I periodically compile an update of developments in jurisdictions around the world. In 2018, I focused on family offices.1 Now, I’ve added client private services to the mix. An expert in each jurisdiction reports on the highlights of what’s happening in that jurisdiction. Unless otherwise noted, the updates apply to residents of that particular jurisdiction. Thanks to each reporter for their contributions. Here we go!
Argentina
The Inspección General de Justicia (IGJ) (Office of Legal Entities) of Argentina issued General Resolution 19/2021, allowing the registration of family protocols (that is, documents or contracts setting out agreements among family members in a family company) with the Public Registry.
Family protocols aren’t contemplated by Companies Law No. 19.550 and therefore aren’t regulated. The registration will be for publicity purposes only so that third parties know the family protocol’s existence. Lack of registration doesn’t affect the validity of the family protocol.
While registration wouldn’t be subject to legal scrutiny (that is, to assure compliance with the law), the registration must meet certain conditions:
- The family company to which it refers must be registered with the IGJ;
- Its nature as a “family company” should result from the relationship among the majority of its members (with blood ties or as in-laws);
- The protocol must be signed by all the partners/shareholders, even those who aren’t members of the family;
- The protocol must be entered by a notarial deed or by a private document with signatures certified by a notary public;
- The registration must be requested by the company’s board or applicable governing body; and
- All the signatories must agree to the registration.
The registration is voluntary. Only one protocol may be registered with respect to each family company.
Considering the characteristics of family protocols and the issues such documents generally address, it’s difficult to foresee much interest in making them public. Also, it’s unclear why only one protocol per company may be registered, as there may be more than one group. It’s the big family companies that usually adopt these instruments, and there may be several branches of a family, particularly after the first generation.
Hopefully this isn’t the first step towards mandatory registration. The obligation to make any such document public would be a deterrent to their adoption. A family may want to keep the provisions of a family protocol confidential, not to sidestep the law but because the provisions are more personal and often go beyond what would typically be governed by a shareholders’ agreement.
— Patricia López AuFranc, partner at Marval, O’Farrell & Mairal in Buenos Aires, Argentina
Australia
Will immigration lead to growth in inbound family office investment? Over the last five years, Australia’s profile as a family office center has been elevated, moving from a nascent segment of the market to one that’s now highly visible, if not transparent. Several reasons for this increase in immigration exist, including Australia’s attractiveness as a country blessed with not only a moderate climate and political stability but also the impact economically of its geographic proximity to southeast Asia, particularly China and India.
In the Henley Private Wealth Migration Report 2023,2 Australia reclaimed the top spot for ultra-high-net-worth (UHNW) immigration. The report estimated that 5,200 UHNW individuals would be relocating to Australia in 2023, spending more than one half of the year in the country. It’s not surprising that the countries that are estimated to provide the largest numbers of net outflow of UHNW migration during 2023 are China and India, countries with whom Australia has deep trade relations and more recently, a more harmonious political relationship.
Similarly, supporting Australia’s elevation as a country for UHNW migration, the TMF Group’s 10th Global Business Complexity Index 20233 suggested that Australia was ranked 60th out of 75 countries with regard to relative complexity, with Curaçao, Denmark and the Cayman Islands regarded as the least complex.
For a country that still has only 26.5 million people, Australia has a high percentage of family offices according to KPMG Australia’s most recent survey, Australia Family Office Compensation Benchmark 2023, noting that over 57% of family offices in Australia were set up in the last 10 years.4
In 10 years, we’ll see to what extent Australia can remain a destination of choice for UHNW individuals and their families, persuaded by our climate and security and not dissuaded by increased complexity and taxation policies designed to reduce wealth inequality and manage the burden of an aging population.
— Keith Drewery, director at KPMG Australia in Sydney
China
Asia is often regarded as the world’s leading economic growth engine. In the five years leading up to 2021, Asia’s economy in terms of gross domestic product expanded by 21%, as indicated by the China Family Office Report 2022.5 According to the Forbes Billionaires List for 2021,6 Greater China—including Mainland China, Hong Kong, Macao and Taiwan—had a grand total of 744 billionaires, while there were 724 in the United States and 617 in Europe. The average age of Asian billionaires is just 59; Chinese tycoons are the youngest, at age 55 on average.
Alongside the growth of wealth in Asia, family offices have been expanding rapidly. In 2012, it was estimated that there were around 4,200 single family offices (SFOs) globally, with 3,000 based in North America, 1,000 in Europe and just 100 in Asia. In 2022, there were approximately 10,000 SFOs globally, with 6,000 based in North America, 2,500 in Europe and 1,200 in Asia.7 Despite the similar numbers of wealthy individuals in Asia, North America and Europe, there’s a significant disparity between the numbers of family offices located in the West and the East, which indicates the great growth potential for family offices in Asia, especially in Greater China.
There are two key differences between family offices in the West and the East. First, the history of family offices in Asia is much shorter—the longest established are just over 30 years old. Most of these family offices were established within a decade by new wealth (that is, wealth generated within one generation). Second, while Western family offices are usually separate organizations with professional leadership, formalized family governance and investment processes, the Chinese can view this as being too structured and overly legalistic. Chinese family offices tend to be less professional and more informal. In addition to the two common types of family offices—SFOs and multi-family offices—a third type is often seen in the region: the embedded family office (EFO), which is a less formal structure in that some of the family office services are performed by employees or family members who are involved in the family business. The EFO becomes another potential growth source for the more structured family offices in the next decade.
— Winnie Qian Peng, director of the Roger King Center for Asian Family Business and Family Office, The Hong Kong University of Science and Technology in Hong Kong
France
French forced heirship may apply even when U.S. law applies to an estate.
In French domestic law, children are entitled to a minimum share of their parent’s estate even when a will provides for the contrary. But when dealing with international estates, EU Regulation no. 250/2012 enables an individual to choose the law of their nationality to apply to their whole estate with no distinction as to movables (that is, personal property) or immovables (that is, real property). The French courts disregard the applicable law if it’s contrary to their international public order. But earlier French Highest Court decisions held that a foreign law that didn’t guarantee minimum succession rights for descendants wasn’t contrary to French international public order if it didn’t leave a child in a situation of need or economic precarity.
Therefore, this choice of law (profession juris) is widely used when drafting a will for U.S. nationals who don’t want French law’s forced heirship provisions to apply to their future estate.
In August 2023, a new text was introduced in the French civil code. It decides that when the deceased or at least one of the children is, at the time of death, a national of a member state of the EU or resides habitually in the EU, and when the foreign law applicable to the estate doesn’t allow for any forced heirship mechanism protecting the children, each child or their heirs may claw back French existing assets so that they receive the reserved share that they’re entitled to under French law. This reintroduces a forced heirship mechanism when U.S. law applies to French situated assets.
Many French commentators opine that this new text is contrary to the EU Regulation no. 250/2012 and will be eventually disregarded by the courts. But until a clear court decision is obtained, make sure you review an existing will with that new issue in mind.
— Anne Guichard, notaire in Paris
Germany
Check-the-box rules for German partnerships. German partnerships aren’t subject to corporate income tax. The partners are individually subject to income tax. However, Germany implemented a check-the-box election for certain partnerships. These partnerships may choose to be taxed as corporations and have their partners taxed as shareholders of corporations. This check-the-box election raises difficult questions, especially in international cases, for example, when it comes to the application of tax treaties. One question is whether a check-the-box German partnership owned by a U.S. domiciliary now qualifies under Article 9 of the U.S./German Estate & Gift Tax Treaty. This would mean that if the owner and the recipient of such a partnership are U.S. residents, the transfer can’t be taxed in Germany. The answer is unclear.
German exit taxes for shareholdings larger than 0.99%. The German Exit Tax regime was reformed and tightened. The reform includes the termination of the unlimited tax deferral in the case of exit taxation for EU/European Economic Area (EEA) citizens moving within the EU/EEA countries. The required period of unlimited tax liability for the application of the exit taxation is reduced from 10 years to seven years. In contrast to the former legislation, this calculation won’t be based on the entire lifetime of the shareholder but only on the last 12 years prior to the exit. This is a helpful change for U.S. expat families with substantial shareholdings when living in Germany. If the U.S. expat family stays less than seven years in Germany, they can exit Germany without triggering the exit tax in their (U.S.) shareholdings.
Gift tax decisions on the distribution of U.S. trusts to German beneficiaries. The German Federal Fiscal Court issued a very interesting decision helping German beneficiaries of U.S. trusts avoid being exposed to income and gift taxes: A distribution from a U.S. trust isn’t gift taxable if it’s a discretionary trust, meaning that the beneficiary has no strict claim on the distribution, as in the case of a qualified domestic trust.8 With proper trust deed drafting, German resident beneficiaries of U.S. trusts can avoid the tax. If they’re only discretionary beneficiaries and the trustee has a broad discretion on “how,” “when” and “how much,” no gift taxes are owed when distributing income to the German beneficiary. Nevertheless, a distribution from a trust is income taxable if the income wasn’t taxed under the German controlled foreign entity taxation. These rules apply to foreign family trusts and make it necessary for a German beneficiary of a U.S. family trust to file special controlled foreign corporation (CFC) tax returns, in which the income of the trust is calculated under German tax accounting standards, with the benefit of the application of the U.S./German Income Tax Treaty. The application can exclude some undistributed trust income from the German taxes on the undistributed income.
The Federal Fiscal Court also issued a decision on the interpretation of the U.S./German Estate & Gift Tax Treaty concerning a U.S. citizen being a beneficiary of a U.S. trust and coming to Germany.9 Different from a U.S. testator or settlor of a U.S. trust, a U.S. citizen who’s an expat beneficiary in Germany can’t rely on the 10-year-rule of Article 4 Section 3 of the Double Tax Treaty. Under that section, a U.S. citizen isn’t exposed to the German transfer-tax system for 10 years. Now, it’s clarified that this provision applies only to testators, donors and settlors, not heirs, donees and beneficiaries.
— Christian von Oertzen, partner at Flick Gocke Schaumburg in Frankfurt, Germany
Hong Kong
The year 2023 is a good one for family offices. Following its signature “Wealth for Good in Hong Kong Summit” attracting influential leaders in the family office space in
March 2023, the Hong Kong government issued a “Policy Statement on Developing Family Office Businesses”10 (Policy Statement). The Policy Statement laid out concrete work to advance the city’s position as Asia’s leading family office destination. Tax concessions for family-owned investment holding vehicles managed by SFOs were gazetted in May 2023. A Network of Family Office Service Providers was inaugurated in June 2023. Other works in progress include the setup of a new Capital Investment Entrant Scheme and a new Hong Kong Academy for Wealth Legacy.
Families are more receptive to the idea of family offices, from both generation and the geography perspectives. Rising-generation members actively explored how impact investing and environmental, social and governance investing can be leveraged through their family offices. In addition to mainland wealth creators, a growing diversity of wealth owners, ranging from those in Dubai to Russia, have explored setting up family offices in Hong Kong. The China-United States turmoil may accelerate this movement.
Turning to the choice of jurisdiction between Hong Kong and Singapore, the question remains whether it’s an either-or competition or co-opetition where success of both Hong Kong and Singapore can bring in more wealth to the region. How service providers can help families simultaneously and flexibly manage wealth in the two locations is also a subject of discussion.
— Jeremy Cheng, researcher, Center for Family Business, The Chinese University of Hong Kong in Hong Kong
Israel
The Israeli Tax Ordinance (New Version)11 is expected to be amended in the near future in the area of international taxation. The amendments follow a 2021 report issued by a public committee in the field of international taxation (the Committee’s Report). The purpose of the committee was to provide recommendations in an attempt to simplify and grant certainty and efficacy to the Israeli tax system in the context of international taxation. In the private client field, the Committee’s Report covers areas including tax residence, exit tax rules, CFC rules, reporting obligations by new immigrants, clarification of the treatment of U.S. limited liability companies in Israel and limiting certain foreign tax credits. The amendment to the definition of “tax residence” seeks to create certainty in the process of determining residence with the aim of establishing decisive legal presumptions (contrary to the current rebuttable presumptions). These decisive presumptions aim to determine whether an individual is a resident of Israel or a foreign resident. In connection with exit tax, the Committee’s Report recommends measures to enforce exit tax payments and options for deferring such tax payments depending on, among other factors, the value and types of assets owned by the individual emigrating from Israel. In the area of new immigrants, currently, foreign source income of a new immigrant is tax exempt for a period of 10 years. The Committee’s Report recommends abolishing the reporting exemption granted to new immigrants while maintaining the tax exemption and revising the CFC provisions for shares that are held by new immigrants. This Committee’s Report is in the legislative drafting process and has yet to be presented to the Israeli Knesset for the legislative voting process.
— Lyat Eyal, partner at Aronson, Ronkin-Noor, Eyal Law Firm in Tel Aviv, Israel
Italy
A flat tax is applicable to individuals from abroad who decide to transfer their tax residence to Italy. The tax is intended to encourage Italian tax residence for individuals with high potential value assets and foreign source income.
The objective of this legislation is to encourage investment, consumption and the establishment of family units and individuals with high potential (income or assets) who want to settle in Italy on a long-term basis.
In 2023, the Italian budget law introduced a favorable tax regime similar to the Portuguese non-habitual resident, with the aim of attracting the foreign population to southern Italy. According to the text of the Italian tax regime for foreign retirees, all foreign source income will be subject to a 7% substitute tax, regardless of whether it’s pension income or income from investment portfolios (capital gains, dividends or interest).
The system is thus extremely simple: Foreign pensioners moving to southern Italy will pay only 7% on all their non-Italian income.
— Omar Hegazi, attorney at law, OMH International Boutique Law Firm in Bergamo, Italy and Silvia Lazzeretti, partner at Macchi di Cellere Gangemi in Milan, Italy
Mexico
Consistent with the Financial Action Task Force recommendations, in 2022, Mexico’s Tax Code was amended to require taxpayers to collect and provide to the Mexican tax authorities their beneficial ownership data (including name, date of birth, gender, nationality, tax residence, tax identification number and marital status) of all beneficial owners (including anyone who holds more than a 15% equity interest or exercises control, directly or indirectly). For instance, under these reforms and Mexico’s anti-money laundering (AML) laws, if your U.S. client is buying that beachfront condo in Cabo San Lucas or Cancun through a Mexican trust (in Spanish, fideicomiso), be prepared to share with your Mexican co-counsel, the real estate broker, the developer/seller, the notary formalizing the transaction and the Mexican trustee or intervening bank notarized, apostilled and translated copies of all formation documents, bylaws, operating agreements, living or revocable trust agreements and tax identification numbers for all vehicles up the chain, as well as the Social Security numbers, passports, utility bills, birth certificates and even marriage certificates of each beneficial owner. Similarly, if a client forms or invests in a Mexican entity or opens a bank account, the same data and documentation must be provided to the Mexican notary or bank, respectively. The good news: Mexico’s data protection and bank secrecy are very strict, except when Uncle Sam comes knocking!
— Ben Rosen, partner at Rosen Law, Los Cabos, Mexico, Cancun, Mexico and San Diego
Saudi Arabia
A waqf (plural awqaf)is an endowment made by a Muslim for philanthropic purposes. It involves donating property or assets to be used for charitable endeavors defined by the individual making the endowment during their life or after their death. The concept of waqf has been an integral part of Islamic culture for centuries, with the aim of providing social welfare well beyond their own lives, extending their good deeds for as long as the waqf exists. An example of an ancient waqf that exists to this day is the Caliph Uthman bin Affan, which is around 1400 years old. The Caliph bought a water well for the benefit of all Medina’s residents, and it remained serving them until 1952 when the Saudi government rented the well from the waqf with the proceeds being spent for social welfare. Many other similar examples exist from old farm land, residential or commercial real estate or even stakes in banks and businesses worth several billion dollars, such as the Rajhi Awqaf. The Saudi General Authority of Awqaf (GAA) is an organization that regulates, maintains and develops endowments in Saudi Arabia. It aims to realize the donor’s wishes and enhance its role in economic and social development objectives, in accordance with the objectives of Islamic law and regulations. The GAA plays a crucial role in advancing the endowment sector in the country, working towards achieving economic growth, social development and social solidarity by promoting, managing and regulating those endowments.
— Abdullah Al-Zamil, Riyadh, Saudi Arabia
Singapore
Managing family wealth through a family office is rapidly gaining popularity in Asia. As many Asian families undergo generational wealth transfer, a family office is deemed an ideal set-up to ensure sustainable wealth accumulation and successful transition to future generations.
A major factor fueling this growth are the various policies and schemes launched by the governments of Singapore and Hong Kong, the two major financial hubs in the region.
According to government estimates, Singapore is home to approximately 1,100 family offices.12 This is up from 700 a year ago. The Monetary Authority of Singapore has recently enhanced the Section 13 tax concession scheme and introduced the new philanthropy tax incentive scheme to further strengthen the sector.13 To be eligible for the tax concession scheme, family offices must meet a minimum asset threshold of SG 20 million
($14 million USD) and fulfill other substantial activities requirements.
— Thomas Ang, associate at Clyde & Co. in Singapore
Switzerland
The thunder of Credit Suisse’s bailout has faded, and the clouds have cleared with the waiver of the state guarantees. Peace returned to the largest global cross-border financial center in Switzerland.
For certain private clients, Switzerland is no longer neutral since it independently follows the sanctions of the EU. This has advantages. We’re seeing more and more individuals from the United States, Scandinavia, the United Kingdom and Germany who want to settle in Switzerland both with their companies and privately. Swiss inheritance law was adjusted this year, and the forced heirship rules were softened, which is conducive to international inheritance planning. In the past, Swiss law provided that 50% of an inheritance goes to the decedent’s partner and 50% to their children. That’s been changed so that 25% goes to the decedent’s partner and 25% to their children, meaning that 50% of the inheritance is free to dedicate to other beneficiaries.
Company formations are on the rise, and international corporations continue to choose Switzerland for their European activities. Swiss company law was modernized this year, allowing for flexible definition of equity via capital bands, for example. It’s also of interest to private entrepreneurs that the ETH is the leading university in continental Europe, and a listing on the two stock exchanges SIX and BX is relatively easy. The Swiss economy is robust, with a talented workforce, flexible labor laws, a low inflation rate of around 2% and a Swiss franc that’s strengthened again.
The Swiss sovereign, the people, approved the implementation of a 15% minimum taxation according to the Organisation for Economic Co-operation and Development standard, valid probably from 2024 for larger companies. This shows that Switzerland continues to upgrade its attractiveness to private clients and entrepreneurs on many fronts.
— Ariel Sergio Davidoff, partner at Lindemannlaw in Zurich
United Kingdom
U.K. non-domiciled (non-dom) regime: Is change coming? The non-dom regime is a special taxing regime for non-U.K. domiciled individuals (that is, individuals who move to the United Kingdom but don’t settle permanently). Under this regime, foreign income and gains are tax free unless they’re brought to the United Kingdom. With some careful planning, this often enables wealthy foreigners to live tax efficiently in the United Kingdom for many years. The regime has been entrenched in U.K. legislation for decades. Reforms have been fairly modest, most recently to limit access to the regime for 15 years after coming to the United Kingdom. Previous reforms instituted a charge to access the non-dom regime, but (at a maximum of £60,000) the charge is a drop in the ocean for many wealthy people coming to the United Kingdom. The Labour party (the main opposition party in the United Kingdom) has become increasingly opposed to this regime and argue that there would be a higher net tax take if the regime were scrapped. According to opinion polls, the Labour party is likely to win a significant majority in the next U.K. election (which must be held by January 2025). If so, it’s very likely that this party will take steps to radically reform, or eliminate, the non-dom regime shortly after they’re elected. The current, Conservative government doesn’t appear to share this appetite for change but may in due course be swayed by public opinion. (Labour has indicated it will use the anticipated increase in tax to pay for more doctors and nurses.)
— Russell Cohen and Claire Randall, partners at Farrer & Co LLP in London
Offshore Jurisdictions
My firm advises on the laws of eight offshore jurisdictions. In addition to Hong Kong and Singapore, we advise with respect to:
Cayman Islands—The Cayman Islands hopes to be removed from the Financial Action Task Force “gray-list” as soon as October. The Cayman Islands has issued guidelines on governance of funds and other regulated entities. The Cayman Islands is also proposing changes to their company laws.
Jersey—There have been amendments to the AML rules relating to private trust companies. This is in anticipation of Jersey’s review by MONEYVAL in 2024.
British Virgin Islands (BVI)—There have been major changes to the BVI Business Companies Act. An annual financial return is required but isn’t public; the strike-off procedure has been simplified together with other changes.
— Richard Grasby, partner at Appleby in Hong Kong
Endnotes
1. Barbara Hauser, “A Quick Tour of Family Offices Around the World,” Trusts & Estates (January 2018), www.wealthmanagement.com/estate-planning/family-offices-flourish-around-world.
3.www.tmf-group.com/en/news-insights/publications/2023/global-business-complexity-index/.
4. https://kpmg.com/au/en/home/insights/2023/08/australian-family-office-compensation-benchmark.html.
5. Campden Wealth, The Asia-Pacific Family Office Report 2022, Raffles Family Office, www.campdenwealth.com/report/asia-pacific-family-office-report-2022.
7. The estimated numbers were summarized from various industry reports and expert views.
8. BFH v. 25.6.2021—II R 31/19.
9. BFH v. 20.2.2022—II B 2/22.
10. https://gia.info.gov.hk/general/202303/24/P2023032300717_415645_1_1679627481405.pdf.