Imagine preserving your family’s wealth across generations without the burden of inheritance taxes, capital gains taxes, or gift taxes. For high-net-worth families in Hong Kong, this isn’t just a dream—it’s the reality of one of Asia’s most favorable wealth management environments. With over US$3.9 trillion in wealth and asset management business and a strategic position bridging East and West, Hong Kong offers unparalleled opportunities for tax-efficient estate planning and intergenerational wealth transfer.

Hong Kong’s Tax-Advantaged Environment for Wealth Planning

Abolition of Estate Duty: The Foundation of Wealth Preservation

One of Hong Kong’s most significant advantages for estate planning is the complete abolition of estate duty, which took effect for all deaths occurring on or after 11 February 2006. This landmark legislative change eliminated the tax burden on wealth transfers at death, making Hong Kong exceptionally attractive for families seeking to preserve wealth across generations without the erosion caused by inheritance taxes common in many Western jurisdictions.

No Capital Gains Tax or Gift Tax: Maximizing Wealth Growth

Hong Kong does not impose capital gains tax on investment gains, regardless of whether the gains arise from equities, bonds, real estate (subject to stamp duty considerations), or other investment assets. This tax-neutral treatment of capital appreciation allows wealth to compound more efficiently over time and facilitates tax-efficient portfolio rebalancing and asset restructuring.

Similarly, Hong Kong does not levy gift tax on lifetime transfers of wealth. This enables high-net-worth families to implement gradual wealth transfer strategies during their lifetime without triggering immediate tax liabilities, providing flexibility in succession planning and allowing for the testing of beneficiaries’ capabilities in managing wealth before final transfers occur.

Territorial Tax System: Global Investment Freedom

Hong Kong operates a territorial tax system where only income and profits sourced in Hong Kong are subject to profits tax. This fundamental principle creates substantial planning opportunities for high-net-worth families with international investment portfolios. Foreign-sourced income, subject to certain exceptions under the Foreign-Sourced Income Exemption (FSIE) regime, is generally not chargeable to Hong Kong tax.

The Family Office Revolution: FIHV Tax Concession Regime

Overview of the FIHV Regime: 0% Profits Tax Advantage

On 19 May 2023, Hong Kong introduced a groundbreaking tax concession regime for Family-owned Investment Holding Vehicles (FIHVs) managed by eligible Single Family Offices (SFOs). This regime provides a 0% profits tax rate on assessable profits arising from qualifying transactions and incidental transactions, positioning Hong Kong as a highly competitive jurisdiction for family office establishment alongside Singapore, Switzerland, and other leading wealth management centers.

The FIHV regime represents a strategic initiative by the Hong Kong government to attract ultra-high-net-worth families to establish and manage their wealth through Hong Kong-based structures. Unlike many jurisdictions that require pre-approval or complex application processes, Hong Kong’s regime allows qualifying family offices to self-assess their eligibility and apply the concession directly in their annual tax returns.

Qualifying Requirements: Substance and Structure

To qualify for FIHV tax concessions, the structure must meet several key requirements:

• Ownership Structure: At least 95% of the beneficial interest in the FIHV must be held by the family, though this threshold can be reduced to 75% in certain circumstances.
• Management and Control: The FIHV must be normally managed or controlled in Hong Kong during the basis period and managed by an eligible SFO that meets minimum asset thresholds of HK$240 million.
• Substance Requirements: The family office must demonstrate genuine economic substance in Hong Kong by employing at least two full-time qualified employees and incurring not less than HK$2 million in operating expenditure annually.
• Qualifying Transactions: The tax concession applies to assessable profits derived from qualifying transactions, which include transactions in shares, stocks, debentures, loan stocks, funds, bonds, notes, and certain other specified assets.

November 2024 Proposed Enhancements: Staying Competitive

On 25 November 2024, the Financial Services and Treasury Bureau issued a consultation paper proposing significant enhancements to the FIHV regime, demonstrating Hong Kong’s commitment to maintaining its competitive position in the global family office landscape:

• Expanded Scope of Eligible Income: The proposals include all income derived from qualifying transactions, removing the previous 5% incidental transaction threshold and introducing an exclusion list approach instead.
• Enhanced FSPE Flexibility: Family-owned Special Purpose Entities (FSPEs) would be permitted to engage in expanded activities, including acquiring, holding, administering, and disposing of investee private companies and other FSPEs.
• Integration with Immigration: Effective 1 March 2025, investments held by FIHVs or FSPEs will count toward the Capital Investment Entrant Scheme (CIES) requirements, allowing family office structures to serve dual purposes of tax efficiency and immigration qualification.

Trust Structures for Estate Planning

Tax Treatment of Trusts in Hong Kong

Trusts remain a cornerstone of sophisticated estate planning for high-net-worth families in Hong Kong, offering asset protection, succession planning, confidentiality, and tax efficiency. The tax treatment of trusts in Hong Kong is governed by the territorial source principle, creating significant advantages for internationally structured trusts.

Strategic Advantages of Hong Kong Trusts

• Confidentiality and Privacy: Hong Kong does not maintain a public registry for trusts, making them appealing to families who prioritize privacy concerning their financial affairs.
• Asset Protection: Properly structured trusts can provide robust asset protection against creditor claims, divorce proceedings, and other threats to family wealth.
• Succession Planning: Trusts enable families to implement sophisticated succession plans that extend beyond simple will-based transfers, including staged distributions and incentive clauses.
• Tax Treaty Network: Hong Kong maintains over 45 comprehensive double taxation agreements with major jurisdictions worldwide, which can be leveraged to minimize withholding taxes on cross-border investment income.

Estate Planning Strategies for HNW Families

Property Ownership Structures Post-Stamp Duty Reform

Following the abolition of the Buyer’s Stamp Duty (BSD), Special Stamp Duty (SSD), and New Residential Stamp Duty (NRSD) on 28 February 2024, Hong Kong’s property market has become more accessible for estate planning purposes. Families are increasingly exploring property ownership through corporate vehicles or trust structures for succession planning and asset protection purposes.

Insurance-Based Planning: Liquidity and Protection

Life insurance plays a crucial role in comprehensive estate planning for high-net-worth families, serving multiple purposes:

• Liquidity Planning: Ensuring sufficient liquidity to cover estate administration costs, ongoing family expenses, and business continuation needs
• Wealth Equalization: Providing inheritance to children not involved in family businesses while preserving business equity for active successors
• Tax-Efficient Wealth Transfer: Insurance proceeds can be structured to pass outside the estate or through trusts, providing tax-efficient wealth transfer
• Foreign Tax Mitigation: For families with exposure to foreign inheritance taxes, insurance can provide funds to settle tax liabilities without forced asset sales

International Considerations and Cross-Border Planning

Foreign Tax Exposure: Navigating Global Complexity

While Hong Kong does not impose inheritance or estate taxes, high-net-worth families must carefully consider their potential tax exposure in other jurisdictions:

• Citizenship-Based Taxation: Families with members holding U.S. citizenship or green cards face worldwide estate and gift tax exposure regardless of residence.
• Domicile-Based Taxation: Many Commonwealth jurisdictions, including the United Kingdom, impose inheritance tax based on domicile.
• Situs-Based Taxation: Assets located in foreign jurisdictions may be subject to local estate or succession taxes regardless of the owner’s residence or domicile.

Common Reporting Standard (CRS) Compliance

Hong Kong participates in the Automatic Exchange of Information under the Common Reporting Standard (CRS), requiring financial institutions to report account information for non-resident account holders to their tax jurisdictions. High-net-worth families must ensure their structures comply with CRS reporting requirements and understand how information will be shared with foreign tax authorities.

Implementation Considerations and Professional Guidance

Selecting Professional Advisors: Building Your Team

Comprehensive estate planning for high-net-worth families requires a coordinated team of professional advisors:

• Legal Counsel: Experienced in Hong Kong trust law, estate administration, and cross-border planning
• Tax Advisors: Specialists in Hong Kong and international tax planning for HNW families
• Financial Advisors: Investment managers and wealth planners familiar with family office structures
• Trustees: Professional trustees or private trust companies with appropriate expertise
• Accountants: For ongoing compliance, tax return preparation, and financial reporting

Regular Review and Updates: Keeping Plans Current

Estate plans should be reviewed and updated regularly to reflect:

• Changes in family circumstances (births, deaths, marriages, divorces)
• Significant changes in wealth or asset composition
• Developments in tax law or regulatory requirements
• Changes in residence or citizenship status
• Evolution of family governance needs

Hong Kong offers high-net-worth families an exceptionally favorable environment for estate planning and wealth structuring. The combination of no estate duty, no capital gains tax, no gift tax, a territorial tax system, and the innovative FIHV regime creates unparalleled opportunities for tax-efficient wealth preservation and transfer. However, effective estate planning requires more than simply taking advantage of favorable tax rules—it demands comprehensive strategies addressing asset protection, succession planning, family governance, cross-border tax exposure, and the preservation of family values across generations. Working with experienced professional advisors who understand both Hong Kong’s unique advantages and the complexities of international wealth planning is essential for achieving optimal outcomes.