SG Trust vs. HK Trust: A Comparison of Private Benefit Family Trusts

Imagine a world where your assets are protected, your taxes are minimized, and your family’s future is secure. This is the world of private benefit family trusts.

A trust is a legal arrangement in which one-person (the settlor) transfers assets to another person (the trustee) to hold and manage for the benefit of one or more beneficiaries. A private benefit family trust is specifically created for the benefit of specific individuals or entities, such as family members, friends, or charities.

Trusts are a powerful tool for asset planning and wealth management. They can be used to protect assets from creditors and lawsuits, to reduce tax liability, and to ensure that assets are distributed to loved ones according to the settlor’s wishes.

Hong Kong and Singapore are two of the most popular jurisdictions for establishing private benefit family trusts. Both jurisdictions offer a number of advantages to HNWIs, including favorable tax treatment, flexible trust laws, and a strong track record of enforcing trusts.

But what are the key differences between SG trusts and HK trusts? And which jurisdiction is the right choice for you?

In this article, we will compare and contrast Singapore and Hong Kong trusts to help you decide which jurisdiction best fits your needs.

A. How Trust is a Great Way for Asset Planning and Wealth Management

Trusts offer a number of advantages for asset planning and wealth management, including:

• Asset protection: Trusts can be used to protect assets from creditors, lawsuits, and other claims.
• Tax planning: Trusts can be used to reduce tax liability, both during the settlor’s lifetime and after death.
• Succession planning: Trusts can be used to ensure that assets are distributed to loved ones according to the settlor’s wishes.
• Privacy: Trusts can be used to keep financial information private.

Trusts can be a complex legal structure, but they can be a valuable tool for HNWIs looking to protect their assets, minimize their taxes, and ensure that their wealth is passed on to their loved ones per their wishes.

B. SG Trusts vs. HK Trusts: A Comprehensive Comparison

Singapore (SG) and Hong Kong (HK) are two of the most popular common law jurisdictions for setting up trusts. Both jurisdictions offer a variety of trusts for private benefit and family purposes. Still, they have different legal frameworks, tax regimes, and practical considerations that affect the choice of trust jurisdiction. The following tables will provide an overview of each trust for easier comparison.

Table 1 Formation, Administration, Termination and Duration

C. Tax Advantages, Treaties and rules and regulations that GOVERN trusts in Hongkong and Singapore

1. Tax Advantages of Singapore and Hong Kong Trusts

Singapore (SG) and Hong Kong (HK) offer a number of tax advantages for trusts. SG trusts are only subject to income tax at a flat rate of 17% on net income. In contrast, HK trusts are not subject to income tax unless they carry on a trade or business in Hong Kong, including no capital gains tax and no estate duty if the settlor (the person who creates the trust) is not domiciled in the respective jurisdiction at the time of their death. Moreover, both jurisdictions offer a number of tax advantages, including:

No capital gains tax: Both Singapore and Hong Kong Trusts are not subject to capital gains tax. This means that any profits made from the sale of assets held by a trust will not be taxed.

No estate duty: Trusts in both Singapore and Hong Kong are not subject to estate duty, provided that the settlor (the person who creates the trust) is not domiciled in the respective jurisdiction at the time of their death. This means that the assets held by a trust will not be taxed on the settlor’s death.

In addition to these general tax advantages, there are a number of other specific tax benefits that may be available for trusts in Singapore and Hong Kong, depending on the specific circumstances. For example, in Singapore, trusts may be eligible for a partial exemption on foreign-sourced income and a full exemption on dividends from Singapore companies. In Hong Kong, trusts may be eligible for a full exemption on foreign-sourced income and a partial exemption on dividends from Hong Kong companies.

The overall tax attractiveness of Singapore and Hong Kong for trusts is further enhanced by the fact that both jurisdictions have well-developed legal systems and a strong track record of political stability. This makes them attractive destinations for establishing trusts, particularly for high-net-worth individuals and families.

Here are some specific examples of how the tax systems in Singapore and Hong Kong can be beneficial for trusts:

• A Singapore trust could be used to hold investments in foreign assets, such as stocks and bonds. The trust would not be subject to Singapore capital gains tax on any profits made from the sale of these assets.
• A Hong Kong trust could be used to hold real estate in Hong Kong. The trust would not be subject to Hong Kong estate duty on the value of the real estate on the settlor’s death.
• A Singapore trust could be used to distribute income to beneficiaries who are resident in different countries. The tax treaties that Singapore has in place with other countries could help to reduce or eliminate double taxation on the income distributed to the beneficiaries.

Table 2 Tax Advantages of Trusts in Hongkong and Singapore

It is important to note that the specific tax implications of a trust will depend on the specific circumstances of the trust, including the domicile of the settlor and the beneficiaries of the trust, the type of trust, and the assets held in the trust. It is always advisable to consult with a qualified tax advisor to discuss the specific tax implications of setting up a trust.

2. Tax Treaties

there are a number of tax treaties that govern the set-up of private-benefit trusts. Some of the most common tax treaties that govern private-benefit trusts include the United States Model Income Tax Convention (US Model Convention), the Organization for Economic Co-operation and Development (OECD) Model Tax Convention, and the United Nations Model Tax Convention. These are all comprehensive treaties that avoid double taxation on income and capital gains between two countries. These treaties are based on the principle that income should be taxed only once in the country where it is sourced.

Moreover, the treaties also contain several provisions relevant to private benefit family trusts in Hong Kong and Singapore. These provisions include:

Place of taxation of income: The treaties generally provide that income from trusts is taxable in the country where the settlor (the person who created the trust) is domiciled. However, there are a number of exceptions to this rule, such as where the trust has a permanent establishment in another country.

Exchange of information: The treaties provide for the exchange of information between the tax authorities of the two countries. This information can be used to investigate and prevent tax evasion.

Mutual agreement procedure: The treaties provide for a mutual agreement procedure that can be used to resolve any disputes that arise between the tax authorities of the two countries.

The specific provisions of the treaties that apply to private benefit family trusts in Hong Kong and Singapore will depend on the specific circumstances of the trust, such as the domicile of the settlor and the beneficiaries of the trust, the type of trust, and the assets held in the trust.

Here are some specific examples of how the tax treaties may apply to private benefit family trusts in Hong Kong and Singapore:

• A Singapore trust with a Singapore settlor and Singapore beneficiaries would generally be taxed only in Singapore.
• A Hong Kong trust with a Hong Kong settlor and Hong Kong beneficiaries would generally be taxed only in Hong Kong.
• A Singapore trust with a Singapore settlor and Hong Kong beneficiary may be taxed in both Singapore and Hong Kong, depending on the specific provisions of the Singapore-Hong Kong tax treaty.
• A Hong Kong trust with a Hong Kong settlor and Singapore beneficiaries may be taxed in both Hong Kong and Singapore, depending on the specific provisions of the Hong Kong-Singapore tax treaty.

It is important to note that the tax implications of a private benefit family trust will depend on the specific circumstances of the trust. It is always advisable to consult with a qualified tax advisor to discuss the specific tax implications of setting up and operating a private benefit family trust in Hong Kong or Singapore.

In addition to tax treaties, there are also a number of domestic laws that govern private-benefit trusts. These laws vary from jurisdiction to jurisdiction, but they typically cover issues such as the formation of trusts, the powers of trustees, and the rights of beneficiaries.

3. The 1985 Hague Convention On Trusts

The 1985 Hague Convention on the Law Applicable to Trusts and on their Recognition is a significant international treaty that has been ratified by a number of countries around the world, including Singapore and Hong Kong.

The convention provides a number of benefits for these two jurisdictions, including:

• Recognition of trust instruments across borders: This is particularly beneficial in an era of increasing globalization and international investment.
• Legal certainty: The convention helps to reduce the risk of disputes and make it easier to administer trusts across borders by providing a clear and uniform framework for determining the applicable law to trusts and for their recognition in other countries.
• Enhanced cross-border cooperation between courts and authorities: The convention also establishes a number of mechanisms for cross-border cooperation between courts and authorities in matters relating to trusts. This can help to facilitate the resolution of disputes and the enforcement of trust orders.
• Greater confidence in trusts as a wealth management tool: The convention can help to increase confidence in trusts as a wealth management tool, both domestically and internationally, by providing a number of safeguards for settlors, trustees, and beneficiaries, and by helping to ensure that trusts will be recognized and enforced in other countries.

In addition to these general benefits, the Hague Convention on Trusts also provides a number of specific benefits for Singapore and Hong Kong. For example, Singapore’s reputation as a trusted and reliable jurisdiction for trusts has been reinforced by its signing of the convention. Similarly, Hong Kong’s signing of the convention has helped to strengthen its ties with other trust jurisdictions around the world and to make it easier for Hong Kong trusts to be administered and enforced cross-border.

Overall, the benefits of Singapore and Hong Kong signing the Hague Convention on Trusts outweigh the costs. The convention provides a number of advantages for settlors, trustees, and beneficiaries of trusts, and it can help to boost the confidence of international investors in using trusts as a wealth management tool.

4. Laws and Regulations Governing SG Trusts vs. HK Trusts in 2023

SG Trusts

SG trusts are governed by the Trustee Act (Cap. 337) and the Trust Companies Act (Cap. 338). The Trustee Act sets out the general principles of trust law, while the Trust Companies Act regulates the activities of trust companies.

To set up a Singapore trust, the settlor must create a trust deed and appoint a licensed trustee. The trust deed must set out the terms of the trust, including the beneficiaries, the trust assets, and the powers of the trustee. Moreover, Once the trust deed has been signed and executed, it must be registered with the Monetary Authority of Singapore (MAS). The MAS also requires Singapore trusts to file annual accounts and tax returns.

In addition to the Trustee Act, there are a number of other laws and regulations that may apply to private benefit family trusts in Singapore, such as:

• The Income Tax Act (Cap. 1)

• The Estate Duty Act (Cap. 89)

• The Family Justice Act (Cap. 253)

HK Trusts

Private benefit family trusts in Hong Kong are governed by the Trustee Ordinance (Cap. 29). 

The Trustee Ordinance sets out the general principles of trust law in Hong Kong, including the duties and responsibilities of trustees, the rights of beneficiaries, and how trusts can be created and terminated.

The Trustee Ordinance also contains a number of provisions that are specifically relevant to private benefit family trusts, such as:

• The requirement that trustees must act in the best interests of the beneficiaries

• The requirement that trustees must keep proper accounts and records of the trust assets

• The requirement that trustees must obtain the consent of the beneficiaries before making certain decisions, such as selling trust assets or distributing trust income

In addition to the Trustee Ordinance, there are a number of other laws and regulations that may apply to private benefit family trusts in Hong Kong, such as:

• The Inland Revenue Ordinance (Cap. 111)

• The Estate Duty Ordinance (Cap. 13)

• The Matrimonial Proceedings and Property Ordinance (Cap. 192)

Please note that laws are modified constantly. The dynamic world of private wealth management, the role of trusts and their regulatory landscape in Hong Kong and Singapore has seen significant developments. In Hong Kong, the Law Society has undertaken a comprehensive review of the legal and regulatory framework governing trust arrangements and trustee businesses. Trusts have emerged as a pivotal component in wealth management, offering a range of benefits, from facilitating intergenerational wealth transfer to asset protection and tax planning. A typical family trust involves a family member, known as the settlor, transferring assets to a trustee who assumes ownership.

On the other hand, Singapore has seen key changes in its trust landscape, with the Monetary Authority of Singapore (MAS) introducing amendments to Section 13O and Section 13U on April 11, 2022. These sections relate to tax incentive schemes often used to establish Singapore’s family office structures. A Singaporean trust is a legal structure where a settlor transfers assets to a trustee who manages these assets for the benefit of one or more beneficiaries. The governance of trusts in Singapore is underpinned by the Trust Companies Act, Business Trusts Act, Civil Law Act, and Trustees Act.

In conclusion, the landscape of private benefit trusts in both Singapore and Hong Kong presents a complex tapestry of laws, regulations, and tax advantages. The formation, administration, and termination of these trusts are governed by distinct rules in each jurisdiction, reflecting their unique legal and financial environments. While this article has provided an overview of these aspects, it’s crucial to remember that the choice of jurisdiction for establishing a trust is a decision that should be tailored to individual circumstances. Therefore, consulting with tax professionals and legal advisors who are well-versed in these jurisdictions’ specific laws and regulations is essential. Their expertise can provide invaluable guidance in navigating the intricacies of trust management in Singapore and Hong Kong, ensuring that the chosen path aligns with your specific needs and objectives. Remember, the world of trusts is as diverse as it is dynamic, and professional advice can be the compass that guides you through it.