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.
Tax year and payment dates
Domicile and residence
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.
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
Taxes on the gains and income of foreign nationals
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.
Inheritance tax and lifetime gifts
Taxes on buying real estate and other assets
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.
Hong Kong does not have a wealth tax.
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
International tax treaties
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
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.
Validity of foreign wills and foreign grants of probate
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;
Death of foreign nationals
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
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.
The estate initially vests to the personal representative responsible for administering the estate.
Establishing title and gathering in assets (including any particular considerations for non-resident executors)?
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.
Forced heirship regimes
Real estate or other assets owned by foreign nationals
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.
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.
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:
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.
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.
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?
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.
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
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.
"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 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 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.
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 partnerships are not recognised in Hong Kong.
Capacity and power of attorney
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
Department of Justice Bilingual Laws Information System
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.