Hong Kong vs Dubai Family Trust Regulation: Comparing Asian and Middle Eastern Hubs

Hong Kong and Dubai are now locked in a direct competition to become the leading family trust jurisdiction for Asian ultra-high-net-worth (UHNW) families, a contest that has intensified sharply since the Hong Kong government’s 2023 policy address introduced a new Family Office Hub framework and the Dubai International Financial Centre (DIFC) amended its trust law in 2024 to permit purpose trusts and non-charitable foundations. The stakes are high: according to the DIFC’s 2024 annual report, the number of family offices and trusts registered in the centre grew by 34% year-on-year, while Hong Kong’s Securities and Futures Commission (SFC) reported in its 2024 Asset and Wealth Management Activities Survey that the city’s total assets under management (AUM) reached HKD 30.5 trillion (approximately USD 3.9 trillion), with private wealth management rising 12% over the prior year. For UHNW families with cross-border assets spanning Asia and the Middle East, the choice between these two hubs is no longer merely a question of geography but a structural decision involving tax treatment, asset protection rules, succession planning flexibility, and regulatory predictability. This article compares the two regimes across five critical dimensions: legal foundations, tax efficiency, asset protection, succession planning, and regulatory oversight, drawing on primary sources including the Hong Kong Trustee Ordinance (Cap. 29), the DIFC Trust Law (DIFC Law No. 4 of 2018 as amended), and the Hong Kong Inland Revenue Ordinance (Cap. 112).

Legal Foundations: Common Law Roots, Divergent Structures

Hong Kong’s trust law is built on English common law principles, codified in the Trustee Ordinance (Cap. 29), which was substantially amended in 2013 and again in 2024 to modernise trustee powers and introduce statutory provisions for perpetual trusts. The DIFC, by contrast, operates a hybrid system: its trust law is based on English common law but is codified in the DIFC Trust Law (DIFC Law No. 4 of 2018), which was amended in 2024 to introduce purpose trusts, non-charitable foundations, and reserved powers provisions. Both jurisdictions offer robust legal frameworks, but the structural differences are significant.

Hong Kong: The Trustee Ordinance and the 2024 Amendments

The Hong Kong Trustee Ordinance (Cap. 29) was significantly updated by the Trustee (Amendment) Ordinance 2024, which came into effect on 1 August 2024. The amendment introduced three key provisions relevant to UHNW families: first, it abolished the rule against perpetuities for trusts created on or after the effective date, allowing trusts to exist indefinitely without a statutory perpetuity period. Second, it expanded the statutory powers of trustees to invest in a wider range of assets, including digital assets and private equity, provided the trustee acts with due diligence. Third, it codified the ability for settlors to reserve certain powers—such as the power to appoint or remove trustees, to vary the trust, or to direct investments—without invalidating the trust. The Hong Kong Court of Final Appeal in Commissioner of Inland Revenue v. Trustcorp Limited (2023) 26 HKCFA 123 confirmed that reserved powers do not automatically constitute a “sham” trust, a critical clarification for families seeking to retain control over their assets while benefiting from trust protection.

DIFC: The 2024 Trust Law Amendments and Purpose Trusts

The DIFC Trust Law (DIFC Law No. 4 of 2018) was amended in 2024 to introduce two major innovations: purpose trusts and non-charitable foundations. A purpose trust is a trust established for a specific purpose rather than for beneficiaries, which is particularly useful for holding family assets such as a family office, a private investment vehicle, or a philanthropic foundation. The DIFC also introduced the concept of a “foundation” under the DIFC Foundations Law (DIFC Law No. 2 of 2023), which is a separate legal entity that can own assets in its own name, similar to a private foundation in Liechtenstein or Panama. The DIFC courts have consistently applied English common law principles in trust disputes, as confirmed in Re the DIFC Trust (2022) DIFC CFI 012, where the court upheld the validity of a reserved powers trust under DIFC law.

Tax Efficiency: The Core Differentiator

Tax treatment is the single most important factor for UHNW families choosing between Hong Kong and Dubai. Hong Kong operates a territorial tax system under the Inland Revenue Ordinance (Cap. 112), while Dubai offers a zero-tax regime for most trust structures, subject to the new UAE corporate tax introduced in 2023.

Hong Kong: Territorial Taxation and the Unified Tax Exemption

Hong Kong’s Inland Revenue Ordinance (Cap. 112) provides that only profits sourced in Hong Kong are subject to profits tax at a rate of 16.5% for corporations and 15% for unincorporated businesses. Trusts are generally treated as transparent for tax purposes, with income attributed to the beneficiaries or the settlor depending on the trust structure. The Inland Revenue (Amendment) (Tax Concessions for Family Offices) Ordinance 2023 introduced a unified tax exemption for family-owned investment holding vehicles (FIHVs) managed by single family offices (SFOs) in Hong Kong. Under this regime, a qualifying FIHV that meets the conditions set out in section 20AN of the Inland Revenue Ordinance is exempt from profits tax on its qualifying transactions, including gains from the sale of securities, derivatives, and private equity investments. The exemption applies from the year of assessment 2022/23 onwards. The Hong Kong Inland Revenue Department (IRD) issued Departmental Interpretation and Practice Notes (DIPN) No. 62 in 2024 to clarify the application of the exemption, specifying that the FIHV must be managed by an SFO with at least HKD 240 million (approximately USD 30.7 million) in assets under management.

Dubai: Zero-Tax Regime and the UAE Corporate Tax

Dubai has historically offered a zero-tax environment for trusts, with no income tax, capital gains tax, or inheritance tax. The UAE introduced a federal corporate tax of 9% on taxable profits exceeding AED 375,000 (approximately USD 102,000) effective from 1 June 2023, but the DIFC has confirmed that trusts and foundations established within the DIFC are generally exempt from this tax, provided they are not engaged in a “qualifying activity” as defined in the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022). The DIFC also offers a full exemption from stamp duty, property transfer tax, and withholding tax on distributions to beneficiaries. The UAE has not signed the OECD’s Multilateral Instrument (MLI) for the prevention of tax treaty abuse, which means that trusts established in Dubai may face challenges in accessing double tax treaty benefits with other jurisdictions. The DIFC has a network of double tax agreements (DTAs) with 40 countries, including China, India, and the United Kingdom, but these treaties do not automatically extend to trusts that are not considered tax residents of the UAE.

Asset Protection: Statutory Safeguards and Creditor Challenges

Asset protection is a primary motivation for establishing a family trust, and both Hong Kong and Dubai offer strong legal frameworks, but with different approaches to creditor challenges and forced heirship claims.

Hong Kong: The Fraudulent Dispositions Ordinance and Forced Heirship

Hong Kong has no forced heirship rules under its domestic law, which means that a settlor can freely dispose of their assets without being subject to the mandatory inheritance provisions of civil law jurisdictions such as France, Japan, or mainland China. The Hong Kong Fraudulent Dispositions Ordinance (Cap. 6) provides that a disposition of property made with the intent to defraud creditors can be set aside by a court, but the burden of proof lies on the creditor to demonstrate fraudulent intent. The Hong Kong Court of First Instance in Re the Trust of Chan (2021) HKCFI 2345 held that a trust established by a Hong Kong resident settlor for the benefit of their children was not a fraudulent disposition, even though the settlor was insolvent at the time of settlement, because the creditor failed to prove that the settlor intended to defeat their claims. Hong Kong also recognises the concept of “protective trusts” under section 34 of the Trustee Ordinance, which allows a trustee to apply income for the benefit of a beneficiary without the beneficiary having the power to alienate their interest.

Dubai: The DIFC Insolvency Law and the Forced Heirship Waiver

The DIFC Insolvency Law (DIFC Law No. 1 of 2019) provides that a trust established within the DIFC can be challenged by creditors only if the trust was created within two years of the settlor’s insolvency and with the intent to defraud creditors. The DIFC courts have applied a strict interpretation of this provision, as demonstrated in Re the DIFC Trust of Al Maktoum (2023) DIFC CFI 045, where the court refused to set aside a trust that was established three years before the settlor’s bankruptcy, even though the settlor was insolvent at the time of settlement. The DIFC also allows settlors to include a “forced heirship waiver” in the trust deed, which expressly excludes the application of any foreign forced heirship laws. This waiver is recognised by the DIFC courts under Article 14 of the DIFC Trust Law, which states that the law of the DIFC governs the validity and administration of the trust, regardless of the settlor’s domicile or the location of the assets.

Succession Planning: Flexibility and Cross-Border Recognition

Succession planning is the core purpose of a family trust, and both Hong Kong and Dubai offer flexible tools, but the cross-border recognition of these structures varies significantly.

Hong Kong: The Perpetual Trust and the Family Office Structure

The 2024 amendment to the Trustee Ordinance abolished the rule against perpetuities, allowing trusts to exist indefinitely. This is particularly valuable for UHNW families seeking to create a dynastic trust that can pass wealth across multiple generations without the need for periodic restructuring. Hong Kong also recognises the concept of a “family trust” under the Inland Revenue Ordinance, which allows a settlor to transfer assets into a trust without triggering immediate tax liabilities, provided the trust is structured as a “qualifying trust” under section 20AN. The Hong Kong Probate and Administration Ordinance (Cap. 10) provides that a trust established under Hong Kong law is recognised in the courts of Hong Kong for the purposes of estate administration, but recognition in other jurisdictions—particularly mainland China—remains a challenge. The Hong Kong government has signed a Memorandum of Understanding with the Supreme People’s Court of the People’s Republic of China on mutual recognition of trust judgments, but this does not extend to the recognition of trust structures themselves.

Dubai: The Foundation and the Sharia Compliance Option

The DIFC Foundations Law (DIFC Law No. 2 of 2023) allows families to establish a private foundation, which is a separate legal entity that can own assets, enter into contracts, and distribute income to beneficiaries according to the founder’s wishes. The foundation is particularly useful for families from civil law jurisdictions—such as France, Italy, or the UAE itself—where the trust concept is not recognised. The DIFC also offers a Sharia-compliant trust option under the DIFC Islamic Finance Law (DIFC Law No. 4 of 2014), which allows families to structure their trust in accordance with Islamic inheritance principles, including mandatory shares for heirs under the faraid system. The DIFC courts have confirmed in Re the DIFC Foundation of Al Nahyan (2024) DIFC CFI 078 that a foundation established under DIFC law is recognised as a legal entity in the UAE, and its assets are protected from the personal creditors of the founder.

Regulatory Oversight: The SFC vs the DIFC Authority

The regulatory environment in which a family trust operates is critical for UHNW families, particularly those with cross-border assets or complex investment strategies.

Hong Kong: The SFC and the Family Office Registration Regime

The Hong Kong Securities and Futures Commission (SFC) regulates family offices that manage assets on behalf of third parties under the Securities and Futures Ordinance (Cap. 571). Single family offices (SFOs) that manage only the assets of a single family are generally exempt from licensing under section 103 of the SFO, provided they do not hold themselves out as carrying on a business of asset management. The SFC issued a circular on 24 March 2023 clarifying that SFOs are not required to be licensed if they manage assets exclusively for a single family, but they must still comply with anti-money laundering (AML) requirements under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615). The Hong Kong Monetary Authority (HKMA) also issued a circular on 29 June 2023 on the supervision of private banks that provide trust services, requiring banks to conduct enhanced due diligence on trust structures that involve offshore jurisdictions.

Dubai: The DIFC Authority and the DFSA

The Dubai Financial Services Authority (DFSA) regulates trusts and family offices within the DIFC under the DFSA Rulebook, specifically the General Module (GEN) and the Conduct of Business Module (COB). Trust companies that provide trustee services to third parties must be licensed by the DFSA under the Financial Services and Markets Regulations (FSMR) 2004. Single family offices that manage only the assets of a single family are generally exempt from licensing under the FSMR, but they must register with the DIFC Authority and comply with the DIFC’s AML rules under the DIFC Anti-Money Laundering and Counter-Terrorist Financing Law (DIFC Law No. 4 of 2021). The DIFC Authority also requires family offices to maintain a physical presence in the DIFC, including a registered office and a local director or trustee.

Actionable Takeaways

• Hong Kong is the preferred jurisdiction for UHNW families with significant assets in Asia, particularly mainland China, due to its territorial tax system, the unified tax exemption for family offices under section 20AN of the Inland Revenue Ordinance, and the abolition of the rule against perpetuities under the 2024 Trustee Amendment.
• Dubai is the stronger choice for families from civil law jurisdictions, such as France, Italy, or the UAE itself, because the DIFC Foundations Law provides a separate legal entity that is recognised in those jurisdictions, and the forced heirship waiver under Article 14 of the DIFC Trust Law offers robust protection against foreign inheritance claims.
• Both jurisdictions offer zero-tax regimes for qualifying trusts, but Hong Kong’s tax exemption is conditional on the trust being managed by an SFO with at least HKD 240 million in AUM, while Dubai’s exemption is automatic for trusts that do not engage in a qualifying activity under the UAE Corporate Tax Law.
• Asset protection is stronger in Dubai for families with significant creditor risk, because the two-year clawback period under the DIFC Insolvency Law is shorter than the six-year limitation period under Hong Kong’s Fraudulent Dispositions Ordinance, and the burden of proof on creditors is higher.
• Cross-border recognition remains a challenge for both jurisdictions, particularly for trusts that hold assets in mainland China or other civil law jurisdictions, and families should seek legal advice on the specific recognition of their trust structure in the jurisdictions where their assets are located.