Sit, Fung, Kwong & Shum Solicitors (SFKS) extends its welcome and support to the passage of the amendments to the Lawyers Law of the People’s Republic of China passed by the Standing Committee of the National People’s Congress (NPCSC) on 28 August 2026. The amendments provide clear provisions for the Greater Bay Area (GBA) lawyer system through national-level legal provisions, establishing a legal basis for the regularization of the practice system.
GBA Lawyer System Moves Towards Regularization
The GBA practice examination has been successfully held for five sessions, and over 650 Hong Kong and Macau legal practitioners have passed the examination and obtained the GBA Lawyer’s License, enabling them to handle certain civil and commercial legal matters that apply Mainland law in the nine Mainland cities of the Guangdong-Hong Kong-Macao Greater Bay Area. The existing pilot program is set to expire on 4 October 2026. The Department of Justice of the Hong Kong Special Administrative Region Government has been working with the Ministry of Justice, the Department of Justice of Guangdong Province, and other authorities to advance the pilot program and strive for the regularization of the GBA lawyer system.
The Deputy Secretary for Justice, Mr. Horace Cheung, expressed his gratitude to the Standing Committee of the National People’s Congress for its decision, noting that the amendment provides clear provisions for the GBA lawyer system through national-level legal provisions, thereby establishing a legal basis for the regularization of the practice system.
Actively Participating in GBA Legal Development
SFKS welcomes and supports the passage of the amendment to the Law of the People’s Republic of China on Lawyers by the Standing Committee of the National People’s Congress, which regularizes the GBA lawyer practice system.
In fact, SFKS has been actively engaged in the development of legal services in the GBA.
GBA Lawyer Team: The firm has a total of 7 solicitors who have passed the GBA practice examination and obtained dual practice qualifications during their time in SFKS. Among them, Founding Partner Mr. Peter Sit became the first GBA lawyer registered in Jiangmen City. SFKS’s current Managing Partner, Mr. Roy Leung, together with Senior Partners Mr. Simon Siu and Mr. Joseph Wong, and Partner Ms. Jenny Wong are all GBA lawyers.
Industry Recognition: Since the Asian Legal Business (ALB) established the “GBA Law Firm of the Year (Hong Kong)” award, SFKS has been a finalist for three consecutive years, and secured the Winnerfor this award in 2025.
Deepening GBA Exchanges: In recent years, the firm has actively visited various GBA cities for professional exchanges, participated in the first Shenzhen Legal Services Expo, visited several lawyer associations in the GBA for legal exchanges, etc., establishing close cooperative relationships with the legal community in the GBA.
Rooted in Hong Kong · Serving the GBA
Since its establishment in 1981, SFKS has consistently upheld its commitment to “Serving Clients Respectfully, Applying Law Professionally, Rendering Work Effectively.” Leveraging its deep roots in Hong Kong’s common law system and its forward-looking presence in the GBA, the firm will continue to harness the unique advantages of “one country, two systems, three legal jurisdictions” to assist clients in seizing development opportunities in the GBA, facilitate the alignment of rules and mechanisms across the region, and actively integrate into and serve the nation’s overall development strategy.
The regularization of the GBA lawyer system represents a significant milestone in the nation’s rule of law development, offering Hong Kong’s legal profession a long-term and stable path for growth. The firm will continue to leverage its extensive experience in cross-border legal services to contribute to the advancement of the rule of law in the GBA.
Our firm acted for the Putative Respondent in a Judicial Review case in the High Court, and successfully opposed the Applicant’s application for leave to apply for judicial review and his substantive application concerning decisions on the termination of studies with the university (HCAL 1085/2026).
Please refer to the Judgment of Deputy High Court Judge Gary C.C. Lam.
The case was led by our Managing Partner Roy Leung and assisted by our trainee solicitor Jaimie Ho (soon to be admitted as qualified solicitor). Our firm regularly advises on public law and represents parties in administrative proceedings and judicial reviews.
SFKS secured clients’ victory in the Court of Appeal which, for the first time in Hong Kong, considered a claim of fraudulent calumny in the context of a contested will: Re The Estate of Ip Chan Kee CACV 116/2025, [2026] HKCA 1443.
The Court of Appeal unprecedentedly applied the judgment in Edwards v Edwards [2007] WTLR 1387 at §47 on the approach for avoiding a testamentary disposition on the grounds of fraud (fraudulent calumny).
The party who asserted fraudulent calumny must prove that: (1) there has been a false representation; (2) it was made to the testator; (3) it was about the character of an existing or potential beneficiary; (4) it was made for the purpose of inducing the testator to alter his testamentary dispositions; (5) the representor made it knowing it to be untrue or being reckless as to its truth; and (6) the disputed will was made only because of the fraudulent calumny.
Applying the 6 elements to be proved by the defendants asserting fraudulently calumny, the Court of Appeal held as follows:
(1) The Court of Appeal upheld the finding that the defendants failed to discharge the burden of proving that the representations by the younger son to the deceased father (“Representations”) were false.
(2) There was no dispute that the Representations were made to the father.
(3) The Court of Appeal, unlike the trial judge, found that the Representations speaks of the character of the elder son.
(4) The Court of Appeal upheld the trial judge’s finding that the defendants failed to prove that the Representations were made with the specific purpose of inducing the father to alter his testamentary dispositions.
(5) Following (1), the Court of Appeal rejected the contention that the younger son knew that the Representations were false;
(6) The Court of Appeal refused to interfere with the trial judge’s conclusion that the subject will of the father was not proved to be induced by fraudulent calumny.
This Judgment sets a landmark precedent on how factual findings shall be analyzed with corresponding evidence, or interfered by the appellate court with respect to each of the 6 key elements in the context of fraudulent calumny.
This case is led by our Managing Partner Mr. Roy Leung, assisted by Senior Associate Ms. Koey Wong and Associate Mr. Manson Chan. SFKS takes this opportunity to thank Counsel Mr. Jonathan Chang SC and Ms. Esther Mak for their thorough and able assistance in this appeal.
A prompt typed into a chatbot does not vanish when the window closes. Where it travels next and who may read it are set not by the lawyer's intention but by the provider's terms. On those terms may hinge the survival of legal professional privilege (LPP). The risk is no longer hypothetical in other common law jurisdictions. In UK v Secretary of State for the Home Department (AI hallucinations; supervision; Hamid),[1] the UK Upper Tribunal observed that uploading confidential documents into a publicly available AI tool such as ChatGPT would place the information in the public domain, breaching client confidentiality and waiving legal privilege.
No reported Hong Kong decision appears to have considered privilege in AI prompts, chat histories or outputs. Yet the use of AI in the legal setting is increasingly prevalent. A prompt may contain legal advice, witness evidence, litigation strategy, personal data or commercial secrets. When the question reaches the Hong Kong courts, the analysis is unlikely to begin with the prompt. The starting point may be the terms on which the tool was supplied.
Those terms are often accepted as part of registration or continued use but may receive little attention in day-to-day application. For present purposes, the key point is that the terms record what the provider may do with the material entered, and that is the question the confidentiality analysis examines.
When a subjective expectation of confidentiality is not enough
Under Hong Kong law, LPP is a substantive right protected under Article 35 of the Basic Law[2] and an absolute right that does not involve a balancing of interests. [3] That constitutional standing, however, is not what is in issue when client material is entered into a consumer AI tool. Two questions arise instead. The first is whether the confidentiality on which privilege depends survived entry into the tool at all. The second, where privileged material has in fact been disclosed, is whether that disclosure waived privilege and, if so, whether the waiver was complete or confined. Privilege is not lost unless intentionally waived by the holder, and a full waiver is not lightly inferred; whether the holder has waived, and the scope of any waiver, is assessed objectively from all the circumstances, in particular what was expressly or impliedly communicated and what the parties must or ought reasonably to have understood.[4]
That principle carries particular weight in this context. A lawyer entering client material into a consumer chatbot may subjectively intend to preserve complete confidentiality. Viewed objectively, however, the material has been transmitted to a commercial provider on that provider’s standard terms. Those terms, which the user accepts expressly or by conduct, are important evidence of the basis on which the material was provided. They may therefore be decisive on both questions, whether confidentiality was lost and whether any waiver was limited or at large.
When material enters the legal advice process
CITIC Pacific Ltd v Secretary for Justice and Commissioner of Police (No 2)[5] distinguishes pre-existing documents from material brought into existence as part of the process of obtaining legal advice. A document created in the ordinary course of events does not become privileged merely because it is later sent to solicitors, but information processed and reduced into documentary form for the dominant purpose of obtaining legal advice may form part of the protected legal advice process.
The distinction is relevant to AI-assisted work. Work performed on an approved enterprise system by a solicitor or supervised legal team, for example organizing documents, preparing a chronology or summarising factual material for counsel, may form part of that process. Where the same material enters an unapproved tool under terms permitting retention, model training, human review, third-party routing or overseas processing, the difficulty is no longer whether the output is privileged, but whether the confidentiality on which privilege depends survived the input.
The criteria for limited waiver
Whether a disclosure waives privilege at large, or only to a limited extent, turns on the recipient, the purpose and the surrounding circumstances. Hong Kong recognises such limited waiver. In CITIC Pacific Ltd v Secretary for Justice, the Court of Appeal held that privileged material provided to the Securities and Futures Commission (SFC) for a defined regulatory investigation was disclosed for that purpose only, and privilege was preserved against the rest of the world[6]. The reasoning was fact sensitive. The disclosure was made to the SFC, for the purpose of its investigation, and the Court considered the surrounding circumstances in deciding whether the waiver was limited. Those matters provide a useful lens for considering disclosure into consumer AI tools.
The contrast with consumer AI is obvious. Depending on the applicable terms, the relevant recipient may not be limited to the visible platform operator, but may include affiliates, contractors, reviewers, sub-processors or underlying model providers. The purpose may also extend beyond the client’s legal matter to service improvement, safety review, model training or other provider purposes. Where the terms reserve rights of retention, review or onward processing, it may be harder to characterize the disclosure as limited in the CITIC Pacific sense. Nor can a practitioner readily fall back on the principles governing inadvertent disclosure. Entering a prompt into a tool supplied on standard terms is deliberate conduct, even if the terms were not read. Whether that disclosure waived privilege, and the scope of any waiver, will be assessed by reference to the surrounding circumstances, including the terms governing the tool.
Whether the provider is an instrument or a third party
Not every disclosure to a third party defeats confidentiality. Privileged material passes routinely through translators, document processors and other agents who act as mere instruments of the lawyer’s work. Whether an AI provider belongs in that category, however, is not answered by analogy. It is answered by the contract and the actual deployment. An enterprise deployment or API arrangement under negotiated terms, with confidentiality undertakings, training disabled and no human review, may be closer to the ordinary service-provider arrangement. Consumer terms reserving rights to retain, train on or review inputs point in the other direction.
Sir Colin Birss, Chancellor of the High Court of England and Wales, has drawn the same distinction in a 2026 keynote speech on legal professional privilege in the age of AI. He observes that AI does not alter the legal tests for privilege, and that secure systems may be different from public or third-party systems.[7] Although the speech is not binding authority, it is useful because it reflects a judicial view that the dividing line lies in the arrangements under which the tool operates rather than in the technology itself.
What lawyers should check in consumer AI terms
As at 26 June 2026, major platforms take different approaches. The summaries below are indicative only. Terms change frequently and the current versions should always be checked.
Consumer AI tools & Key data-use risks
OpenAI – ChatGPT: Inputs may be used to improve models unless users actively opt out. [8] Chats in “Temporary Chat” mode will not appear in history, create memories or be used to train models.
Anthropic – Claude: If users allow chats or coding sessions to be used to improve Claude, Anthropic says such data may be retained for up to five years.[9]
Google – Gemini: Gemini expressly warns users against inputting confidential information. Chats reviewed by human reviewers may be retained for up to three years, even after deletion.[10]
Poe and other wrapper platforms: Poe explains that its bots are powered by third-party companies using large language models.[11] Wrapper platforms may involve additional data flows to third-party model providers and developers, including chat contents and uploaded photos or documents.
DeepSeek: DeepSeek’s privacy policy states that user inputs, prompts, uploaded files, feedback and chat history may be collected, and that personal data may be processed and stored in the People’s Republic of China.[12]
xAI – Grok: xAI’s consumer terms state that logged-in users can select whether User Content is used for product development or model training, and that deleted User Content may take up to 30 days to be queued for deletion.[13]
These differences are why a generic “approved AI use” policy is insufficient. Lawyers should identify the specific tool, account type, settings and permitted use cases.
Governance and the retainer
The regulatory direction is consistent with this terms-led approach. The Law Society’s 2025 circular[14] and the Privacy Commissioner’s Checklist on Generative AI[15] both treat prompts and outputs as material that may pass outside the firm’s control once entered, and direct firms towards internal policies, risk assessment and data-security controls. Those measures reach only the firm’s side of the retainer. Engagement letters should address the use of AI on both sides, because a firm’s controls may be undermined if the client independently feeds the same material into an uncontrolled system.
Where the prompt goes
When the first Hong Kong case arrives, the determinative question may concern the input as much as the output, namely whether confidentiality survived entry into the system. That question may fall to be answered by reference to the terms governing the tool. Those terms decide where the prompt goes, whether it is kept, trained on, reviewed, or sent elsewhere. The CITIC Pacific line of authority suggests different outcomes for controlled environments operating under negotiated terms and consumer tools operating under standard ones.
The risk lies less in the technology than in unmanaged disclosure into systems that were never designed to preserve the confidentiality on which legal advice depends. When that risk materializes, the decisive document may not be the prompt. It will be the terms of use under which the prompt was sent.
The views expressed are the author's own and this article is general information, not legal advice.
[1]UK v Secretary of State for the Home Department (AI hallucinations; supervision; Hamid) [2026] UKUT 81 (IAC) at [21], [60]. The judgment determined two matters heard together, the second being R (on the application of Munir) v Secretary of State for the Home Department. The Tribunal made its observations on confidentiality and privilege in its discussion of the first matter, in which an adviser had uploaded client correspondence and Home Office decision letters to ChatGPT. The Tribunal also noted at [21] that closed source tools which do not place information in the public domain may be used for tasks such as summarising without these risks.
[2]Basic Law of the Hong Kong Special Administrative Region, Article 35, which protects the right to confidential legal advice, access to the courts, choice of lawyers, timely protection of lawful rights and interests, and judicial remedies.
[3]CITIC Pacific Ltd v Secretary for Justice and Commissioner of Police (No 2) [2016] 1 HKC 157; [2015] 4 HKLRD 20 at [31], [36]–[38]; Secretary for Justice v Florence Tsang Chiu Wing (2014) 17 HKCFAR 739 at [27]–[29].
[4] CITIC Pacific Ltd v Secretary for Justice [2012] 4 HKC 1 at [52], [56].
[5]CITIC Pacific Ltd v Secretary for Justice and Commissioner of Police (No 2) [2015] 4 HKLRD 20; [2016] 1 HKC 157 at [42]–[45] and [52]–[54].
[6]CITIC Pacific Ltd v Secretary for Justice [2012] 4 HKC 1; [2012] 2 HKLRD 701 at [5], [7], [17], [54], [56], [73]–[76]. The Court of Appeal recognised partial waiver of privilege in Hong Kong and held that disclosure of privileged documents to the SFC for a defined investigation did not necessarily waive privilege against the world.
[7] Sir Colin Birss, Chancellor of the High Court, “Legal Professional Privilege in the Age of AI”, keynote speech to the City of London Law Society, 22 April 2026. See https://www.judiciary.uk/speech-by-the-chancellor-of-the-high-court-legal-professional-privilege-in-the-age-of-ai/
[8]OpenAI says users can opt out of default training through their privacy portal by clicking on “do not train on my content”. See https://openai.com/policies/how-your-data-is-used-to-improve-model-performance/
[9]Anthropic says users may choose whether chats or coding sessions are used to improve Claude, and that where users allow such use, data may be retained for up to five years; otherwise, the existing 30-day retention period continues. See https://www.anthropic.com/news/updates-to-our-consumer-terms
[10]Google’s Gemini Apps Privacy Hub warns users not to enter confidential information they would not want a reviewer to see or Google to use to improve services, and notes that some data may be retained for up to three years. See https://support.google.com/gemini/answer/13594961?hl=en
[11]Poe explains that its bots are powered by third-party companies using large language models. See https://help.poe.com/hc/en-us/articles/19944206309524-Poe-FAQs
[12]DeepSeek’s privacy policy says it may collect prompts, uploaded files, photos, feedback and chat history, and that personal data may be processed and stored in the PRC. See https://cdn.deepseek.com/policies/en-US/deepseek-privacy-policy.html
[13]xAI’s consumer terms further suggest that users can access the service without logging in, and in such cases and to the extent permitted, users grant xAI full rights to use any data provided to or obtained from the Service for product development and model training. See https://x.ai/legal/terms-of-service
[14]The Law Society of Hong Kong, Circular 25-824 (December 2025), enclosing the Professional Indemnity Scheme Risk Management Bulletin, Issue No. 15, “Generative AI in Legal Practice – Risks and Tips”. See https://www.hklawsoc.org.hk/-/media/HKLS/pub_e/circular/2025/25-824a1.pdf
[15]Office of the Privacy Commissioner for Personal Data, “Checklist on Guidelines for the Use of Generative AI by Employees”, March 2025. The checklist is intended to help organizations develop internal policies or guidelines for employee use of generative AI at work while complying with the Personal Data (Privacy) Ordinance. See https://www.pcpd.org.hk/english/resources_centre/publications/files/guidelines_ai_employees.pdf
This article, by our Trainee Solicitor Christy Hui, first appeared in the June 2026 issue of the Hong Kong Lawyer, the official journal of The Law Society of Hong Kong.
Hostile behaviour is unfortunately increasingly common in Hong Kong and elsewhere, especially in view of the advance of the technology and the social media. Unwelcome conduct is performed as a tactic to achieve various objectives, such as ex-spouses attempting to save relationships, creditors trying to collect debts and competitors trying to drive each other out of business. Such hostile behaviour also takes various forms, such as spam calling the victims, spreading untrue statements about the victim and making unwelcome visits to the victims’ homes.
When such hostile behaviour crosses the line from being merely annoying to being actionable in law, victims may seek redress from the court. The current legal framework in Hong Kong addressing hostile behaviour is a patchwork of multiple causes of action stemming from common law and statutes.
This article aims at providing a brief introduction to some of the common causes of action related to hostile behaviour. Some of the causes of action closely relate to criminal offences. Criminal offences are virtually exclusively prosecuted by the Government and are hence out of the scope of this article.
1. The Tort of Harassment: Repeated unreasonable oppressive conduct
The tort of harassment has recently been recognized by the Court of Final Appeal in Sir Elly Kadoorie & Sons Limited v Samantha Jane Bradley [2026] HKCFA 2.
If someone is relentlessly targeting you with unwanted behavior, calls, or messages, they may be committing the civil tort of harassment. You must establish the following elements before you can succeed in a claim for the tort of harassment:
If the tort of harassment is established, the remedies can include:
A claim in the tort of harassment is not available to companies as mental distress to the claimant must be shown. However, harassment targeted at a company is often conducted through imposing unpleasant conduct on its employees, such as spam emailing its employees. In such a case, a company may nevertheless apply for an injunction to restrain harassment directed at its current employees. The rationale behind this power is that employers owe a duty to employees to provide a safe working environment.
2. Causing loss by unlawful means: Harming one’s economic interests by interfering with the actions of a third party by unlawful means
While it was ruled in Sir Elly Kadoorie & Sons Limited that claims in the tort of harassment are not available to companies, the Court of Final Appeal opined that the company in that case may potentially make a claim in the tort of causing loss by unlawful means.
The tort of causing loss by unlawful means covers situations where instead of taking actions against you directly, the defendant uses unlawful means to interfere with the actions of a third party which causes you economic loss.
The essential elements are:
The meaning of “unlawful means” in the second element has been considered in the landmark case of OBG Ltd and Another v Allan and Others [2008] 1 AC 1. The majority held that the unlawful means used must be an action (such as fraud or a threat) which would be independently actionable by that third party if he had suffered any loss because of it. This interpretation is consistently adopted in Hong Kong courts. In Sir Elly Kadoorie & Sons Limited, for example, the defendant harassed the claimant’s employees by sending an excessive number of emails to them making false allegations against the claimant. The acts of harassment against the claimant’s employees gives rise to an independent right for the employees to claim against the defendant any loss suffered as a result.
The primary relief upon a successful claim in causing loss by unlawful means is the compensation for loss or damage suffered as a result of the defendant's unlawful interference. In suitable cases, the court may grant an injunction restraining the defendant from interfering with the third party in the future.
3. Private nuisance: Hostile behaviour targeted at homes
Sometimes, hostile behaviour is directed at the homes of victims. The most well-known example is perhaps splashing red paint at the door of the debtor’s home as a tactic for debt collection.
A claim in private nuisance is a cause of action based on your right to enjoy your property. To sue on this claim, you must have a legal interest in the land, such as being the owner or the tenant named on the lease. In the vast majority of cases, it involves unwelcome conduct targeted at victims’ homes.
In the context of hostile behaviour, you will have a claim in private nuisance when the defendant commits an act which interferes with or disturbs your exercise or enjoyment of your ownership or occupation of land. The interference must not be trivial – it must be a substantial interference with comfort or convenience, judged according to the standard of a reasonable person. While this will essentially be a fact-sensitive question, it is at least arguable that conducts such as persistent splashing of paint at your home, aggressive visits and banging on the door of your home may fall within actionable examples.
Traditionally for a claim in private nuisance to be established, the defendant must be a neighbour of the plaintiff in the sense that the defendant should be an owner/occupier of neighbouring land. The landmark case of Hunter & ors v Canary Wharf Ltd [1997] AC 655 stated that “[private] nuisance is a tort protecting property rights. It is concerned with the activities of the owner or occupier of property within the boundaries of his own land which may harm the interests of the owner or occupier of other land.” There are cases in Hong Kong following this approach. For example, in MA (HK) Ltd & Anor v Yeung Yuk Sing (楊育城) & Ors [2017] HKCU 2762, a claim in private nuisance was rejected as the defendant was not owners/occupiers of neighbouring land. However, there is also case example such as Shen Xing (沈星) v Li Jun (李軍) [2014] HKCU 930 where a claim in private nuisance succeeded without such a neighbour relationship. It would appear that different outcome may partly due to the different degree, extent, and reasonableness of the interference in different cases but it highlights the potential limited application of this cause of action for interference made by strangers, thereby other causes of action (such as tort of harassment) may also need to be relied on.
The usual remedy for private nuisance is compensation for losses resulting from the nuisance (such as the reduction in the value of the property). In suitable cases, the court will also grant an injunction restraining the behaviour in question.
4. The Tort of Intimidation: Coercion Through Threats
Hostile behaviour can take the form of forcing victims into doing something they would not have done by unlawful threats. The core issue of the tort of intimidation is to coerce you into doing something against your will, causing you mental damage or financial loss.
If you intend to rely on the tort of intimidation, you must establish the following:-
As recognized by the House of Lords in the landmark case of Rookes v Barnard [1964] AC 1129, a threat to breach a contract is recognized as an “unlawful means” for the purpose of the first element. Other examples of threats to use “unlawful means” include threats to commit a tort, a crime or a breach of trust.
Upon a successful claim of the tort of intimidation, compensation for mental distress and financial loss will typically be awarded. An injunction restraining the defendant from continuing with the complained threatening acts may also be granted. If you have been coerced into entering into a contract, you will have the option to set aside the contract and be returned to the financial position before the contract was made.
5. Relief against hostile behaviour under specific statutory provisions
Other than torts, statutes may also provide causes of action to victims of hostile behaviour in specific cases.
The Personal Data (Privacy) Ordinance (“PDPO”) (Cap.486) may be helpful in certain cases where misuse of personal data is involved. Under section 66 of the PDPO, an individual who suffers an injury to feelings or financial loss by reason of a contravention of a requirement under the PDPO by a “data user” which relates, at least partly, to his/her personal data may seek compensation from the “data user” in respect of the financial or psychological damage. The term “data user” is defined as “a person who, either alone or jointly or in common with other persons, controls the collection, holding, processing or use of the data” in section 2 of the PDPO. With the requirement that compensation can only be sought from a “data user” in respect of the wrongdoings of that “data user”, its applicability to harassment cases is limited.
In addition, sections 3, 3A and 3B of the Domestic and Cohabitation Relationships Violence Ordinance (Cap.189) provides for the grant of an injunction in favour of victims of molestation in specific familial or cohabitation relationships.
6. Concluding remarks
If you are unfortunate enough to fall victim to hostile behaviour, documentation is your most important weapon. Whatever cause of action you rely on, and regardless of whether you are seeking compensation, injunctive relief or both, you must show that the unwelcome conduct you complain of did occur. It is advisable to keep a written record of the unwelcome conduct. If spam calling is involved, obtain the relevant phone call records from your telecom service provider. If physical disturbance with your home is involved, consider installing a CCTV at your door and making a report to the management office for them to log the incidents.
The above causes of action are not exhaustive. In appropriate cases of hostile behaviour, other causes of action can be relied on. Nevertheless, the causes of action often overlap with each other and it is common to make claims based on multiple causes of action. When making a claim in respect of hostile behaviour, given the wide range of causes of action that may be available, it may be advisable to seek legal advice.
This article is co-authored by our Partner Sidney Ho and our Trainee Solicitor Samuel Chow.
Disclaimer : This material is provided for general information only. It does not constitute legal or other professional advice nor constitute any lawyer-client relationship between Sit, Fung, Kwong & Shum and any user or browser. No liabilities are assumed arising from any reliance of information in this material.
New Individual Income Tax Regulations Regarding Offshore Trust Assets
In recent years, establishing offshore trusts has gradually become a new trend among Chinese Mainland residents for wealth management and asset allocation. Through this approach, high-net-worth individuals can not only effectively achieve risk isolation, asset protection, and tax planning, but also provide more flexible, private, and professional arrangements for the long-term security and succession of family members. However, in light of the Announcement on Matters Concerning Individual Income Tax on Offshore Trusts (Announcement No. 21 of 2026) (the “Announcement”) issued by the Ministry of Finance and the State Taxation Administration on July 24, 2026, individuals who transfer property into offshore trusts or receive income through offshore trusts are deemed to have obtained income prescribed under the Individual Income Tax Law of the People’s Republic of China, and are therefore required to declare and pay individual income tax in accordance with the provisions of the Announcement.
(1) Scope of the Announcement
Offshore Trusts
Offshore trusts refer to trusts established under foreign laws or other legal arrangements with trust-like functions, including foreign legal arrangements that are not established in the name of a trust but substantially perform functions similar to those of a trust. However, financial products issued by certain banks, insurance companies, securities firms, fund companies, etc., are excluded.
Resident Individuals
Individuals who have acquired foreign nationality or long-term or permanent residency abroad, but whose primary economic interests originate from within China, may also be determined to be resident individuals with domicile. The following rules apply to resident individuals:
(a) Where a resident individual transfers property into an offshore trust, the individual shall take the balance after deducting the original cost of the property and reasonable expenses from the market value at the time of transfer as the taxable income, and declare and pay individual income tax under the category of “income from transfer of property”;
(b) Income generated during the existence of an offshore trust into which a resident individual has transferred property, regardless of whether it is actually distributed, shall be subject to annual individual income tax declaration and payment by the resident individual as the taxpayer under the category of “income from transfer of property” or “interest, dividends, and bonuses”; and
(c) A resident individual shall also declare and pay individual income tax on distributed income received from an offshore trust into which property has been transferred by a non-resident individual.
Non-Resident Individuals
Where a non-resident individual transfers property into an offshore trust, it shall be deemed as a transfer of property by an individual. The individual shall take the balance after deducting the original cost of the property and reasonable expenses from the market value of the property as the taxable income in respect of income from transfer of property derived from within China, and declare and pay individual income tax under the category of income from transfer of property.
However, if a resident individual and a non-resident individual transfer property into the same offshore trust, it shall be treated as if the entire transfer was made by the resident individual, regardless of whether the property is sourced from within China.
(2) Statute of Limitations for Tax Recovery
The Announcement takes effect from the date of issuance (i.e., July 24, 2026). Nevertheless, the Announcement also explicitly states that there are recovery periods for taxes arising from the transfer of property into offshore trusts and from income generated during the existence of offshore trusts.
With respect to the transfer of property into offshore trusts, effective from January 1, 2026, resident individuals are required to declare and pay individual income tax. Moreover, for the period from January 1, 2023, to December 31, 2025, any individual income tax payable but unpaid by resident individuals arising from the transfer of property into offshore trusts, as well as any individual income tax payable but unpaid by non-resident individuals arising from the transfer of property into offshore trusts during the period from January 1, 2023, to July 24, 2026, shall also be declared and paid within 90 days from July 24, 2026. However, it should be noted that the Announcement explicitly states that if the amount of unpaid individual income tax is relatively large, the tax authorities may extend the statute of limitations for recovery in accordance with the provisions of the Law of the People’s Republic of China on the Administration of Tax Collection.
With respect to income generated during the existence of offshore trusts, effective from January 1, 2026, resident individuals are required to declare and pay individual income tax. For income derived from offshore trusts of resident individuals prior to January 1, 2026, regardless of the income category, resident individuals are also required to declare and pay individual income tax within 90 days from July 24, 2026, under the category of “interest, dividends, and bonuses”. In addition, resident individuals are required to declare and pay individual income tax within 90 days from July 24, 2026, on income distributed to resident individuals during the existence of an offshore trust into which property has been transferred by non-resident individuals.
Late payment surcharges could be avoided if the declaration and payment are completed within the above 90-day window. If any person fails to pay individual income tax within the prescribed time limit, the tax authorities will impose a late payment surcharge, which is at a high annual rate of approximately 18.25%.
(3) Impact of the Announcement
Immediate Declaration and Payment, and Recovery Periods
As the Announcement takes effect immediately from the date of issuance, it requires that any individual income tax payable but unpaid within the recovery periods be declared and paid within the 90-day window. For offshore trusts into which property was transferred on or after January 1, 2023, and for offshore trusts that generated income prior to January 1, 2026, the relevant individuals and management teams need to promptly sort through and clarify the trust assets and income, so as to declare and pay individual income tax in a timely manner and avoid tax recovery, late-payment surcharges, or the imposition of penalties by the tax authorities. If the amount of unpaid individual income tax is substantial, the tax authorities may also extend the period for tax recovery.
Installment Payment of Tax
The tax authorities may allow applications for installment payment of tax. Given that the new rules carry retroactive recovery periods, the amount of unpaid individual income tax may be substantial. Where taxpayers face difficulties in paying the tax after making a declaration in accordance with tax laws, they may, upon filing a record with the competent tax authority, pay the tax in equal installments over a period of five years.
New Offshore Trusts to Be Established
In summary, with the formal implementation of the Chinese Mainland’s new individual income tax rules on offshore trusts, any newly established offshore trust structure must take individual income tax into core consideration. Whether it is the income from transfer of property arising from the transfer of assets into the trust or the various types of income generated during the existence of the trust, tax compliance and the corresponding tax cost have become key factors in determining the feasibility of cross-border wealth management structures.
Reported New Levy of Tax on Gains from Offshore Insurance Policies
Hong Kong has been a primary offshore wealth management gateway for Chinese Mainland residents seeking global asset diversification and financial protection, providing a wide range of wealth management products such as insurance. However, according to a report from Caixin and other news sources, Chinese Mainland tax authorities have also begun levying individual income taxes on gains from offshore insurance policies, including those in Hong Kong.
It is reported that Beijing and Hangzhou authorities have started to apply personal income tax rates of 20% on returns from Hong Kong insurance policies, including dividend and interest earned on prepaid premiums. The tax collection is feasible due to the implementation of Common Reporting Standard and the sharing of ownership details. Such tax measures may adversely affect both Mainland residents who have placed offshore insurance policies and insurers who have heavy on these residents purchasing policies, since the relevant income will clearly be subject to 20% tax and yield advantage of such offshore policies will be diminished.
Although the new levy is less of a threat than a total ban on buying offshore insurance which is also a concern, together with the recent tax regulations regarding offshore trust assets, the reported new levy of tax on gains from offshore insurance policies shows the tightening scrutiny of offshore capital and investments by the Chinese Mainland government and the increasing effect of tax on their gains. As such, all parties involved in wealth management exercise need to closely monitor other actions which may be taken by the government in the future and consider the impacts of such measures before conducting any wealth management or investment activities.
Disclaimer :
This material is provided for general information only. It does not constitute legal or other professional advice nor constitute any lawyer-client relationship between Sit, Fung, Kwong & Shum and any user or browser. No liabilities are assumed arising from any reliance on the information in this material. Please consult your cross-border tax advisor regarding any Chinese Mainland tax matter.
Sit, Fung, Kwong & Shum is a Hong Kong law firm and does not practice or provide legal or other advice on the laws or tax matters of other jurisdictions. References to the laws and practice of any other jurisdictions in this material are provided for general reference and comparative purposes only, and do not constitute any advice, opinion or representation on the law or practice in those jurisdictions.
