How to approach a holding structure for a family-owned group in the BVI

A family-owned group reaching across borders carries a structural question that compounds with every new asset, every new generation, and every new jurisdiction it enters. Which entity holds what, on behalf of whom, and under which law? For groups whose operating business sits in or near Greater China, the answer usually involves at least two layers: a Hong Kong intermediate company and a BVI holdco (a holding company incorporated under the BVI Business Companies Act) at the apex. Getting the sequence right matters. Getting the substance wrong costs more than the structure saves.

A holding structure for a family-owned group in the BVI is built in six sequential steps – from ownership mapping to governing-document execution – with each step gating the next. The BVI Business Companies Act supplies the corporate mechanics; the genuine substance and treaty-access questions are answered at the Hong Kong intermediate level, not at the BVI apex. That is the distinction that drives the practical design.

This guide walks through each step in order, names the governing instruments at each gate, identifies the single most common structural error, and closes with a short decision checklist for in-house counsel preparing for a first structuring conversation.

What decision does the family actually face – and what are the real options?

The structural decision is not, at root, a legal question. It is a governance question with legal consequences. A family group must decide who controls the apex entity, how that control passes on death or incapacity, who can see the register, and which court or arbitral tribunal resolves a family-level dispute about the structure itself.

The options in the market cluster around three approaches. First, a bare BVI holdco with registered shares held directly by individual family members. Simple, but operationally fragile: control depends on keeping all shareholders aligned, and there is no buffer against forced heirship claims under foreign law. Second, a BVI holdco with shares held through a Hong Kong family-holding company, which sits above the operating entities and below the ultimate family layer. This intermediate Hong Kong level adds administrative cost but creates a cleaner boundary between the group's trading operations and the family's ownership stake. Third, a BVI holdco with shares settled into a discretionary trust governed by the law of an appropriate offshore centre. This removes the asset from the family's personal estate for succession purposes, at the cost of giving up direct legal ownership.

None of these options is inherently superior. The right choice depends on the family's asset base, the jurisdictions in which those assets sit, the tax residence of the family members, and the degree of control the principal generation is prepared to surrender. What matters is that the choice is made deliberately, before the first company is incorporated, not after it.

In our cross-border practice, the most common structural error is not a bad choice between these three approaches. It is the failure to make any explicit choice at all – resulting in a BVI holdco whose governance documents are silent on succession, whose shares are held in a way that was never reviewed against the family members' personal tax positions, and whose connection to Hong Kong is too thin to support any treaty or substance argument if challenged.

Step 1 – Map the ownership and the beneficial-ownership position before touching the structure

The first step is an ownership map, not an incorporation form. Before any entity is formed, the adviser needs a complete picture of who ultimately owns and controls the group today, in which jurisdictions those individuals are resident or domiciled, what assets the group currently holds and where they are situated, and whether any existing entities already carry liabilities or regulatory history that must be addressed before restructuring.

This step is also the point at which the beneficial-ownership register (the Significant Controllers Register, required under Hong Kong law for Hong Kong-incorporated companies) becomes relevant if there is already a Hong Kong entity in the chain. Hong Kong-incorporated companies have been required to maintain a Significant Controllers Register since 1 March 2018. Any restructuring that changes the ultimate beneficial owner of a Hong Kong entity must update that register. If the BVI holdco is being inserted above an existing Hong Kong opco, the Hong Kong company's SCR will reflect the change.

At the BVI level, the BVI Business Companies Act imposes its own beneficial-ownership reporting requirements through the BVI's centralised beneficial-ownership database. These are distinct from the Hong Kong position. Both sets of requirements apply in parallel, and both must be addressed at this step – not retrospectively.

The ownership map also needs to capture the family's personal succession position. Hong Kong trust law, as reformed with effect from 1 December 2013, has no forced-heirship regime and includes a statutory firewall that protects Hong Kong-law trusts against foreign forced-heirship claims. If any family member is a national of a civil-law jurisdiction that does impose forced heirship, the structural choices made at step one will directly affect whether that claim can reach the group's assets.

Step 2 – Decide the apex jurisdiction and the substance question before incorporation

The BVI is the apex jurisdiction most commonly chosen for Greater China family groups, principally because the BVI Business Companies Act allows flexible share structures, dispenses with the requirement for a minimum paid-up capital, and imposes no tax at the BVI level on offshore income or capital gains. These are well-understood features. What is less well-understood is that the BVI's advantages are almost entirely structural. The BVI is not a treaty jurisdiction; it does not have an extensive network of double-tax agreements. Treaty access – the ability to interpose the structure between operating income and a home-state withholding or capital-gains charge – is provided, if at all, by the Hong Kong intermediate level.

That distinction drives the substance question. Treaty access through Hong Kong requires that the Hong Kong entity has genuine economic substance in Hong Kong: real management and control exercised in Hong Kong, meetings held in Hong Kong, decisions recorded in Hong Kong. The foreign-sourced income exemption (the FSIE regime, in force from 1 January 2023, as amended) imposes additional economic-substance conditions on certain categories of passive income received by Hong Kong entities from offshore sources. A BVI holdco that remits dividends to a Hong Kong company with no genuine substance in Hong Kong does not achieve the treaty position the family imagines.

The decision at step two is therefore not simply "BVI or Cayman?" at the apex, but "what substance do we commit to at the Hong Kong level, and does that substance justify the treaty and FSIE position we are seeking?" If the answer is that the family is not prepared to maintain genuine Hong Kong substance, the design must reflect that honestly – either by seeking a different intermediate jurisdiction or by not claiming treaty benefits the structure cannot support.

For groups with consolidated revenue at or above EUR 750 million, the Hong Kong minimum top-up tax (Hong Kong's Pillar Two implementation, effective for fiscal years beginning on or after 1 January 2025) introduces an additional layer of analysis. Groups below that threshold are outside the immediate Pillar Two perimeter but should note that the threshold applies at the MNE group level, not at the level of any single entity.

Step 3 – Choose and execute the BVI corporate documents, including the shareholders' agreement

Once the ownership map and the substance decision are settled, the BVI incorporation can proceed. The BVI Business Companies Act permits a wide range of share structures: multiple classes, weighted voting rights, redeemable shares, shares with or without par value. The choice of structure at this step should reflect the governance decisions made at step one – specifically, how control is allocated between the family members, how it passes on the death or incapacity of a principal shareholder, and what restrictions apply to any proposed transfer of shares outside the family.

The memorandum and articles of association (the BVI equivalent of constitutional documents) must be drafted to reflect these choices expressly. A standard form BVI set of articles – which many registered agents supply as a starting point – will not contain the specific governance provisions a family group needs. The gap between the articles and the family's actual intentions is where disputes begin.

The shareholders' agreement sits alongside the articles and is governed by whatever law the parties choose. For a Greater China family group, the choice of governing law for the shareholders' agreement is itself a structural decision with enforcement implications. An agreement governed by Hong Kong law can be enforced through the Hong Kong courts or through a Hong Kong-seated arbitration under the Arbitration Ordinance (Cap. 609). A Hong Kong arbitral award can then be enforced against assets in the Mainland under the 1999 Arrangement and the 2020 Supplemental Arrangement between the Mainland and the HKSAR; simultaneous enforcement applications against assets in multiple jurisdictions have been permitted since the 2021 amendment to those Arrangements.

If the family dispute is likely to be heard in a Mainland court, the question of whether the governing-law clause and jurisdiction clause will be recognised needs to be addressed at drafting stage, not at the point of dispute. Counsel on our desk regularly advise on this interface when the family group has operating companies on the Mainland and holding entities in Hong Kong and the BVI simultaneously.

Step 4 – Address the succession layer: trust, will, or shareholder arrangement?

A BVI holdco is a legal person. It does not die when a shareholder dies. But a deceased shareholder's shares pass under the law governing that individual's estate – which may not be the law the family intended, and which may involve forced heirship, estate duty, or a probate process in a jurisdiction the family has not considered.

This is the step where the three structural options identified at the outset diverge most sharply in their practical effects. Where the family elects to hold the BVI shares through a discretionary trust, the shares leave the personal estate of the settlor on settlement and are held by the trustee for the benefit of the defined class of beneficiaries. The trust deed specifies the distribution mechanism, the powers of the trustee and the protector, and the governing law. For a Hong Kong-law trust, the Trustee Ordinance (Cap. 29) applies; the 2013 reform abolished the rule against perpetuities for Hong Kong trusts and strengthened the statutory firewall against foreign forced-heirship claims.

Where the family elects not to use a trust, the alternatives are a testamentary disposition by will (which will need to be recognised in each jurisdiction where assets or companies are registered) or a shareholder arrangement that provides for the automatic transfer or redemption of shares on death. Each of these alternatives has different recognition and enforcement implications across the jurisdictions involved.

The succession layer cannot be designed in isolation from the tax-residence position of the family members. Hong Kong has no capital gains tax, no inheritance tax, and no general wealth tax. Where family members are resident in jurisdictions that impose any of these charges, the design of the succession layer – in particular, the governing law of any trust and the residence of any trustee – will interact with those charges. That interaction must be modelled before the trust deed is executed.

Consider a Greater China family group that came to our desk in mid-2025. The principal shareholder held BVI shares personally. He was resident in Hong Kong. Two adult children were resident in a European jurisdiction that imposed forced heirship on moveable assets. The family had assumed the BVI holdco was insulated from any forced-heirship claim because the BVI itself has no such rule. That assumption was not fully correct: the question was whether the children's home-state courts would treat the BVI shares as moveable property subject to that state's forced-heirship law, which they might. Resettling the shares into a Hong Kong-law discretionary trust, with the benefit of the 2013 statutory firewall, was part of the response. The transaction was completed before the end of that year.

Step 5 – Satisfy the ongoing substance, compliance, and disclosure requirements

A holding structure is not a static artefact. It requires ongoing maintenance to remain compliant and to remain effective. For a BVI-over-Hong Kong structure serving a Greater China family group, the ongoing obligations fall into three categories.

First, the BVI entity must comply with the BVI's economic-substance regime for entities carrying out a relevant activity as defined under BVI law. Pure holding companies have a reduced substance requirement under BVI law, but that reduced requirement must still be met: the entity must be managed and directed in the BVI to the required extent, and it must file the required substance information with the BVI International Tax Authority each year. Failure to comply attracts penalties and, ultimately, the risk of strike-off.

Second, the Hong Kong intermediate company must maintain the genuine substance described at step two. In practice, this means holding board meetings in Hong Kong at which material decisions are made and recorded, maintaining a local bank account through which group income flows, and filing annual profits tax returns with the Inland Revenue Department. The first profits tax return for a newly incorporated Hong Kong company is typically issued by the IRD around 18 months after incorporation; the return is generally due within one month of issue. Missing that first return is more consequential than it appears, because it sets the pattern for the IRD's assessment of the company's compliance history.

Third, the beneficial-ownership reporting must be maintained at both levels. Changes in the family's ownership of the BVI holdco – whether through share transfers, death, the operation of a trust, or a new family member acquiring shares – must be reflected promptly in the BVI's centralised register and, where a Hong Kong entity is affected, in that entity's Significant Controllers Register.

These three categories of obligation are not burdensome if they are built into the structure from the outset. They become burdensome – and costly to remediate – when they are addressed for the first time during a regulatory review, a sale process, or a succession event.

If a pre-existing BVI structure has accumulated years of non-compliance or governance drift, the remediation path is different from the path for a new structure. We have written separately on the process of unwinding or simplifying a legacy offshore structure for those who are dealing with that situation.

Step 6 – Execute and record: the closing sequence

The final step is execution: the signature and exchange of all constitutional, governance, and succession documents, the payment of any applicable stamp duty, and the recordal of all changes with the relevant registries.

On stamp duty, the position under Hong Kong law is that the transfer of shares in a Hong Kong-incorporated company attracts ad valorem stamp duty of 0.1% per party (0.2% in total) on the higher of consideration or market value. The position for the transfer of shares in a BVI company that does not hold Hong Kong-situated assets is generally outside the scope of Hong Kong stamp duty, though this is fact-specific and should be verified on the particular circumstances before completion.

The closing sequence also includes the execution of any trust deed, the formal settlement of any assets into the trust, and the first board meeting of the BVI holdco under its new constitutional documents. That first board meeting is not a formality. It is the moment at which the management-and-control record begins. The minutes should record the decisions made, the persons present, and the location of the meeting. A board meeting held outside the BVI and outside Hong Kong on the day of incorporation creates an immediate substance record that contradicts the structure's design.

At closing, the adviser should also confirm that all changes to the SCR, the BVI beneficial-ownership register, and any share register have been made and documented. A closing checklist that tracks each of these steps is the simplest way to ensure that the structure as executed matches the structure as designed.

For groups that are also planning a capital-markets transaction or an exit, the structural decisions made at closing will directly affect the options available at that later stage. We have considered the intersection of holding-structure design and exit preparation separately at holding structure ahead of a Singapore listing or exit.

The common mistake: conflating the BVI apex with the substance layer

Every step in this guide points toward the same structural error – treating the BVI holdco as the place where the structure's value is created, when in fact it is the Hong Kong intermediate level where the value-relevant decisions are made. This is the single most common mistake counsel on our desk see in legacy structures that have been built cost-efficiently but not substance-effectively.

The pattern is consistent. A family group incorporates a BVI holdco in a matter of days, using a standard registered agent's service. The holdco is inserted above an existing Hong Kong operating company. The BVI directors are nominee directors provided by the registered agent. The Hong Kong company's board is the same two family members who have always run the business. No one reviews whether the Hong Kong company's board, as constituted, exercises genuine management and control in Hong Kong in a way that supports a substance argument. No one asks whether the FSIE conditions are met for the category of income the Hong Kong company will receive from the BVI holdco or from its own offshore subsidiaries.

Three years later, the family initiates a sale process. The prospective buyer's tax adviser raises the substance question. The answer – that the BVI holdco's directors are nominees who sign whatever the registered agent sends them, and that the Hong Kong company's board minutes are prepared in a jurisdiction outside Hong Kong and signed by circulation – is not the answer that supports the treaty or FSIE position the family has been claiming. The remediation cost, in time and professional fees, typically exceeds many times the cost of getting the design right at inception.

What foreign counsel sometimes miss is that the one country, two systems framework governing Hong Kong's relationship with the Mainland creates a specific cross-border context. The boundary between Hong Kong and the Mainland is not a normal international border for corporate-law purposes, but it is a meaningful boundary for tax, enforcement, and regulatory purposes. A structure designed without reference to that boundary – by advisers who treat Hong Kong as simply a convenient common-law jurisdiction with low tax rates – will often have blind spots at exactly the points where the Mainland-side operations create exposure.

The second, related mistake is building the structure on the assumption that the governing documents alone carry the day. They do not. A discretionary trust deed that names a trustee who has never held a board meeting, a shareholders' agreement that specifies Hong Kong arbitration but whose parties have no assets in Hong Kong, a BVI holdco whose constitutional documents provide for management in the BVI but whose directors are nominated by a non-BVI corporate services provider and have never set foot in Road Town – these documents exist on paper, but the structure they purport to create does not exist in substance.

The guide to holding structures across the full range of structures we work with is available at our holding structures practice page.

Decision checklist for in-house counsel

Before the first structuring conversation, a GC or in-house adviser should be able to answer these questions. The questions are not comprehensive – each family group's position is specific – but they are the minimum threshold for a productive first meeting.

• Who are the ultimate beneficial owners, in which jurisdictions are they resident or domiciled, and has the existing SCR position been verified?
• Is the family prepared to maintain genuine substance at the Hong Kong intermediate level – resident directors, local bank account, board meetings physically held in Hong Kong?
• What categories of income will the Hong Kong entity receive from the BVI apex and from any offshore subsidiaries, and has the FSIE regime been reviewed against those income types?
• Has the succession position of each family member been mapped against the law of their domicile or residence, including any forced-heirship exposure?
• Is there a dispute-resolution provision in the shareholders' agreement that is capable of producing a judgment or award enforceable where the group's assets actually sit?
• Has a closing checklist been prepared that tracks each registry update – BVI beneficial-ownership database, Hong Kong SCR, BVI share register, any relevant trust documentation?
• Where does the BVI holdco's management-and-control record start, and who will be responsible for maintaining the substance record on an ongoing basis?

If the answer to any of these questions is uncertain, the structuring conversation should start there – not with the incorporation form.

Related practices

• Private Wealth – trust, succession and asset-protection design for family-office principals across jurisdictions
• Tax Positions – FSIE, Pillar Two and treaty-access analysis for Hong Kong intermediate holding companies

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Related

• Holding Structures
• Unwinding Or Simplifying Legacy Offshore Structure
• Holding Structure Ahead Singapore Listing Or Exit Singapore 4

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