FO growth in Asia

On 24 March 2023, the Hong Kong government issued its Policy Statement on Developing Family Office Businesses in Hong Kong,[1] which sets out proposed profits tax concessions for family-owned investment vehicles. These measures appear designed to catch up with Singapore, which has offered equivalent tax incentive schemes for a while in the form of ss.130 and 13U of its Income Tax Act. Both cities have recently launched specialist organisations to court FO business: the Family Office Association Hong Kong and InvestHK in Hong Kong, and the Family Office Development Team and Global Asia Family Office Circle in Singapore.

Both jurisdictions also offer their own fund structures: Hong Kong with open-ended fund companies and Singapore with the variable capital company. Hong Kong’s new proposed tax incentives are potentially more flexible than Singapore’s, in that the underlying investment vehicle and FO are permitted to be incorporated outside of Hong Kong. However, FO structures in both jurisdictions can benefit from the use of offshore trusts when it comes to succession planning. In particular, both the British Virgin Islands (BVI) and the Cayman Islands offer an unparalleled variety of trust-based succession-planning tools, including well-established statutory trust regimes, which can be deployed in conjunction with an FO structure in Asia.

Offshore trust structures for Asian FO succession planning

Reserved powers trusts

The most popular form of discretionary trust structure for Asia-based high-net-worth families, reserved powers trusts allow a settlor to reserve certain powers for themselves or others under the terms of the trust instrument. Both the BVI and the Cayman Islands have comprehensive statutory legislation confirming that the reservation of such powers will not invalidate the trust.

BVI VISTA trusts

VISTA trusts are subject to the BVI Virgin Islands Special Trusts Act 2003, as amended, and are designed to hold shares in BVI companies, which are prevalent in Asia. They are therefore very popular in the region. The VISTA regime releases shareholder trustees from their duties to monitor and intervene in the management of the trust-held BVI company. This allows the company directors to administer the family business as they see fit without intervention from the trustee. This solution is ideal for Asian families looking to manage succession planning while retaining a significant level of control over the business and assets.