What if you could preserve your family’s wealth across generations without losing 40% or more to inheritance taxes? For internationally mobile individuals and families, Hong Kong offers a unique solution that combines a territorial tax system with no estate duty. While the term “non-domiciled” doesn’t exist in Hong Kong tax law as it does in the UK, the principles of source-based taxation create similar advantages for those with global assets. This article explores how Hong Kong’s tax framework can be leveraged for effective wealth preservation and inheritance planning.

Hong Kong’s Source-Based Taxation: The Foundation of Wealth Preservation

Hong Kong operates on a territorial tax system, which means it only taxes income or profits sourced within its geographical boundaries. This principle is fundamentally different from worldwide taxation systems used by countries like the United States, United Kingdom, and many European nations. In Hong Kong, your tax liability is determined by where your income is generated, not by where you live or where you’re considered “domiciled.”

The key tax types in Hong Kong operate on this source principle:

• Salaries Tax: Only applies to employment income arising in or derived from Hong Kong
• Profits Tax: Applies to profits from a trade, profession, or business carried on in Hong Kong
• Property Tax: 15% on net assessable value of Hong Kong properties
• Stamp Duty: Applies to Hong Kong property and stock transactions

What Hong Kong Does NOT Tax

This is where Hong Kong’s system becomes particularly attractive for wealth preservation:

• Capital gains from any source (with limited exceptions under FSIE regime)
• Dividends (no withholding tax on dividends paid)
• Interest income (most cases, with FSIE exceptions for multinationals)
• Inheritance/estate duty (abolished since 2006)
• Sales tax/VAT/GST

The Estate Duty Advantage: Zero Inheritance Tax Since 2006

Hong Kong made a landmark decision in 2006 by abolishing estate duty entirely. For deaths occurring on or after February 11, 2006, no estate duty is levied on assets situated in Hong Kong. This creates a fundamental advantage compared to many other financial centers and developed economies where wealth transfer taxes remain significant.

Strategic Asset Structuring for Global Families

For individuals and families with global assets, strategic structuring is essential to maximize Hong Kong’s tax advantages while managing potential liabilities in other jurisdictions. The combination of no estate duty and territorial taxation creates powerful planning opportunities.

Key Structuring Vehicles

Several structures can be used effectively in Hong Kong for wealth preservation:

1. Hong Kong Holding Companies: Can own global assets with profits taxed only if sourced in Hong Kong (8.25% on first HK$2M, 16.5% on remainder for corporations)
2. Family Investment Holding Vehicles (FIHV): Qualifying FIHVs enjoy 0% tax rate on qualifying income with minimum AUM of HK$240 million and substantial activities in Hong Kong
3. Trusts with Hong Kong Trustees: Can provide asset protection and succession planning benefits
4. Personal Investment Companies: For managing personal investment portfolios with corporate structure benefits

Real-World Case Studies: How Families Benefit

Understanding theoretical advantages is one thing, but seeing practical applications makes the benefits clear. Here are three common scenarios where Hong Kong’s tax framework provides significant advantages:

The Foreign Executive Scenario

Consider a senior executive from the UK who relocates to Hong Kong for a 5-year assignment. They retain UK domicile but now reside in Hong Kong. Their situation:

• Hong Kong employment income: Subject to Hong Kong Salaries Tax (progressive rates up to 17% or standard rate of 15-16%)
• UK rental property income: Not subject to Hong Kong tax (foreign-sourced)
• Global investment portfolio: Capital gains and dividends generally not taxed in Hong Kong
• Hong Kong property purchase: Subject to stamp duty but no inheritance tax on transfer to heirs

Navigating International Compliance Requirements

While Hong Kong offers significant tax advantages, international families must navigate complex compliance requirements. The global tax transparency environment has changed dramatically in recent years.

Key Compliance Considerations

Practical Steps for Effective Wealth Preservation

To effectively leverage Hong Kong’s tax advantages for inheritance planning, consider these practical steps:

1. Conduct a Global Asset Review: Map all assets by jurisdiction, type, and current ownership structure
2. Analyze Domicile Status: Understand how other jurisdictions view your domicile for inheritance tax purposes
3. Consider Hong Kong Structures: Evaluate whether Hong Kong holding companies, trusts, or FIHVs could benefit your situation
4. Review Estate Planning Documents: Ensure wills, trusts, and beneficiary designations align with your overall strategy
5. Plan for Compliance: Address CRS, FATCA, and other reporting requirements proactively
6. Regular Reviews: Conduct annual reviews of your structure as laws and personal circumstances change

Emerging Trends and Future Considerations

The international tax landscape continues to evolve, and Hong Kong is adapting to global standards while maintaining its competitive advantages:

• Global Minimum Tax (Pillar Two): Effective January 2025, applies to multinational groups with €750M+ revenue
• FSIE Expansion: Expanded in January 2024 to cover more types of foreign-sourced income
• Family Office Development: Hong Kong actively promotes family office establishment with favorable regimes like FIHV
• Increased Transparency: Continued implementation of international standards while protecting legitimate privacy

Hong Kong’s unique combination of territorial taxation and no inheritance tax creates powerful opportunities for internationally mobile individuals and families. While the term “non-domiciled” doesn’t exist in Hong Kong law, the practical effect for those with global assets can be similar to traditional non-dom regimes. By understanding Hong Kong’s source-based system, leveraging appropriate structures, and maintaining compliance with evolving international standards, families can effectively preserve wealth across generations. As global tax transparency increases, the importance of proper planning and professional advice has never been greater.