Private client law in Hong Kong: overview

A Q&A guide to private client law in Hong Kong. The Q&A gives a high level overview of tax; tax residence; inheritance tax; buying property; wills and estate management; succession regimes; intestacy; trusts; co-ownership; familial relationships; minority and capacity, and proposals for reform.

To compare answers across multiple jurisdictions, visit the Private client Country Q&A tool.

The Q&A is part of the multi-jurisdictional guide to private client law. For a full list of jurisdictional Q&As visit www.practicallaw.com/privateclient-mjg.

Patrick Hamlin, Mary Ellen Hutton and Philip Munro, Withers
Contents

Taxation

Tax year and payment dates

1. When does the official tax year start and finish in your jurisdiction and what are the tax payment dates/deadlines?

The tax year runs from 1 April to the following 31 March. Paper tax returns are issued annually by the Inland Revenue Department, and should be filed within one month of the date of issue. On the filing of completed tax returns, formal tax assessments are issued.

 

Domicile and residence

2. What concepts determine tax liability in your jurisdiction (for example, domicile and residence)? In what context(s) are they relevant and how do they impact on a taxpayer?

Domicile

Domicile affects:

  • The succession of an intestate's movable properties.

  • The personal capacity of a person to make a will.

  • The validity of a will.

Domicile does not affect an individual's tax status or liability to tax in Hong Kong.

Residence

Generally, the residence of an individual also does not affect a person's tax status or liability to tax in Hong Kong because of its territorial system of tax, except in the context of seeking relief under an applicable comprehensive double tax agreement.

Hong Kong has a scheduler system of taxation, and an individual can be subject to:

  • Salaries tax if he has Hong Kong-source employment income.

  • Profits tax if he carries on trade or business and derives Hong Kong-source profits.

  • Property tax if he derives rental income from properties in Hong Kong.

If a person earns income under one of these heads, he is liable to Hong Kong tax, regardless of whether he lives in or outside Hong Kong.

 

Taxation on exit

3. Does your jurisdiction impose any tax when a person leaves (for example, an exit tax)? Are there any other consequences of leaving (particularly with regard to individuals domiciled in your jurisdiction)?

Hong Kong does not impose exit tax on individuals. There is an obligation to obtain tax clearance and to settle salaries tax liability before leaving Hong Kong.

 

Temporary residents

4. Does your jurisdiction have any particular tax rules affecting temporary residents?

The general rule is that an individual is not liable to salaries tax in Hong Kong if he is in Hong Kong for 60 days or less in a tax year. This rule may apply to employment income, but not to directors' fees.

 

Taxes on the gains and income of foreign nationals

5. How are gains on real estate or other assets owned by a foreign national taxed? What are the relevant tax rates?

Hong Kong does not tax capital gains. There is also no distinction in the tax system between a local person and a foreign national if the foreign national is resident for more than 60 days during the tax year in Hong Kong. Where a trading gain is realised on the disposal of Hong Kong property (that is, the property is not held as a long-term investment) it is subject to profits tax, irrespective of the taxpayer's nationality.

 
6. How is income received by a foreign national taxed? Is there a withholding tax? What are the income tax rates?

Foreign nationals are taxed in the same manner and at the same rates as a local person. Unincorporated businesses are taxed at 15%. Income from employment is taxed at the marginal rate of 2% to 17%, or the standard rate of 15% (whichever is lower).

 

Inheritance tax and lifetime gifts

7. What is the basis of the inheritance tax or gift tax regime (or alternative regime if relevant)?

Hong Kong has abolished estate duty for deaths occurring on or after 11 February 2006. Hong Kong has no gift tax.

 
8. What are the inheritance tax or gift tax rates (or alternative rates if relevant)?

Tax rates

Not applicable (see Question 7).

Tax free allowance

Not applicable (see Question 7).

Techniques to reduce liability

Not applicable (see Question 7).

 
9. Does the inheritance tax or gift tax regime apply to foreign owners of real estate and other assets?

Hong Kong has abolished estate duty for deaths occurring on or after 11 February 2006. Hong Kong has no gift tax.

 
10. Are there any other taxes on death or on lifetime gifts?

Hong Kong levies stamp duty on dispositions of assets, including Hong Kong stock and Hong Kong real estate.

 

Taxes on buying real estate and other assets

11. Are there any other taxes that a foreign national must consider when buying real estate and other assets in your jurisdiction?

Purchase and gift taxes

There is no distinction between a foreign national and a local person. In both cases, gains derived from the sale of Hong Kong property are subject to profits tax if a person was holding the property as a trading asset, as opposed to holding for long-term investment. The onus is on the taxpayer to prove that the property was held for long-term investment. The currently applicable profits tax rate for individuals is 15%.

In addition, Hong Kong imposes significant additional special stamp duty on certain real estate transactions involving residential properties.

Wealth taxes

Hong Kong does not have a wealth tax.

 
12. What tax-advantageous real estate holding structures are available in your jurisdiction for non-resident individuals?

For property of significant value, it is common to hold the property through a special purpose corporate vehicle. Disposal can then be made by way of a sale of shares of the company. This minimises Hong Kong stamp duty. Further, if the owner of the non-Hong Kong company is located outside Hong Kong and the purchase and sale of the company are negotiated and concluded entirely outside Hong Kong, any profits from the sale are not subject to Hong Kong profits tax, as they would not be Hong Kong-source profits.

 

Taxes on overseas real estate and other assets

13. How are residents in your jurisdiction with real estate or other assets overseas taxed?

As Hong Kong has source-based taxation and no taxation on capital gains, Hong Kong taxpayers are generally not liable to tax in Hong Kong on income from overseas real estate or other assets.

 

International tax treaties

14. Is your jurisdiction a party to many double tax treaties with other jurisdictions?

Historically, Hong Kong was not able to enter into full OECD model treaties because it lacked a statutory basis on which to collect information in relation to non-Hong Kong tax reporting matters. This position changed on 12 March 2010. Hong Kong has how concluded over 20 comprehensive double tax treaties.

 

Wills and estate administration

Governing law and formalities

15. Is it essential for an owner of assets in your jurisdiction to make a will in your jurisdiction? Does the will have to be governed by the laws of your jurisdiction?

It is advisable to avoid an intestacy. A will governed by the laws of a foreign jurisdiction can apply to assets located in Hong Kong.

 
16. What are the formalities for making a will in your jurisdiction? Do they vary depending on the nationality, residence and/or domicile of the testator?

The formalities for making a will in Hong Kong are as follows:

  • The will is in writing.

  • The will is signed by the testator, or by another person in the presence of the testator and at the testator's direction.

  • The signature must be made or acknowledged by the testator in the presence of two or more witnesses present at the same time.

  • Each witness must attest and sign the will in the presence of the testator.

An attestation clause is not a formal requirement under the law in Hong Kong. Nonetheless, an attestation clause which states the proper formalities have been complied with will give rise to a presumption of due execution.

The definition of a will includes any testamentary instrument.

 

Redirecting entitlements

17. What rules apply if beneficiaries redirect their entitlements?

There are no special statutory rules in Hong Kong in relation to post-death variations but both variations and disclaimers can be effected.

 

Validity of foreign wills and foreign grants of probate

18. To what extent are wills made in another jurisdiction recognised as valid/enforced in your jurisdiction? Does your jurisdiction recognise a foreign grant of probate (or its equivalent) or are further formalities required?

Validity of foreign wills

A will is treated as formally valid and properly executed if its execution conforms to either:

  • The laws in force in the territory where it was executed.

  • The laws of the territory where, at the time of its execution or of the testator's death, the testator was domiciled or had his habitual residence.

Validity of foreign grants of probate

Generally, a Hong Kong grant is required to administer property owned by the deceased situated in Hong Kong. The Hong Kong court issues a grant of probate to the person entitled to administer the deceased's estate by the court with jurisdiction in the place where the deceased lived. Alternatively, a grant of representation is issued to the person entitled to administer the estate in the country of the deceased's domicile where either:

  • A grant application has not been made in that jurisdiction.

  • The court in that country does not appoint personal representatives recognised under Hong Kong law.

  • If the deceased died domiciled in any of the following countries, and a grant has been obtained in that country, an application can be made for that grant to be resealed, so that it can be used to administer the estate in Hong Kong:

    • the states of Tasmania, Victoria and South Australia and the Northern Territory of Australia;

    • New Zealand;

    • Singapore;

    • Sri Lanka;

    • the UK.

 

Death of foreign nationals

19. Are there any relevant practical estate administration issues if foreign nationals die in your jurisdiction?

The applicant for a grant of representation of this type often resides overseas. The Hong Kong court may, in some instances, require the applicant to provide a guarantee (usually in the form of insurance) as a condition to issuing a grant. If the deceased was not domiciled in Hong Kong at the time of death and did not leave a will, legal advice should be sought in relation to the succession laws of the place of the deceased's domicile.

 

Administering the estate

20. Who is responsible for administering the estate and in whom does it initially vest?

Responsibility for administering

Executors and administrators (collectively the personal representatives) are responsible for administration of the deceased's estate. Executors are appointed by will and administrators derive their entitlement to administer the estate from the intestacy rules.

The deceased's estate vests initially in the personal representatives, who then distribute the estate to the heirs. The powers and responsibilities of a personal representative include:

  • Ascertaining and gathering in the assets of the deceased.

  • Obtaining a grant of representation.

  • Ascertaining and paying off the deceased's debts.

  • Distributing the remaining assets to the beneficiaries entitled under the will or on intestacy.

Vesting

The estate initially vests to the personal representative responsible for administering the estate.

 
21. What is the procedure on death in your jurisdiction for tax and other purposes in relation to:
  • Establishing title and gathering in assets (including any particular considerations for non-resident executors)?

  • Paying taxes?

  • Distributing?

Establishing title and gathering in assets

A grant of representation is usually required to establish title to the deceased's estate. Certain assets, such as those under joint ownership, cannot pass under a will or laws of intestacy on death. To gather in and sell the deceased's assets, the personal representatives must produce the grant of representation to the persons, institutes or companies in which assets were held by the deceased.

Procedure for paying taxes

Estate duty was abolished in Hong Kong in 2006. The estate of a person who passes away after 2006 is not subject to estate duty in Hong Kong.

For other taxes and tax administration obligations, the personal representative must handle the tax affairs of the deceased. Generally, the more cumbersome aspect is dealing with property tax where the deceased had an interest in a property earning rental income.

Distributing the estate

The personal representative of a grant of representation may prefer not to distribute the estate within six months of the grant of representation. This is because claims can be brought against the deceased's estate during this period of time.

 
22. Are there any time limits/restrictions/valuation issues that are particularly relevant to an estate with an element in another jurisdiction?

There are no time limits or particular valuation issues in respect of an estate with an element in another jurisdiction.

 
23. Is it possible for a beneficiary to challenge a will/the executors/the administrators?

There are various grounds on which a challenge could be made (for example, lack of knowledge and approval, fraud, and so on). Any person with a potential interest in the estate can challenge the validity of the will. A claim should be filed with the High Court of Hong Kong.

 

Succession regimes

24. What is the succession regime in your jurisdiction (for example, is there a forced heirship regime)?

Subject to the Inheritance (Provision for Family and Dependants) Ordinance, there is full testamentary freedom in Hong Kong. There is no forced heirship regime.

 

Forced heirship regimes

25. What are the main characteristics of the forced heirship regime, if any, in your jurisdiction?

Avoiding the regime

There is no forced heirship regime in Hong Kong (see Question 24).

Assets received by beneficiaries in other jurisdictions

There is no forced heirship regime in Hong Kong (see Question 24).

Mandatory or variable

There is no forced heirship regime in Hong Kong (see Question 24).

 

Real estate or other assets owned by foreign nationals

26. Are real estate or other assets owned by a foreign national subject to your succession laws or the laws of the foreign national's original country?

If an individual domiciled in a foreign country dies owning immovable property in Hong Kong, the laws of Hong Kong govern their succession. The laws of the individual's domicile generally govern the succession of his movable assets.

 
27. Do your courts apply the doctrine of renvoi in relation to succession to immovable property?

Where foreign law governs succession because of choice of law provisions, the Hong Kong court must decide whether to apply the applicable domestic law of the foreign country or to apply the whole law of the foreign country, including conflict of law rules. Where the latter option is adopted, the foreign country's rules on conflict of law may lead to the matter being referred back to Hong Kong. The Hong Kong court will then have to decide whether to accept the renvoi and apply its own internal law, or to deal with the case in another way.

 

Intestacy

28. What different succession rules, if any, apply to the intestate?

The succession rules on intestacy in Hong Kong are as follows:

  • If the intestate leaves a spouse without issue, parent, brother or sister, then the spouse receives the entire estate.

  • If the intestate leaves a spouse and issue, then the other relatives are immaterial. The spouse receives all personal chattels of the intestate, takes HK$500, and half of the remainder. The other half of the remainder will be held on statutory trust for the issue.

  • If the intestate leaves a spouse but no issue, then the spouse receives all personal chattels of the intestate, takes HK$1 million and half of the remainder. As to the other half of the remainder:

    • if there is any parent, then the parent(s) receive(s) the other half of the remainder;

    • if there is no parent, the other half of the remainder will be held on statutory trust for the brothers or sisters of the whole blood of the intestate.

  • If the intestate leaves an issue but no spouse, then the entire estate will be held on statutory trust for the issue.

  • If the intestate leaves parent(s), but no spouse and issue, then the parent(s) receive(s) the entire estate.

  • If the intestate leaves no spouse, issue or parent, then the entire estate will be distributed in the following order and manner:

    • first, the entire estate will be held on statutory trust for the brothers and sisters of the whole blood of the intestate;

    • second, the entire estate will be held on statutory trust for the brothers and sisters of the half blood of the intestate;

    • third, the grandparent(s) of the intestate receive(s) the entire estate;

    • fourth, the entire estate will be held on statutory trust for the uncles and aunts who are brothers or sisters of the whole blood of a parent of the intestate;

    • fifth, the entire estate will be held on statutory trust for the uncles and aunts who are brothers or sisters of the half blood of a parent of the intestate.

  • If the intestate leaves no spouse, issue, parent, brother, sister, uncle or aunt, then the entire estate belongs to the government as bona vacantia.

 
29. Is it possible for beneficiaries to challenge the adequacy of their provision under the intestacy rules?

The following persons, among others, can apply to the court for an order on the grounds that the disposition of the deceased's estate affected by the intestacy laws does not make reasonable financial provision for them (Inheritance (Provision for Family and Dependants) Ordinance):

  • The deceased's spouse.

  • The deceased's former spouse who has not remarried and who was being maintained by the deceased.

  • An infant child of the deceased.

  • An adult child of the deceased who was being maintained by the deceased.

The court has the power to make a wide range of orders, including an order for:

  • Periodical payments.

  • Payment of a lump sum.

  • Transfer of property to the applicant.

However, an application cannot be made after six months from the date on which representation relating to the estate of the deceased was first taken out, except with the court's permission.

 

Trusts

30. Are trusts (or an alternative structure) recognised in your jurisdiction?

Type of trust and taxation

Trusts are recognised in Hong Kong. Under Hong Kong tax law, every person is liable to tax on his profits from carrying on trade or business in Hong Kong. A person is defined in the Inland Revenue Ordinance to include a trustee and so trustees in are within the scope of Hong Kong tax in relation to certain types of income.

Residence of trusts

Hong Kong taxes generally do not depend on the residence of the taxpayer, that is, Hong Kong and non-Hong Kong trusts are taxed in the same manner if they carry on business in Hong Kong and derive Hong Kong-source profits. However, there is a specific tax exemption, generally referred to as the offshore funds exemption, which can apply to exclude non-resident trusts from Hong Kong tax, even when the fund manager is in Hong Kong.

 
31. Does your jurisdiction recognise trusts that are governed by another jurisdiction's laws and are created for foreign persons?

Hong Kong can recognise trusts that are governed by another jurisdiction's laws. Hong Kong is a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition 1985.

 
32. What are the tax consequences of trustees (for example, of an English trust) becoming resident in/leaving your jurisdiction?

There is no specific exit tax regime.

 
33. If your jurisdiction has its own trust law:
  • Does the law provide specifically for the creation of non-charitable purpose trusts?

  • Does the law restrict the perpetuity period within which gifts in trusts must vest, or the period during which income may be accumulated?

  • Can the trust document restrict the beneficiaries' rights to information about the trust?

Purpose trusts

Hong Kong law does not allow for the creation of non-charitable purpose trusts.

Perpetuities and accumulations

Hong Kong has a rule against perpetuities and a rule against accumulation of income.

Beneficiaries' rights to information

Hong Kong follows the common law line of cases on the development of beneficiaries' rights to information.

 
34. Does the law in your jurisdiction recognise claims against trust assets by the spouse/civil partner of a settlor or beneficiary on the dissolution of the marriage/partnership?

Trusts can be relevant in Hong Kong matrimonial relief proceedings. The Hong Kong court has power to set aside dispositions, can vary "nuptial" trusts and can treat trusts as a resource of a divorcing spouse.

 
35. To what extent does the law of your jurisdiction allow trusts to be used to shelter assets from the creditors of a settlor or beneficiary?

Where assets are transferred into a trust at an undervalue (or in consideration of marriage) in either of the following circumstances, the transfer can be disregarded by a court in the settlor's bankruptcy proceedings in favour of the settlor's creditors:

  • Within two years before bankruptcy.

  • Less than five years but more than two years before bankruptcy, at a time when the settlor was insolvent, or if he became insolvent as a result of the transfer.

Otherwise, the creditors of a settlor cannot generally set aside transfers of assets by a settlor into a trust.

 

Ownership and familial relationships

Co-ownership

36. What are the laws regarding co-ownership and how do they impact on taxes, succession and estate administration?

Hong Kong recognises joint tenancies and tenancies in common.

With joint tenancies, the rule of survivorship applies so that on the death of a joint tenant, his interest in the property automatically passes to the survivor or survivors, and the property is not covered by his will or the laws of intestacy.

With tenancies in common, two or more individuals each own a separate and fixed share in a property. On the death of a tenant in common, his share of the property passes according to his will or the laws of intestacy.

 

Familial relationships

37. What matrimonial regimes in trust or succession law exist in your jurisdiction? Are the rights of cohabitees/civil partners in real estate or other assets protected by law?

In Hong Kong, there are presently no laws governing the rights per se of cohabitees or civil partners in the succession of real estate or other assets.

 
38. Is there a form of recognised relationship for same-sex couples and how are they treated for tax and succession purposes?

Same-sex couple relationships are not recognised and they are therefore excluded from any distinct treatment for tax or succession purposes.

 
39. How are the following terms defined in law:
  • Married?

  • Divorced?

  • Adopted?

  • Legitimate?

  • Civil partnership?

Married

"Marriages" include those entered into in Hong Kong under the Marriage Ordinance (Cap 181), which means the voluntary union for life of one man with one woman, and that a rite of marriage recognised by law has been performed in accordance with law. Furthermore, under the Matrimonial Causes Ordinance (Cap 179) and the Married Persons Status Ordinance (Cap 182), a monogamous marriage contracted outside Hong Kong in accordance with law will also be recognised as a legal marriage. Any person who is a party to the above type of marriage is considered married.

Under section 2(2) of the Married Persons Status Ordinance, "marriage" means:

  • A marriage celebrated or contracted in accordance with the provisions of the Marriage Ordinance.

  • A modern marriage validated by the Marriage Reform Ordinance (Cap 178).

  • A customary marriage declared to be valid by the Marriage Reform Ordinance.

  • A marriage celebrated or contracted outside Hong Kong in accordance with the law in force at the time and in the place where the marriage was performed.

Divorced

Divorced means anyone who has filed a petition for divorce in the Hong Kong courts under the Matrimonial Causes Ordinance, and where there is a conclusion of the proceedings and a divorce certificate granted by the court (pronouncement of a decree absolute).

Adopted

Adopted means anyone who has been adopted by a single applicant or applicants who apply jointly as two spouses through the Hong Kong courts under the Adoption Ordinance (Cap 290) so that the person stands to the applicant(s) in the same relation as to a lawful father and mother, and that the spouses, or the adopter and the spouse, as the case may be, stand to each other and to the infant in the same relation as they would have stood if the infant had been born to them in lawful wedlock.

Legitimate

In broad terms, a child is legitimate if his parents were validly married to one another either when he was born or when he was conceived under the Legitimacy Ordinance. Children can be made legitimate by the subsequent marriage of their parents.

Civil partnership

Civil partnerships are not recognised in Hong Kong.

 

Minority

40. What rules apply during the period when an heir is a minor? Can a minor own assets and who can deal with those assets on the minor's behalf?

The age of majority in Hong Kong is 18 years.

On the intestacy of the deceased, a minor's interest is held on statutory trust until he reaches 18 years of age.

 

Capacity and power of attorney

41. What procedures apply when a person loses capacity? Does your jurisdiction recognise powers of attorney (or their equivalent) made under the law of other jurisdictions?

The Hong Kong court has powers over a mentally incapacitated person's property and affairs under the Mental Health Ordinance.

Hong Kong allows for a person to appoint an attorney to deal with his property and financial affairs through an "enduring power of attorney". The legal requirements under the Enduring Powers of Attorney Ordinance must be strictly observed. An enduring power of attorney survives the mental incapacity of the person. An attorney appointed under an enduring power of attorney does not have binding authority to take decisions on medical care or personal welfare.

The Enduring Powers of Attorney Ordinance currently does not provide for the recognition of enduring powers of attorney executed outside Hong Kong, even if the execution requirements in the Ordinance have been met.

 

Proposals for reform

42. Are there any proposals to reform private client law in your jurisdiction?

It is proposed that the Trustee Ordinance be substantially revised. The proposed changes include the abolition of the rule against perpetuities for new trusts and (otherwise than in relation to charitable rules) the abolition of the rule against excessive accumulations of income.

 

Online resources

Department of Justice Bilingual Laws Information System

W www.legislation.gov.hk/eng/index.htm

This website is an electronic database of the legislation of Hong Kong. It is established and updated by the Department of Justice. The text of the legislation is up to date, except individual provisions that have a pencil mark before their headings.


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