The law governing Estate Duty is set out in the Estate Duty Ordinance. Estate duty has the following characteristics:

1. It is based on the territorial principle and is thus only levied on property situate in Hong Kong. The deceased's nationality, residence or domicile are completely irrelevant in determining whether or not an estate duty charge arises. The following examples show when a charge arises and when a charge does not arise:
(1) Bank accounts: A charge arises if the bank account is located in the territory.
(2) Contract Debts: A charge arises on monies owing to the deceased by way of a contract debt if the debtor resides in Hong Kong.
(3) Registered Shares: Registered shares are located in Hong Kong if the share register is situated there.
(4) Bearer Instruments: are located at the place in which they are physically present at the time of death.
(5) Patents and Trademarks: are located in the jurisdiction in which they can be transferred according to the law under which they were created or registered.

2. Estate Duty Tax Rates: The tax is levied at progressive rates with no estate duty being payable where the value of the estate situate in Hong Kong is less than US$962,000 and a maximum rate of 15% being levied on the value of assets exceeding US$1,350,000.

3. Controlled Company Legislation: A deceased shareholder can be assessed to estate duty on the value of Hong Kong situate assets owned by a resident or non resident company in which the deceased had a shareholding provided the
company is deemed a "controlled company". The purpose of this legislation is to prevent avoidance of estate duty by the misuse of the corporate structure.

4. Quick succession relief is available and means that lower rates of estate duty are payable where assets change hands frequently as a result of several deaths closely connected in time (under 5 years).

5. Penalties for delayed payment are severe and include an interest rate of 8% per annum and the doubling of the rate of estate duty payable.

6. For estate duty purposes no deduction is allowed for debts owing by the deceased except where those debts were contracted in Hong Kong to a person ordinarily resident in Hong Kong or alternatively charged on property situate in
Hong Kong.

7. Assets which pass up to 3 years prior to death by way of an inter-vivos gift are deemed to be part of the estate for estate duty purposes. However such gifts are exempt from estate duty if either:
(1) Their value is less than US$26,000 or
(2) The gift was made in consideration of marriage or
(3) The gift was part of the deceased normal expenditure.

8. The following are exempt from an estate duty assessment:
(1) The deceased's matrimonial home is not included in the computation where he leaves the same to a surviving spouse.
(2) The proceeds of any life insurance policy paid out in Hong Kong are considered a separate estate in themselves.
(3) Thus if the value of the life insurance payment is less than US$962,000 no estate duty is payable on it irrespective of the value of the other assets comprising the estate.
(4) Assets which are located outside the territory of Hong Kong;
(5) Assets which are disposed of for a charitable purpose more than one year before death.
(6) Any property passing on death and held by the deceased as a trustee under a trust formed more than 3 years before death. Alternatively any property passing on the death of the deceased and held by the deceased under a trust not formed by the deceased.
(7) Property consisting of a pension, annuity, lump sum gratuity, or other similar benefit passing on the death member of a recognized occupational retirement scheme under the terms of that scheme.