Hong Kong trusts and U.S. reporting rules

Trust legislation and its organization

Trust companies may register under Part VIII of the Trustee Ordinance. Registration under Part VIII is linked to a conditional exemption for specified securities activities undertaken as an agent for a collective investment scheme.^[1]

A separate legislative framework governs securities-related business. The SFC explains that Schedule 5 to the Securities and Futures Ordinance defines 13 categories of regulated activity, while its trust-company guidance addresses circumstances in which particular activities require a licence or fall within an exemption.^[1]

Trust arrangements and trustee roles

A trustee company administering a discretionary trust may appoint an appropriate portfolio manager or follow professional advice when performing its trustee duties.^[1]

A family office may sit inside a trustee's organization to manage the property of a family trust. The SFC states that this internal single-family arrangement does not require an asset-management licence because it does not provide asset-management services to a third party.^[1]

A depositary licensed or registered for Type 13 activity may also undertake other business, including trusteeship of family trusts or private investment funds. That other business is subject to requirements for internal controls and management of actual or potential conflicts of interest.^[1]

Regulation and licensing categories

The SFC applies an activity-based licensing framework to the securities services it describes. For family offices, the relevant questions include whether the services constitute regulated activity and whether an available exemption applies.^[1]

Type 9 covers management of real-estate investment schemes or securities and futures contracts. The SFC generally expects a corporation seeking this licence to have properly delegated discretion to make investment decisions for clients.^[1]

• A trust company's investment advice or management services may fall within the exemption for Types 4, 5, 6 and 9 when wholly incidental to its trustee duties.^[1]
• If portfolio management becomes a separate business of the trustee company, the SFC says reliance on that exemption is unlikely and a Type 9 licence would be required.^[1]
• Type 13 generally applies to the depositary at the top of the custody chain for an SFC-authorised collective investment scheme, subject to the specified retirement-fund exceptions.^[1]

Relevant staff of registered institutions have a separate register requirement. The SFC explains that individuals performing regulated functions for those institutions need their names entered in the Hong Kong Monetary Authority's register, although they do not require individual SFC licensing or registration.^[1]

Hong Kong profits tax

Trustees are expressly included among the persons within Hong Kong's profits-tax charge. The Inland Revenue Department describes the charge as applying to persons carrying on a trade, profession or business in Hong Kong and to profits arising in or derived from Hong Kong from that activity.^[3]

The charge excludes profits from sales of capital assets. The department also says that the charge makes no distinction between residents and non-residents, so residence alone does not determine whether Hong Kong business profits fall within it.^[3]

Assessable profits are calculated under Part IV of the Inland Revenue Ordinance using the relevant net profits or adjusted loss for the basis period. The department describes an annual assessment process in which provisional profits tax is credited against the liability established when assessable profits are determined.^[3]

Financial account reporting and information exchange

Hong Kong's automatic exchange framework requires financial institutions to identify reportable accounts through due diligence. Reportable accounts include accounts held by tax residents of reportable jurisdictions and accounts held by passive non-financial entities whose controlling persons are tax residents of those jurisdictions.^[4]

Required account information is collected and provided to the department annually. Account holders may be asked for self-certifications containing personal information and tax residence so that institutions can identify reportable accounts.^[4]

For Common Reporting Standard purposes, tax residence means liability to tax by reason of residence in a jurisdiction. Tax residence generally turns on physical presence for individuals and on incorporation or central management and control for companies.^[4]

Hong Kong conducts automatic exchange with a reportable jurisdiction only when an arrangement supplies the basis for that exchange. Separately, the U.S. Treasury's FATCA table lists Hong Kong's agreement as in force under Model 2.^[4][6]

U.S. foreign trust tax and reporting

A U.S. citizen falls within the IRS definition of a U.S. person. The IRS explains that creating a foreign trust or undertaking transactions with one can produce both income-tax consequences and information-reporting obligations.^[8]

The Form 3520 instructions define a domestic trust through two conditions involving U.S. judicial supervision of administration and U.S.-person control of all substantial decisions. A trust outside that domestic definition is classified as foreign for these purposes.^[9]

A U.S. person treated as the owner under the grantor-trust rules is generally taxed on the trust's income. A U.S. beneficiary receiving a distribution from a foreign nongrantor trust generally reports the beneficiary's share of distributable net income, with beneficiary statements supplying information about the distribution's tax treatment.^[8]

• Form 3520 generally reports trust creation, transfers, loans, distributions, uncompensated use of trust property and U.S. ownership under the grantor-trust rules, subject to the applicable filing provisions and exceptions.^[8]
• Form 3520-A supplies annual information for a foreign trust with a U.S. owner. The IRS places responsibility on the U.S. owner to ensure a complete, accurate filing and delivery of required statements to U.S. owners and beneficiaries.^[8]
• When the foreign trust does not file Form 3520-A, the U.S. owner is required to prepare a substitute and attach it to a timely Form 3520.^[8]
• Form 8938 may apply when the total value of specified foreign financial assets in which the person has an interest exceeds the relevant reporting thresholds.^[8]
• FBAR reporting may apply to a financial interest in, or signature authority over, a foreign financial account. The IRS includes bank accounts, brokerage accounts, mutual funds and trusts in its description of potentially relevant accounts.^[8]

The IRS describes conditional exceptions from Forms 3520 and 3520-A for certain foreign arrangements providing retirement, medical, disability or educational benefits. Those exceptions do not remove any applicable Form 8938, FBAR or other reporting obligations.^[8]

Court structure

The Court of Final Appeal occupies the highest appellate level in Hong Kong's court structure. The High Court comprises the Court of Appeal and the Court of First Instance.^[5]

Each court maintains its own registry to handle document filing and administrative support for judges and judicial officers.^[5]

Hong Kong trust legislation

Principal trust statute

The Trustee Ordinance (Cap. 29) governs private benefit family trusts in Hong Kong.^[10]

The Ordinance sets out general principles of trust law, including trustee duties and responsibilities, beneficiary rights, and how trusts can be created and terminated.^[10]

Trust duration

Noncharitable trusts under Hong Kong law no longer require a perpetuities period or an accumulation period.^[10]

A trust can therefore last indefinitely.^[10]

Trustee business licensing

A trust or company service provider licence is required under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) for businesses carrying on trust or company service business in Hong Kong, subject to exemptions.^[11]

The listed services include acting, or arranging for another person to act, as trustee of an express trust in Hong Kong.^[12]

Hong Kong private benefit trusts

Private benefit family trusts

A trust is a legal arrangement in which a settlor transfers assets to a trustee to hold and manage for one or more beneficiaries.^[10]

More on Hong Kong

Questions and answers

Related resources

Related glossary terms

• Signature authority over an account: The FBAR rules define signature authority by the power to direct disposition of account funds through direct communication with the financial institution.
• Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
• Foreign financial account: Form 8938 treats an account outside the United States as a specified foreign financial asset. FBAR rules identify reportable accounts by type and location.

Related articles and guides

• Malta reporting frameworks and U.S. trust forms: Malta's rules on financial account information exchange and trust registration, with the IRS reporting framework for U.S. citizens with foreign trusts.
• Liechtenstein reporting and U.S. trust forms: Liechtenstein's FATCA information and trustee supervision, with the IRS reporting rules that apply to U.S. citizens who own a foreign trust in Liechtenstein.
• Switzerland reporting and foreign trust rules: Switzerland exchanges account information under AEOI and FATCA arrangements, with Swiss trustee rules and IRS reporting for foreign trusts set out alongside.

Tools and official documents

• FinCEN Report 114 (FBAR): foreign account reporting: FinCEN Report 114 (FBAR) for U.S. citizens: account definitions, financial interests, signature authority, trust provisions and the filing requirements it sets.