty (SSD) and Buyer’s Stamp Duty (BSD) were abolished on 28 February 2024 and do not apply.

Navigating Global Tax Transparency

Hong Kong’s territoriality is only one piece of the puzzle. Settlors and beneficiaries in other jurisdictions must consider their home country’s tax rules.

• U.S. Persons: A Hong Kong trust may be a “foreign grantor trust” or “foreign non-grantor trust,” triggering complex IRS reporting (Forms 3520/3520-A) and potential current taxation of income to U.S. settlors or beneficiaries.
• UK Domiciliaries: Assets in a Hong Kong trust may still be within the scope of UK Inheritance Tax if the settlor retains an interest.
• FSIE & Pillar Two: The expanded Foreign-Sourced Income Exemption (FSIE) regime (effective January 2024) and the incoming Global Minimum Tax (Pillar Two, effective January 2025) add layers of complexity for trusts holding multinational business groups, requiring economic substance in Hong Kong.

Hong Kong’s trust and estate regime offers a compelling blend of common law certainty and tax efficiency. Its value is not in aggressive tax avoidance, but in predictable, rules-based neutrality. Success lies in meticulous planning that respects the territorial boundaries of its tax system while seamlessly integrating with global wealth strategies. By understanding the triggers for Profits Tax, the duties of executors, and the importance of cross-border compliance, families and advisors can leverage Hong Kong’s stability for generations.