Overdue changes to Hong Kong’s trust law should have plenty of appeal, particularly to mainland investors, writes Steven Gallagher

On 1 December 2013 Hong Kong will implement changes to its trust law. Hong Kong’s statutory trust law has long been criticised as antiquated, for example provisions concerning trustees’ statutory powers largely follow the English Trustee Act 1925.

Trust practitioners in Hong Kong welcome the changes as they believe the changes will make the jurisdiction more competitive against the traditional Caribbean island tax havens and Hong Kong’s main South East Asian financial competitor, Singapore. The changes should make the jurisdiction more attractive to settlors, particularly those from mainland China seeking to protect their wealth and provide for their family by way of dynastic trusts.

The financial sector in Hong Kong has benefited from the wealth flowing from the mainland. Hong Kong is an attractive investment jurisdiction because of its geographic proximity, common law legal system and relatively strong rule of law. Today the wealthy investor that comes to Hong Kong seeking to manage and protect their money and provide for their family will be advised on the relative advantages of financial products and instruments including trusts. Trusts may be particularly attractive to mainland investors as they offer an instrument which has traditionally been used to minimise capital taxation. The Hong Kong trust benefits from the jurisdiction’s lack of capital taxation and this may become more important with the rumours of the introduction of new inheritance tax provisions on the mainland.

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Steven Gallagher is LLB Programme Director and Assistant Dean (Undergraduate Studies) at The Chinese University of Hong Kong’s Faculty of Law