New Zealand Trust Transparency Rules: Lessons and Implications for Hong Kong Families

New Zealand’s Trusts Act 2019, which came into full effect on 30 January 2021, has fundamentally altered the landscape for foreign settlors—including a significant number of Hong Kong families—who have long used New Zealand trusts as a cornerstone of their cross-border wealth structuring. The Act’s mandatory disclosure requirements, coupled with the Inland Revenue Department’s (IRD) enhanced information-sharing protocols under the Common Reporting Standard (CRS) and bilateral tax treaties, have effectively ended the era of anonymous trust structures in New Zealand. For Hong Kong families who established trusts in New Zealand under the previous regime, the 2025-2026 filing cycles will be the first where full beneficiary and settlor details must be reported to the New Zealand Companies Office, with data automatically exchanged with the Hong Kong Inland Revenue Department (IRD) under the CRS framework. This shift has immediate implications: any Hong Kong family with a New Zealand trust that has not yet reviewed its structure against the new transparency rules faces potential exposure to IRD scrutiny, automatic information exchange with the Hong Kong IRD, and the risk of having the trust’s tax status reclassified. The lessons from New Zealand’s regulatory tightening are directly transferable to Hong Kong’s own trust and family office ecosystem, where the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) are increasingly focused on beneficial ownership transparency and anti-money laundering (AML) compliance.

The New Zealand Trusts Act 2019: A Structural Shift in Disclosure Obligations

The Trusts Act 2019 replaced the Trustee Act 1956, introducing a statutory duty for trustees to provide basic trust information to beneficiaries. This is not a discretionary best-practice recommendation but a mandatory requirement under Section 49 of the Act. Trustees must, within 12 months of the trust’s establishment or upon a person becoming a beneficiary, provide the following: the fact of the trust’s existence, the trustee’s name and contact details, details of each beneficiary’s entitlement (whether fixed or discretionary), and the trust’s governing law. For Hong Kong families, the critical implication is that discretionary beneficiaries—often family members who may not even know they are beneficiaries—must now be formally notified. This erodes the privacy that was a primary reason for choosing New Zealand as a trust jurisdiction.

The Mandatory Disclosure Regime Under Section 49

Section 49 of the Trusts Act 2019 imposes a positive obligation on trustees to make disclosures, with no opt-out provision for foreign settlors. The Act does not distinguish between domestic and foreign trusts; a trust settled by a Hong Kong resident is subject to the same disclosure rules as one settled by a New Zealand resident. The only exception is where the trust deed explicitly excludes a beneficiary’s right to information, but even then, the trustee must still provide basic details to the beneficiary if the beneficiary requests them. This creates a structural tension for Hong Kong families who value confidentiality: the trust deed can no longer guarantee complete anonymity.

The Automatic Information Exchange (AEOI) Mechanism

Beyond the Trusts Act, New Zealand’s participation in the CRS, effective from 2017, means that trust information is automatically exchanged with the Hong Kong IRD. Under the CRS, New Zealand trusts must report financial account information—including the identity of settlors, trustees, protectors, and beneficiaries—to the IRD. This data is then exchanged with the Hong Kong IRD under the bilateral Competent Authority Agreement (CAA) signed between New Zealand and Hong Kong in 2017. For a Hong Kong family with a New Zealand trust holding assets in a Hong Kong bank account, the IRD now receives a complete picture: the trust’s structure, the settlor’s identity, and the beneficiary’s details. The 2025 filing cycle will be the first full year where all trusts established before 2021 must comply with the new disclosure rules, making it a critical deadline for compliance review.

Implications for Hong Kong Families: From Privacy to Transparency

The shift from New Zealand’s historically opaque trust regime to a fully transparent one has direct consequences for Hong Kong families who used New Zealand trusts for asset protection, succession planning, or tax mitigation. The primary risk is not the disclosure itself but the unintended consequences of that disclosure: the Hong Kong IRD will now have a complete record of the trust’s structure, which could trigger a reassessment of the family’s Hong Kong tax liabilities, particularly for profits tax, property tax, and stamp duty.

The Risk of Reclassification by the Hong Kong IRD

Under Hong Kong’s Inland Revenue Ordinance (Cap. 112), the IRD has the power to recharacterise a trust’s income if it determines that the trust is not a genuine trust but rather a nominee or agency arrangement. Section 61 of the IRO allows the IRD to disregard any transaction that has the effect of reducing a taxpayer’s liability if the transaction was not entered into for bona fide commercial purposes. If the IRD, through the CRS data, discovers that a New Zealand trust has a Hong Kong resident settlor who retains effective control over the trust assets, the IRD may treat the trust as a sham, with the settlor being taxed as the beneficial owner of the assets. This is particularly relevant for Hong Kong families who used New Zealand trusts to hold Hong Kong property or shares in Hong Kong-listed companies.

The Impact on Cross-Border Succession Planning

Hong Kong families often use New Zealand trusts to avoid Hong Kong’s inheritance laws, which do not have forced heirship rules but do impose stamp duty on the transfer of Hong Kong property upon death. A New Zealand trust can hold Hong Kong property without triggering stamp duty on the settlor’s death, as the trust is a separate legal entity. However, under the new transparency rules, the IRD will have full visibility into the trust’s assets and beneficiaries. If the trust is not structured correctly—for example, if the settlor retains the power to remove or appoint trustees—the IRD may treat the trust as a continuing gift with reservation, triggering stamp duty on the transfer of the property to the trust. The Hong Kong Stamp Duty Ordinance (Cap. 117) imposes a stamp duty of up to 4.25% on the transfer of Hong Kong property, and the IRD has shown an increasing willingness to apply this to trust structures that are not properly documented.

The Hong Kong Family Office Ecosystem: Lessons for Regulatory Compliance

The New Zealand experience offers a clear precedent for Hong Kong’s own regulatory trajectory. The SFC and HKMA have been steadily tightening the AML and counter-terrorist financing (CTF) requirements for trust and corporate service providers (TCSPs) operating in Hong Kong. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) requires TCSPs to conduct customer due diligence (CDD) and maintain beneficial ownership records. The SFC’s Code of Conduct for Licensed Corporations (Chapter 571) and the HKMA’s Supervisory Policy Manual (SPM) on AML/CTF both require financial institutions to identify the ultimate beneficial owner (UBO) of any trust that is a client.

The SFC’s Enhanced Due Diligence for Trust Structures

In 2023, the SFC issued a circular reminding licensed corporations that they must identify the UBO of any trust that is a client, and that this includes not just the settlor and trustee but also any beneficiary who holds more than 25% of the trust’s capital or income. This is directly analogous to the New Zealand Trusts Act’s disclosure requirements. For Hong Kong families who have established a family office in Hong Kong that manages a trust, the SFC’s enhanced due diligence means that the family office must maintain a register of all beneficiaries, even if they are discretionary beneficiaries with no fixed entitlement. Failure to do so can result in a fine of up to HKD 1 million and imprisonment for up to 7 years under Section 53 of the AMLO.

The HKMA’s Focus on Cross-Border Trust Structures

The HKMA has also been active in this area. In a 2024 circular on cross-border wealth management, the HKMA reminded authorized institutions that they must apply enhanced due diligence to any trust structure that involves a foreign jurisdiction, particularly if the trust is established in a jurisdiction that has recently tightened its transparency rules, such as New Zealand. The HKMA’s SPM on AML/CTF (Module CA-S-1) requires banks to obtain a copy of the trust deed, the trust’s constitutional documents, and a list of all beneficiaries. For Hong Kong families who have a New Zealand trust that holds assets in a Hong Kong bank account, the bank will now require the trust deed and a full beneficiary list as part of its ongoing CDD. This is not a one-time requirement but an ongoing obligation: the bank must update the beneficiary list whenever there is a change in the trust’s structure.

Strategic Implications for Hong Kong Families: Structuring for the New Era

The convergence of New Zealand’s transparency rules with Hong Kong’s own regulatory tightening means that Hong Kong families can no longer rely on jurisdictional arbitrage to maintain privacy. The only sustainable approach is to structure the trust in a way that is compliant with both New Zealand and Hong Kong law, while also achieving the family’s legitimate objectives of asset protection, succession planning, and tax efficiency.

The Case for a Hong Kong Trust as an Alternative

For Hong Kong families who are considering moving their trust from New Zealand to Hong Kong, the Hong Kong trust regime under the Trustee Ordinance (Cap. 29) and the Perpetuities and Accumulations Ordinance (Cap. 257) offers a viable alternative. Hong Kong trusts do not have a statutory duty to disclose trust information to beneficiaries, and the Hong Kong IRD does not automatically exchange trust information with foreign tax authorities under the CRS unless the trust has a financial account in a CRS-reporting jurisdiction. However, Hong Kong trusts are subject to the AMLO’s beneficial ownership reporting requirements, and the SFC and HKMA’s enhanced due diligence rules apply to any Hong Kong trust that is a client of a financial institution. The key advantage of a Hong Kong trust is that the family can choose the level of disclosure: the trust deed can be drafted to limit the information provided to beneficiaries, as long as it complies with the AMLO.

The Importance of a Properly Drafted Trust Deed

Regardless of jurisdiction, the trust deed must be drafted to reflect the family’s specific objectives and to ensure compliance with the applicable transparency rules. For a Hong Kong family with a New Zealand trust, the trust deed should include a clause that explicitly excludes the beneficiary’s right to information under Section 49 of the Trusts Act 2019, but this clause must be carefully drafted to avoid being struck down by a New Zealand court as contrary to public policy. The New Zealand High Court in Erceg v. Erceg [2017] NZHC 891 held that a clause excluding a beneficiary’s right to information is valid but must be interpreted strictly. The court also held that the trustee still has a residual duty to provide information if the beneficiary can demonstrate a genuine need for it. This means that Hong Kong families cannot rely on an exclusion clause alone; they must also ensure that the trust is structured in a way that minimises the risk of a beneficiary challenging the clause.

The Role of the Protector in Maintaining Control

One common structure used by Hong Kong families is to appoint a protector—typically a trusted family member or a professional advisor—who has the power to veto trustee decisions, remove and appoint trustees, and amend the trust deed. Under New Zealand law, the protector is not a trustee but is a fiduciary who owes duties to the beneficiaries. The Trusts Act 2019 does not explicitly regulate protectors, but the IRD has indicated that it will treat a protector who has effective control over the trust as a settlor for CRS reporting purposes. This means that if a Hong Kong family appoints a Hong Kong resident as protector of a New Zealand trust, the protector’s identity will be reported to the Hong Kong IRD under the CRS. The family must therefore consider whether the protector should be a New Zealand resident or a corporate trustee to avoid this reporting obligation.

Actionable Takeaways for Hong Kong Families

1. Conduct a full compliance audit of any existing New Zealand trust by 31 December 2025, focusing on whether the trust deed complies with Section 49 of the Trusts Act 2019 and whether the trust’s beneficiary list is complete and accurate for CRS reporting purposes.

2. Review the trust deed’s exclusion clause to ensure it is drafted in accordance with the Erceg v. Erceg principles and includes a mechanism for the trustee to exercise discretion in providing information to beneficiaries where genuine need is demonstrated.

3. Assess the tax implications of automatic information exchange by modelling the Hong Kong IRD’s potential recharacterisation of the trust under Section 61 of the IRO, particularly if the trust holds Hong Kong property or shares in Hong Kong-listed companies.

4. Consider migrating the trust to Hong Kong under the Trustee Ordinance, but only after a detailed comparison of the ongoing compliance costs, including the AMLO’s beneficial ownership reporting requirements and the SFC’s enhanced due diligence for any family office that manages the trust.

5. Engage a New Zealand-licensed trustee who is familiar with the Trusts Act 2019 and can provide a compliance certificate, and ensure that the trust’s protector is either a New Zealand resident or a corporate entity to avoid unintended CRS reporting to the Hong Kong IRD.