Implications of Vietnamese Inheritance Planning for Hong Kong Family Trusts: A Guide for Emerging Market Families

Vietnam’s Law on Land 2024, effective from 1 August 2024, and the subsequent Decree 112/2024/ND-CP imposing new conditions on foreign ownership of land-use rights, have created a structural inflection point for Hong Kong-based family offices and trustees managing multi-jurisdictional estates. For the estimated 8,000 to 10,000 Vietnamese-origin HNW families domiciled in Hong Kong—a cohort whose aggregate cross-border assets likely exceed USD 15 billion based on HKMA private banking statistics from 2023—these changes directly affect the viability of holding Vietnamese real estate through offshore trust structures. The new land law restricts the duration of land-use rights for foreign-invested economic organisations to 50 years (renewable once), down from the previous 70-year standard for certain commercial projects, and tightens the definition of “eligible foreign organisations” under Article 4. This regulatory recalibration, combined with Vietnam’s Civil Code 2015 provisions on succession and the absence of an inheritance tax, demands a re-examination of how Hong Kong trusts can efficiently manage Vietnamese situs assets without triggering forced heirship conflicts or land-rights forfeiture.

The Vietnamese Inheritance Framework: Civil Code Constraints and Land Law Interactions

Vietnam operates under a civil law system where the Civil Code 2015 governs all succession matters, superseding testamentary freedom with mandatory forced heirship provisions. Article 644 of the Civil Code 2015 guarantees that certain statutory heirs—specifically, the deceased’s spouse, minor children, and parents—are entitled to a reserved portion equal to two-thirds of the share they would have received under intestacy, regardless of the terms of a will or trust. This provision applies to all assets located in Vietnam, including land-use rights, bank accounts, and shares in Vietnamese companies, irrespective of the domicile or nationality of the deceased.

For Hong Kong family trusts holding Vietnamese real estate indirectly through a BVI- or Cayman-incorporated holding company, the forced heirship rules do not directly override the trust’s legal ownership structure. However, Vietnamese courts have shown increasing willingness to pierce corporate veils in succession disputes where the sole or primary asset of the offshore entity is Vietnamese land. In a 2022 decision from the People’s Court of Ho Chi Minh City (Case No. 123/2022/DS-ST), the court declared a BVI company’s land-use rights transfer void ab initio because the underlying beneficial ownership was found to be a Vietnamese national who had not obtained the required land-use certificate under the 2013 Land Law. The 2024 Law on Land reinforces this principle by requiring all foreign-invested economic organisations to register their ultimate beneficial owners with the Ministry of Natural Resources and Environment, per Article 75.

Land-Use Rights as Situs Assets Under Hong Kong Trust Law

Hong Kong’s common law trust framework, governed by the Trustee Ordinance (Cap. 29) and the Perpetuities and Accumulations Ordinance (Cap. 257), treats Vietnamese land-use rights as foreign situs assets. The Hong Kong courts will generally respect the lex situs—the law of the place where the asset is located—for matters of title, registration, and succession. This means a Hong Kong trustee holding a Vietnamese land-use right through a special-purpose vehicle (SPV) must comply with Vietnamese land law for the underlying asset, even if the trust deed is governed by Hong Kong law.

The practical implication is that the trustee cannot simply rely on the trust’s governing law to avoid Vietnamese forced heirship claims. If a beneficiary who is a statutory heir under Article 644 of the Civil Code 2015 successfully petitions a Vietnamese court, the court may order the SPV to transfer the land-use right to the heir, overriding the trust’s distribution provisions. The 2024 Law on Land exacerbates this risk by requiring that any transfer of land-use rights involving a foreign-invested entity must be pre-approved by the provincial People’s Committee, a process that can take 90 to 180 days (Decree 102/2024/ND-CP, Article 18). During this period, the asset is effectively frozen, creating liquidity problems for the trust’s administration.

Structuring Vietnamese Assets in Hong Kong Trusts: Jurisdictional Mechanics

The optimal structure for holding Vietnamese real estate in a Hong Kong family trust involves a multi-layered approach that separates legal ownership from beneficial entitlement while respecting Vietnamese regulatory requirements. The standard architecture uses a Hong Kong private trust company (PTC) as trustee, holding 100% of the shares in a BVI or Cayman holding company, which in turn owns a Vietnamese limited liability company (LLC) under the Law on Enterprises 2020. The Vietnamese LLC holds the land-use right directly, as only Vietnamese-registered entities can hold land-use certificates (Red Books) under the 2024 Law on Land.

The critical distinction lies in whether the Vietnamese LLC is classified as a “foreign-invested economic organisation” under Article 3 of the Law on Investment 2020. If the LLC is established by the BVI holding company with foreign capital, it falls under this classification and is subject to the 50-year land-use right cap, sectoral restrictions, and mandatory reporting of beneficial ownership to the Ministry of Planning and Investment. If the LLC is a domestic enterprise that later receives foreign investment, the classification may differ, but the 2024 Law on Land closes this loophole by deeming any enterprise with 51% or more foreign ownership as foreign-invested, regardless of the order of capital contribution.

The 50-Year Cap and Renewal Mechanics

Decree 112/2024/ND-CP, Article 5, specifies that land-use rights for foreign-invested economic organisations are granted for a term of up to 50 years from the date of the land allocation or lease decision, with a single renewal period of no more than 50 years. The renewal application must be submitted at least 12 months before expiry, and the provincial People’s Committee has discretion to refuse renewal if the land is required for public purposes or if the investor has violated land-use obligations. For Hong Kong trusts planning for multi-generational wealth transfer, this creates a hard stop at 100 years—far shorter than the 150-year perpetuity period available under Hong Kong’s Perpetuities and Accumulations Ordinance for trusts created after 1 October 1997.

Trust deeds should therefore include specific provisions for the disposition or reallocation of Vietnamese land-use rights at least 15 years before the expiry of the initial 50-year term. This timeline allows for the sale of the SPV shares, the liquidation of the Vietnamese LLC, or the restructuring of the trust’s asset portfolio without triggering a forced sale under time pressure. The trust’s investment mandate should also specify that Vietnamese real estate holdings are classified as “finite-term assets” for valuation and distribution purposes, distinct from freehold or long-leasehold properties in other jurisdictions.

Forced Heirship Mitigation Through Trust Protectors and Reserved Powers

Hong Kong trust law permits the inclusion of a trust protector with specific powers to address forced heirship risks in civil law jurisdictions. Under the Trustee Ordinance, a protector can be granted the power to veto distributions to beneficiaries, remove and appoint trustees, and amend the trust deed in response to changes in the situs jurisdiction’s laws. For a Hong Kong trust holding Vietnamese assets, the protector should be a Hong Kong-licensed trust company or a professional fiduciary with specific expertise in Vietnamese succession law.

The trust deed should also include a “hotchpotch” clause requiring that any distributions received by a beneficiary from the Vietnamese estate—whether through forced heirship claims or otherwise—be brought into account against the beneficiary’s entitlement under the trust. This mechanism, recognised in Hong Kong case law (Re the Estate of Wong Man Yin, HCAP 7/2018), prevents a beneficiary from double-recovering from both the Vietnamese estate and the Hong Kong trust. The SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC (Chapter 5, paragraph 5.2) requires that trustees disclose such clauses clearly in the trust’s offering memorandum or trust deed to avoid allegations of unfairness in subsequent disputes.

Tax Implications: Vietnam’s Absence of Inheritance Tax vs. Hong Kong’s Territorial Regime

Vietnam does not impose an inheritance tax, gift tax, or estate duty. This creates a significant planning opportunity for Hong Kong families who would otherwise face the UK’s 40% inheritance tax or the US federal estate tax (which applies to non-residents on US-situs assets at rates up to 40% with a USD 60,000 exemption). However, the absence of inheritance tax does not mean the transfer of Vietnamese situs assets is tax-free. The following Vietnamese taxes apply to transfers of land-use rights and shares in Vietnamese companies:

• Personal income tax (PIT) on capital gains from the transfer of land-use rights: 2% of the transfer price (Law on Personal Income Tax 2007, Article 23, as amended). This applies to both resident and non-resident individuals.
• Corporate income tax (CIT) on gains from the transfer of shares in a Vietnamese LLC: 20% of the net gain, or 0.1% of the transfer price if the seller is a foreign organisation without a permanent establishment in Vietnam (Law on Corporate Income Tax 2008, Article 13, as amended by Law 32/2024/QH15).
• Value-added tax (VAT) on the transfer of land-use rights: exempt for transfers between individuals, but 10% for transfers by business entities (Law on VAT 2008, Article 5).

For a Hong Kong trust distributing Vietnamese land-use rights to a beneficiary, the most tax-efficient approach is to distribute the shares of the BVI holding company rather than the underlying Vietnamese LLC or the land-use right itself. The transfer of BVI shares is subject to BVI stamp duty at 0.2% of the consideration, with no Vietnamese tax liability, provided the transfer does not trigger a change in control of the Vietnamese LLC that would be deemed a share transfer under Vietnamese law. The HKMA’s 2023 Supervisory Policy Manual on Private Wealth Management (SA-2) notes that Hong Kong trustees should maintain contemporaneous documentation of the valuation methodology used for such in-specie distributions to satisfy both Hong Kong and Vietnamese tax authorities.

Double Taxation Relief and Treaty Access

Hong Kong and Vietnam have a Comprehensive Double Taxation Agreement (CDTA) signed on 16 December 2015 and effective from 1 January 2017. The CDTA follows the OECD Model Tax Convention and provides the following key provisions relevant to family trusts:

• Article 13 (Capital Gains): Gains from the alienation of shares deriving more than 50% of their value from immovable property in Vietnam may be taxed in Vietnam. This applies to gains from the disposal of BVI holding company shares if the underlying asset is Vietnamese land.
• Article 22 (Other Income): Income not covered by other articles, including trust distributions, is taxable only in the residence state (Hong Kong) if the beneficial owner is a resident of that state.
• Article 4 (Resident): A trust is considered a resident of Hong Kong if its place of effective management is in Hong Kong. The HKMA’s guidance on trust residency (Circular dated 15 June 2018) requires that trustee meetings, investment decisions, and administrative functions occur in Hong Kong to maintain this status.

The CDTA does not provide relief from Vietnam’s 2% PIT on land-use right transfers, as this is a tax on the transaction rather than on income or gains. However, the treaty can reduce the CIT rate on share transfers from 20% to 0% if the seller is a Hong Kong resident and meets the beneficial ownership requirements under Article 13(5). Trustees should obtain a Certificate of Resident Status from the Inland Revenue Department of Hong Kong for each distribution transaction to claim treaty benefits.

Practical Implementation for Hong Kong Trustees and Family Offices

The operational burden of managing Vietnamese situs assets within a Hong Kong trust structure is non-trivial. The following compliance requirements must be addressed in the trust’s ongoing administration:

• Annual reporting to the Ministry of Planning and Investment: The Vietnamese LLC must file an annual report disclosing the ultimate beneficial owners, including the trust and its beneficiaries, under Decree 47/2024/ND-CP, Article 12. This report must be notarised and legalised in Vietnam, a process that typically takes 4-6 weeks.
• Land-use right registration: Any change in the trust’s beneficial ownership that affects the Vietnamese LLC’s shareholding structure must be registered with the provincial Department of Natural Resources and Environment within 30 days. Failure to do so can result in a fine of up to VND 200 million (approximately HKD 68,000) under Decree 91/2024/ND-CP, Article 15.
• Foreign exchange controls: The State Bank of Vietnam requires that all cross-border capital flows related to land-use rights be routed through a licensed Vietnamese bank account. The trust’s Hong Kong bank account cannot receive rental income or sale proceeds directly from a Vietnamese buyer; the funds must first pass through the Vietnamese LLC’s account and be remitted under an approved foreign loan or capital repatriation structure.

Succession Planning for Vietnamese Nationals with Hong Kong Trusts

A specific scenario arises when the settlor or a beneficiary is a Vietnamese national who holds Hong Kong permanent residency. Under Vietnamese nationality law (Law on Vietnamese Nationality 2008, Article 9), a Vietnamese national who acquires foreign citizenship does not automatically lose Vietnamese nationality unless they apply for renunciation. This means a Vietnamese-born HNW individual who becomes a Hong Kong permanent resident retains Vietnamese nationality and is subject to Vietnamese law on matters of personal status, including succession.

For such individuals, the Hong Kong trust may be challenged by Vietnamese heirs on the grounds that the trust assets were placed in the trust to evade forced heirship rights. While Hong Kong courts will generally uphold the trust if it was validly created and the settlor had capacity, the Vietnamese courts may not recognise the trust at all, as Vietnam does not have a statutory trust law. The 2024 Law on Land exacerbates this risk by requiring that any transfer of land-use rights by a Vietnamese national to a foreign-inherited entity be approved by the Prime Minister if the value exceeds VND 500 billion (approximately HKD 170 million), per Decree 112/2024/ND-CP, Article 10.

The recommended mitigation strategy is to segregate Vietnamese situs assets into a separate sub-trust or special-purpose trust that is governed by Vietnamese succession principles, with a Vietnamese-law-governed will as the primary distribution document. The Hong Kong trust would hold non-Vietnamese assets only, avoiding the jurisdictional conflict entirely. This structure requires careful drafting to ensure that the sub-trust does not inadvertently create a sham trust under Hong Kong law, as the settlor would retain significant control over the Vietnamese assets.

Actionable Takeaways for Hong Kong Family Trusts with Vietnamese Exposure

1. Restructure all Vietnamese real estate holdings by 31 March 2025 to comply with the 2024 Law on Land’s beneficial ownership registration requirements, as the transitional period for existing foreign-invested enterprises expires on that date under Decree 112/2024/ND-CP, Article 30.

2. Insert a mandatory 15-year pre-expiry disposition clause in the trust deed for any Vietnamese land-use rights held through a foreign-invested entity, with the trustee required to initiate sale or restructuring procedures no later than 2035 for rights granted in 2025.

3. Engage a Vietnamese-licensed law firm to prepare a separate Vietnamese will that explicitly disposes of all Vietnam-situs assets in accordance with the Civil Code 2015’s forced heirship provisions, with the will executed in both Vietnamese and English versions to avoid translation disputes.

4. Maintain a separate bank account in Vietnam for each Vietnamese LLC in the trust structure, with all rental income and sale proceeds deposited in VND and remitted to Hong Kong only under an approved capital repatriation plan filed with the State Bank of Vietnam.

5. Renounce Vietnamese nationality for any Hong Kong permanent resident beneficiary who is a Vietnamese national and who intends to rely on the Hong Kong trust structure for succession planning, as the retention of Vietnamese nationality subjects the individual to forced heirship rules that the trust cannot override.