Hong Kong stands as a hub for international asset management and fund distribution, hosting a portfolio of over 2,000 retail investment funds authorized by the Securities and Futures Commission (SFC). Among the various fund structures available, including Open-ended Fund Companies (OFCs) and Limited Partnership Funds (LPFs), unit trusts offer a versatile investment vehicle.

Understanding Unit Trusts

A unit trust operates as a trust structure where beneficiaries hold fixed entitlements, known as ‘units,’ to the trust’s capital and income. Unit holders collectively contribute funds for investment, enabling pooled investments.

Beyond traditional investment funds, unit trusts are also utilized for smaller-scale property investments and business partnerships, making them a suitable vehicle for holding business premises.

Establishing a Unit Trust

There are two primary methods to establish a unit trust:

1. Contribution by Settlor

• A Settlor contributes an initial sum (the Settled Sum) to a Trustee, according to the Unit Trust Deed.

• Additional individuals can later subscribe for units in the trust.

2. Subscription by Initial Unit Holders

• One or more individuals (Initial Unit Holders) subscribe for initial units by paying the subscribed amount directly to the Trustee.

Unit Holders and Investment Entities

Unit holders in a unit trust can include:

• Individuals

• Companies

• Super funds

• Other trusts

While super funds and family discretionary trusts are common unit holders, individual ownership is less frequent due to potential creditor exposure. Similarly, holding units in a company is less common because of tax implications.

Tax Considerations for Unit Trusts in Hong Kong

• A trust does not have a separate legal personality, but the Trustee is recognized as a taxable entity under Hong Kong’s Inland Revenue Ordinance (IRO).

• If a Trustee conducts business activities as part of a trust structure, they are subject to taxation on profits sourced within Hong Kong.

Conclusion

Unit trusts in Hong Kong provide investors with a flexible and structured investment platform, benefiting from the regulatory oversight of the Securities and Futures Commission (SFC). Their adaptability allows for diverse investment strategies, making them an attractive option for fund managers and investors operating in Hong Kong’s financial ecosystem.