Where the UAE-to-Hong Kong family-office relocation stands now

The conversation among principals relocating from the UAE to Hong Kong has shifted. A year ago, the dominant question was whether Hong Kong could match the UAE's tax neutrality. That debate is largely settled. The harder question now is how to execute the move without creating a tax-residence trap, triggering a management-and-control problem in the wrong jurisdiction, or leaving the trust and holding structure in an inconsistent state across three or four legal systems simultaneously.

A UAE-to-Hong Kong family-office relocation involves the intersection of UAE tax residence, Hong Kong's territorial basis of taxation (the rule that only Hong Kong-sourced profits are subject to profits tax), the management-and-control test applied by both jurisdictions to determine where a company is resident for tax purposes, and the position of any offshore holding entities – typically in the BVI or the Cayman Islands – sitting above the operating and investment assets. The governing instruments on the Hong Kong side include the Inland Revenue Ordinance, the foreign-sourced income exemption (FSIE) regime (in force from 1 January 2023, as amended), and the Trustee Ordinance (Cap. 29, as substantially reformed with effect from 1 December 2013). This analysis sets out where the execution risk actually concentrates.

We work through six analytical points: the commercial question, the governing regime on each side, the management-and-control sequencing problem, the trust and holding structure interface, the FSIE and Pillar Two interaction, and our current read on where risk sits for principals mid-move.

What is actually at stake commercially?

The UAE built its appeal for internationally mobile wealth on a familiar combination: no income tax on individuals, no capital-gains tax, a growing treaty network, and a regulatory environment designed to attract family offices and funds. Hong Kong offers a structurally different proposition. Profits tax applies only to Hong Kong-sourced income, at 8.25% on the first HK$2 million of assessable profits and 16.5% above that. There is no capital-gains tax, no VAT or sales tax, and no withholding tax on dividends or interest in the general case.

The commercial calculus for a family-office principal considering the move is therefore not primarily a tax-rate comparison. It is a question of execution: how does the principal shift the centre of gravity of decisions, relationships and substance from one jurisdiction to another without leaving a residual taxable presence – or a management-and-control footprint – in the UAE, and without inadvertently making their offshore holding entities Hong Kong-resident by managing them from Hong Kong without proper substance outside.

What our desk sees in practice is that principals underestimate the sequencing dimension. They move themselves and their senior staff. They open a Hong Kong entity. Then, months later, they discover that the board of the BVI topco has been meeting effectively in Hong Kong because the decision-makers are here, and that the offshore entity is now arguably Hong Kong-resident for profits-tax purposes under the management-and-control test. That is the structural complexity that defines this move in 2027.

How does the UAE exit position work, and what obligations remain?

Departing the UAE tax-resident position requires a deliberate series of steps, and the sequence matters. The UAE introduced its federal corporate tax regime in recent years, and the position for individuals, family offices and free-zone entities continues to develop. The UAE does not operate a capital-gains tax on individuals in the general case, but the corporate tax treatment of free-zone entities and the conditions for the qualifying free-zone person regime require careful review as the principal moves their management functions.

For the family-office structure, the practical questions on exit are: when does the UAE entity cease to be managed and controlled in the UAE; what reporting obligations trail the principal; and whether there is a substance gap during the transition period where neither the UAE nor Hong Kong can make a clean claim. That gap – sometimes called the stateless period – is the window of greatest risk.

In our cross-border practice, we have seen families attempt to compress the transition into a single financial year to avoid overlapping obligations. That rarely works cleanly. The management-and-control facts have to move before the formal filing positions do, not after. Filing a Hong Kong tax return on the basis of Hong Kong residence while the board of the topco is still meeting in Dubai – or being chaired by a UAE-resident director – creates an inconsistency that both revenue authorities can eventually examine.

The UAE also operates substance requirements for certain free-zone structures, and departing principals need to confirm whether those requirements have been met for the relevant periods before closing or dormanting the UAE entity. Leaving a free-zone entity technically alive but with no UAE management activity creates a compliance tail that cross-border advisers need to manage proactively.

For a structured assessment of your UAE exit position and the obligations that continue after departure, write to us at info@lockhartyip.com.

What is the management-and-control test, and how does it bite on the Hong Kong side?

The management-and-control test is the mechanism by which the Inland Revenue Ordinance determines whether an entity incorporated outside Hong Kong is nevertheless Hong Kong-resident for profits-tax purposes. The test looks at where the central management and control of the company is actually exercised – not where the company is registered, and not where the documents say meetings are held.

This is the central technical risk for UAE-to-Hong Kong relocations. A BVI or Cayman holding entity that sits above the family's investment portfolio may have been managed effectively from the UAE for years. The family moves to Hong Kong. The principal – who is now the person actually directing the entity's investment decisions – is physically in Hong Kong. The board may include nominee or non-executive directors in the offshore jurisdiction, but if the real decisions are taken in Hong Kong, the entity is at risk of being treated as Hong Kong-resident.

The consequences are material. A BVI holding entity treated as Hong Kong-resident becomes subject to Hong Kong profits tax on its Hong Kong-sourced profits. Depending on the nature of its income, the FSIE regime may also apply to foreign-sourced passive income it receives. The entity must file Hong Kong profits-tax returns. These obligations do not arise automatically – the Inland Revenue Department assesses on the facts – but the exposure is real and can be retrospective once the authority forms a view.

What is the solution? It is not simply nominating offshore directors and running paper board meetings offshore. The Inland Revenue Department and, where relevant, a reviewing court look at substance over form. The answer requires genuine management activity in the correct jurisdiction: directors with real authority, meeting records that reflect actual deliberation, and investment decisions documented at the level of the entity making them. For family offices with a BVI or Cayman topco, this generally means maintaining a functioning governance layer outside Hong Kong with directors who have, and exercise, real discretion.

The sequencing rule that emerges from our practice: the governance of offshore entities must be reorganised before the principal moves, not after. Once the principal is in Hong Kong and has begun taking decisions for the entity from Hong Kong, the management-and-control clock starts. Restructuring the governance layer retroactively is possible but far more difficult to defend.

How does the Hong Kong FSIE regime interact with the relocation?

The foreign-sourced income exemption (FSIE) regime, in force from 1 January 2023 and subsequently amended, is the mechanism by which Hong Kong addresses BEPS (base erosion and profit shifting) concerns while preserving its territorial tax principle. Under the FSIE regime, specified categories of foreign-sourced passive income – dividends, interest, disposal gains on equity interests, and intellectual-property income – are brought within the charge to profits tax when received by an entity carrying on a trade, profession or business in Hong Kong, unless the entity meets prescribed economic-substance or participation conditions.

For a family office relocating from the UAE, the FSIE regime is directly relevant where the Hong Kong entity – the family-office vehicle or an intermediate holding company – receives passive income from offshore. The question is whether it qualifies for the exemption. For a dividends and disposal-gains analysis, the participation exemption is generally available if the recipient holds at least a prescribed minimum interest in the payer entity. For the substance-based exemption, the entity must have adequate employees and operating expenditure in Hong Kong relative to the income it receives.

Family offices tend to be lean by design. They may have three or four investment professionals and a limited operational footprint. Whether that constitutes adequate substance under the FSIE conditions is a factual question that the Inland Revenue Department will assess. Our view is that many principals relocating from the UAE to establish a Hong Kong family office are operating close to the substance line, and a properly documented analysis of the FSIE position should be part of the pre-relocation structuring work – not a filing-season surprise.

The Pillar Two interaction adds a further layer for the largest family-office groups. Hong Kong's minimum top-up tax and income inclusion rule – effective for fiscal years beginning on or after 1 January 2025 – apply to multinational enterprise groups (MNE groups) with consolidated revenue of EUR 750 million or more. Most family offices do not reach that threshold. Those that do need to model the Pillar Two implications of the relocation before it occurs, since the effective tax rate calculation under Pillar Two looks at the group position globally.

What does the trust and succession structure look like across UAE and Hong Kong law?

Many principals relocating from the UAE have a trust structure in place – often a discretionary trust governed by the law of a common-law offshore jurisdiction, with assets held through BVI or Cayman entities. The UAE has its own trust regimes, including those available through the financial free zones, and a civil-law tradition that treats trusts and waqf structures differently from common-law jurisdictions.

Hong Kong's trust position is well-established and, for the cross-border principal, largely favourable. The Trustee Ordinance, substantially reformed with effect from 1 December 2013, abolished the rule against perpetuities and against excessive accumulations for Hong Kong trusts. A settlor may reserve certain powers without invalidating the trust. Hong Kong law has no forced-heirship regime, and the 2013 reform strengthened the protection of Hong Kong-law trusts against foreign forced-heirship claims. These are material advantages for a principal moving from a jurisdiction where civil or religious inheritance rules might otherwise apply.

The practical question for the UAE-to-Hong Kong move is whether to shift the governing law of the trust to Hong Kong law, or to maintain an offshore governing law (typically Cayman, BVI or Jersey) while administering the trust more actively from Hong Kong. Both approaches are viable, but they carry different implications for trustee residency, the management-and-control analysis of the underlying holding entities, and the FSIE position of distributions flowing into Hong Kong.

Where the trust has been used to hold UAE-sited real estate or business interests, there are additional considerations around the UAE's own treatment of trust disposals and the recognition of common-law trust concepts in the UAE civil-law courts (outside the financial free zones). A principal exiting UAE assets held through a trust structure needs to map the disposal sequence carefully: the order in which assets are moved or liquidated, and the legal system through which each step is executed, affects both the UAE exit tax analysis and the Hong Kong entry position.

For a more detailed analysis of the trust and holding options across Hong Kong and the relevant offshore centre, contact info@lockhartyip.com.

The comparative read: Hong Kong versus the UAE as a family-office base

Comparing Hong Kong and the UAE as family-office bases is not a static exercise. Both jurisdictions have been actively developing their regulatory and tax environments, and the comparison in 2027 is materially different from the one that applied three years ago.

On the tax side, Hong Kong's territorial system and the two-tier profits-tax rate structure remain competitive. The absence of capital-gains tax and withholding tax on dividends and interest is a structural advantage. The FSIE regime introduces complexity for passive income, but for a family office primarily generating returns from equity investment and asset management, the exemption conditions are generally manageable with proper structuring and substance. The UAE's corporate tax regime, which now applies to onshore entities and, conditionally, to free-zone entities, has narrowed the gap in some respects but has not closed it for the structures that family offices typically use.

On the legal infrastructure side, Hong Kong operates a mature common-law system with the Court of Final Appeal as the apex court, English as an official language of the courts, and a well-developed body of commercial and trusts law. The Mainland–Hong Kong enforcement interface – including the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), in force since 29 January 2024 – gives Hong Kong-based principals a meaningful enforcement route into the Mainland that is not available from the UAE. For families with significant Mainland China asset exposure or counterparty relationships, that access is a real structural advantage.

On the regulatory side, the Securities and Futures Commission and the Hong Kong Monetary Authority operate licensing and oversight regimes that are internationally recognised. Family offices managing third-party capital will need to consider whether their activities require licensing under the Securities and Futures Ordinance. Single-family offices managing only the principal family's own assets operate in a different regulatory position, but the line between the two is not always obvious in practice.

The UAE retains advantages in geographic access to Middle Eastern, South Asian and African capital flows, and in the depth of its financial free-zone ecosystem for certain fund and holding structures. For principals whose primary investor and counterparty relationships are in those regions, the relocation calculation may favour a partial move – maintaining a presence in the UAE while establishing a genuine Hong Kong entity for Greater China and Asia-Pacific activities – rather than a clean exit.

Where does the risk actually sit for principals mid-move in 2027?

Our read on the current position is that the risk for principals already mid-move concentrates in three specific areas.

First, the governance gap. A principal who has moved to Hong Kong but has not yet reorganised the board and governance of their offshore entities is in the highest-risk window. The management-and-control clock has started. Every board decision taken from a Hong Kong phone or laptop is a fact that a revenue authority can later examine. The remediation step is to formalise governance – real directors, real meetings, real documentation – before the next fiscal year-end creates a reviewable period.

Second, the FSIE substance analysis. Family offices that have been receiving passive income into a Hong Kong entity without a documented FSIE analysis are exposed. The FSIE regime has been in force since 2023. Revenue authority attention to substance conditions has increased. A file review now – before a notice of assessment raises the question – is preferable to a retrospective reconstruction.

Third, the trust governing-law mismatch. Trusts established under UAE free-zone law or under civil-law instruments that do not map cleanly onto common-law trust concepts create a recognition risk in Hong Kong courts and, potentially, in the offshore jurisdictions where the underlying assets are held. Where the principal has changed their residence but not reviewed the trust instrument, a mismatch between the governing law and the practical administration of the trust can produce unintended consequences – including questions about who has effective control and therefore who is taxable on the trust's income and gains.

There is a fourth area that our desk is watching but that has not yet crystallised as a systematic risk: the Mainland China interface. Principals relocating from the UAE to Hong Kong with Mainland China business interests need to consider how the move affects their Mainland filing position, their access to treaty relief under double-tax agreements, and any controlled-foreign-company analysis that the Mainland tax authority may apply to their offshore holding entities. This is a developing area, and the correct analysis depends heavily on the specific facts of the Mainland business exposure.

If an earlier structuring step, a filing position or a governance arrangement has created a stalled or inconsistent result, a second read can identify the strategic error and the options still open. Write to us at info@lockhartyip.com.

A micro-scenario: the principal who moved twice

An illustration from our cross-border practice captures the sequencing problem clearly. A Middle Eastern family had established a Cayman holding structure in the early 2010s, managed effectively from the UAE through a single UAE-resident trustee and a family member who served as executive director. The family relocated to Hong Kong in stages across 2024 and 2025. By the time the family came to us in late 2025, the executive director was in Hong Kong, taking all material investment decisions from a Hong Kong office. The Cayman trustee had not been changed. The board had not met formally in the Cayman Islands for over a year.

The immediate issue was management and control: the Cayman holding entity was arguably Hong Kong-resident under the Inland Revenue Ordinance, with no Hong Kong tax returns filed. The secondary issue was FSIE: the entity had been receiving dividends from Mainland-facing operating companies into the Cayman vehicle, which, if Hong Kong-resident, would be subject to the FSIE analysis. We re-sequenced the governance steps, documented the board reconstitution in the appropriate offshore jurisdiction, and prepared a defensible contemporaneous record of where decisions had been made. The file was submitted to the Inland Revenue Department with a proactive disclosure.

The outcome was qualitative – the matter moved toward resolution – but the remediation cost was substantially higher than a pre-move governance review would have been. The lesson is not that the structure was wrong. It is that the execution sequence had not kept pace with the physical relocation of the principal.

A second scenario that our desk sees with increasing frequency involves UAE free-zone entities. A principal operating from a Dubai International Financial Centre entity relocates to Hong Kong and establishes a Hong Kong family-office company. The DIFC entity remains technically active, with UAE-based staff handling administrative functions, while the investment decisions migrate entirely to Hong Kong. The DIFC entity continues to receive management fees from the underlying portfolio. The question of whether those fees are now attributable to a Hong Kong permanent establishment of the DIFC entity – or whether the DIFC entity has effectively ceased to be UAE-managed – is one that the relevant authorities on both sides may eventually examine. The structural answer requires a clean division of functions, documented at the entity level, before the migration of decision-making is complete.

What the relocation sequence should look like

Our view of the correct sequence for a UAE-to-Hong Kong family-office relocation, drawn from the experience of acting on cross-border relocations of this kind, is as follows.

The first step is a pre-move structural audit: mapping every legal entity in the structure, its jurisdiction of incorporation, its governing law, its current management location, and the nature of the income it receives. This is not a filing exercise. It is an analytical step that identifies where management and control currently sits and where it will migrate to after the move.

The second step is governance reorganisation. Before the principal relocates, the board of each offshore entity should be reviewed. Where the management-and-control risk is high – typically, where the principal is the sole or dominant decision-maker – additional directors with genuine authority and physical presence outside Hong Kong should be appointed, and the governance process should be formally documented. See also our guide to BVI family-office relocation to Hong Kong, which addresses the equivalent steps for BVI structures, and our analysis of Cayman-to-Hong Kong holding company relocation for the Cayman-side sequence.

The third step is the FSIE analysis for each entity that will receive foreign-sourced passive income into Hong Kong. The analysis needs to identify whether the participation exemption or the substance-based exemption is available, and whether the entity's staffing and operating expenditure meet the relevant conditions. This analysis should be completed and documented before the first Hong Kong profits-tax return is due.

The fourth step is the trust review. The governing law, the trustee's residence and the practical administration of each trust structure need to be assessed against the post-move position. Where a governing-law change or a trustee change is appropriate, that step should be completed as part of the pre-move restructuring, not left to run alongside the principal's physical relocation.

The fifth step is the UAE exit compliance review: confirming that all UAE filing obligations have been met, that substance requirements for the relevant periods have been satisfied, and that the UAE entity or entities are properly dormanted or dissolved as appropriate. Leaving UAE entities technically alive with no management activity creates a compliance tail that is disproportionately costly to manage years later.

For a full analysis of how this sequence applies to your specific structure, and how the Hong Kong entity and offshore layers should be configured, our capital relocation practice page sets out the broader service offering. To begin the assessment, email info@lockhartyip.com.

How the objection to complexity should be addressed

There is a view among some principals that the UAE-to-Hong Kong move is administratively straightforward: you move, you open a Hong Kong company, and Hong Kong's territorial tax system takes care of the rest. This view is understandable – Hong Kong's tax system is genuinely simple by international standards – but it understates the execution dimension of the move at the holding and trust level.

The territorial principle means that Hong Kong taxes only Hong Kong-sourced profits. But the management-and-control test is an exception to the benefit of offshore incorporation: it can bring an offshore entity within the Hong Kong charge even though the entity is not incorporated here. The FSIE regime is a further overlay that conditions the exemption of foreign-sourced passive income on substance. Neither of these mechanisms is obscure. Both are well-established in Hong Kong tax practice. The issue is that principals relocating from the UAE – where the tax system has historically been simpler and the concept of management-and-control residence is less developed – are not always guided through them by their existing advisers before the move is executed.

The correct response to the complexity objection is not to simplify the analysis but to front-load it. The structural work that is genuinely complex – the governance reorganisation, the FSIE analysis, the trust review – is far more manageable before the move than after. The principal who invests in pre-move structuring is typically in a materially better position than the one who moves first and structures retrospectively.

Related practices

• Private Wealth – trust, succession and asset-protection structuring across jurisdictions
• Tax Positions – FSIE analysis, Pillar Two, profits-tax residence and treaty positions
• Holding Structures – BVI, Cayman and Hong Kong entity design for cross-border groups

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.