Hong Kong stands as a hub for international asset management and fund distribution, boasting a portfolio of over 2,000 retail investment funds authorized by the SFC. Among the various fund structures available, including open-ended fund companies (OFCs) and Limited Partnership Funds (LPFs), unit trusts present a versatile investment vehicle.
A unit trust operates as a trust where beneficiaries hold fixed entitlements, known as 'units,' to the trust's capital and income. These unit holders collectively contribute funds for investment purposes, facilitating pooled investments. Beyond traditional investment funds, unit trusts find utility in smaller-scale property investments and developments, serving as a vehicle for partnerships to hold business premises.
Establishing a unit trust typically follows one of two paths:
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Contribution by Settlor: Initially, a Settlor contributes a sum (the Settled Sum) to a Trustee as per the terms outlined in a unit trust deed (the Unit Trust Deed). Subsequently, other individuals can subscribe for units in the trust.
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Subscription by Initial Unit Holders: Alternatively, one or more individuals (the Initial Unit Holders) may subscribe for initial units by paying the subscribed amount directly to the Trustee.
Unit holders in a unit trust encompass various entities, including individuals, companies, super funds, and other trusts. While super funds and family discretionary trusts are common unit holders, individual ownership is less frequent due to potential exposure to creditors. Holding units in a company is also less common owing to tax implications.
Regarding tax implications, while a trust itself lacks a separate legal personality, the trustee is recognized as a taxable entity under Hong Kong's Inland Revenue Ordinance (IRO). Therefore, a trustee conducting business activities as part of a trust structure is subject to taxation on profits sourced within Hong Kong.
In summary, unit trusts in Hong Kong offer investors a flexible and diverse investment platform within the regulatory framework overseen by the Securities and Futures Commission (SFC).