Trust law is an important part of the legal system in Macau. This area of law covers a wide range of topics, from estate planning to asset protection. If you are considering doing business in Macau, it is important to understand the trust law landscape and how it may impact your transactions.
In this Q&A, we spoke with CFB lawyers in Macau to find out more.
Conventus Law: What are the listed Macau entities allowed to provide trust services?
CFB – The new draft trust law as approved in general by the Macau SAR´s General Assembly (hereinafter, “Trust Law”) determines that only a certain number of entities may provide services as trustees, namely the following:
- credit institutions (as per Decree Law No. 32/93/M of 5 July);
- finance companies (as per Decree Law No. 15/83/M of 26 February);
- wealth management companies (as per Decree Law No. 25/99/M of 28 June);
- investment funds management companies (as per Decree Law No. 83/99/M of 22 November);
- insurance companies (as per Decree Law No. 27/97/M of 30 June);
- retirement funds management companies (as per Decree Law No. 6/99/M of 8 February); and/or
- other entities authorized to conduct trust activities in conformity with special legislation.
Therefore, the Trust Law basically follows the pattern of regulatory systems in existence in foreign jurisdictions (especially in common law systems, wherein the concept and regulation of trusts has enjoyed a long and successful history), pursuant to which, trustees of commercial trusts are usually banks or other financial institutions.
Under the proposed Trust Law, what is the nature of trust activities and what should be covered for its setting up, termination and winding up?
Pursuant to the Trust Law, a trust consists of a legal relationship under which the trustor transfers the rights over certain specific assets to the trustee, so the latter manages these as its own (always having in consideration the best interests of the trust´s beneficiary). Notwithstanding, it should be noted that the assets forming the trust shall be deemed separate and independent from those assets of the trustee, trustor and beneficiary.
The Trust Law appears to only allow and regulate (or, at the very least, it is mainly focused on) trusts which are established for commercial purposes, seemingly leaving aside specific provisions regarding the setting up of trusts for noncommercial purposes – such as civil and charitable trusts.
The trust incorporation act must necessarily address (and regulate) a minimum number of requirements, inter alia, (i) the scope of the trust, (ii) the identity of trustor(s) and trustee(s), (iii) the powers ascribed to the trustee(s) (i.e., any potential powers of disposal or acquisition of assets), and (iv) the identification of the beneficiary(ies) or the adequate procedure for its/their identification, as well as the content of the trust benefit.
As per the applicable provisions of the Trust Law, any person or entity capable of disposing of its assets shall be able to set up a trust. By the same token, any person or entity (including the trustee) may be appointed as a beneficiary of a trust – with one relevant restriction, given that, although trustees may be appointed as beneficiaries of a trust, they will not be permitted to be appointed as sole beneficiaries.
The Trust Law stipulates as well that trusts are theoretically set up for an indefinite period (or without term), unless otherwise provided for in the trust incorporation act. Inter alia, trusts are to be terminated (i) in accordance with the relevant provisions of the trust incorporation act, (ii) fulfilment of its purpose (or if the same becomes impossible to attain), (iii) revocation, expiry of its term, or (iv) due to the loss of the totality of the trust´s assets.
“A fair amount of work has been put in by the Macau SAR’s Government in attracting entities from Mainland China, and significant support has been shown by the Central Government. It is our belief that the prospects for the development of Macau SAR’s trust market insofar mainland entities are concerned is substantial and the expectations of seeing it expand are somehow high. ”
Victor Castro, Founding Partner, CFB
Due to the Macau Trust Law, do you expect an increase in investors from the Greater Bay Area to be attracted in investing their personal assets in Macau?
Although the successful implementation and roll-out of the Trust Law (and its capacity to appeal to foreign investors, including within the Greater Bay Area and Portuguese-speaking countries) is contingent upon several factors and variables – not all legal in nature – and remains to be seen, it could very well be argued that the Trust Law has the potential to create momentous chances for the finance and wealth management market’s investors – and is certainly expected to boost the array of finance services available to the public in the Macau SAR.
A fair amount of work has been put in by the Macau SAR’s Government in attracting entities from Mainland China, and significant support has been shown by the Central Government. It is our belief that the prospects for the development of Macau SAR’s trust market insofar mainland entities are concerned is substantial and the expectations of seeing it expand are somehow high.
The Macau Trust Law can allow Portuguese-speaking countries as well as other multinational enterprises to carry out centralised operation and management of RMB and foreign currency by investing in Macau trust products and their derivatives. What does this essentially mean for the future of the Macau Finance sector?
First off, cooperation with Portuguese-speaking countries has not been explored and developed as much as it should have been. There are significant challenges, and we believe that the Macau SAR´s Government can effectively play a key role in stimulating the growth of the market in this sector – the new Trust Law is one important first step towards enhanced cooperation and investment opportunities.
The Trust Law is expected to provide the public with (i) a modern property transfer model and (ii) a flexible property planning structure. All things considered; it seems evident that the Trust Law is consistent with the Macau SAR government’s strategy to lay the foundation for a potential Renminbi clearing center, inter alia, directed at Portuguese-speaking countries, and aimed at conducting centralized operations related with foreign currency funds investing in Macau’s trust products and derivatives.
What provisions are there for tax with regards to the transfer of certain trust business properties? Are some property transfers exempted by private documents, but taxed by public documents?
The legal structure and arrangements regarding taxation of trusts under the Trust Law is yet to be definitively determined, as this particular aspect of the Trust Law has been subject to a thorough discussion and review.
“It should be noted (and commended) that in recent years, the Macao SAR´s government has directed its efforts towards a thorough review of the existing major financial laws and regulations, attempting to usher in a new era in the Macau SAR – much more focused in developing a modern financial industry capable of introducing Macau as a vibrant financial center equipped with the necessary tools to compete with its neighboring financial titans, and no longer so exclusively focused in the gaming industry (which is consistent with the overall plan to be put in motion within the Hengqin -Guangdong-Macao Deep Cooperation Zone)”.
Victor Castro, Founding Partner, CFB
How does the new law specifically regulate the activity, rights and obligations of trustees?
The Trust Law regulates the trustees’ activity, rights and obligations, attempting at balancing the interests of all parties concerned. The Trust Law sets out rigorous requirements of compliance, diligence, confidentiality, secrecy, and duties of information to be strictly followed by trustees.
Of particular note are the provisions addressing concerns directly related with the liability of trustees, setting out that any trustee who negligently breaches its duties shall be held liable (with its own assets) for any losses or damages caused to the trust assets and/or to its beneficiary(ies) – and the burden of proof lies with the trustee, required to provide evidence that it is not to blame should an event of default occur.
Are there restrictions as to who can be Trustees?
The Trust Law provides that trustees must necessarily be credit institutions, finance service firms, asset management companies, investment fund management firms, insurers, pension fund management companies or other entities licensed to carry out this sort of business. Recently, the Macau SAR´s Secretary for Economy and Finance commented on this topic, pointing out that, at this stage, money laundering concerns are at the basis of such restriction (not ruling out, though, the possibility of expanding the scope of trustees to cover natural persons in the future).
On a related note – already addressed herein -, it should be mentioned that the Trust Law appears to only allow and regulate trusts which are established for commercial purposes, leaving aside specific provisions regarding the setting up of trusts for noncommercial purposes – such as civil and charitable trusts.
What are the key points that should be highlighted?
Likewise any other legislative reform and/or introduction of a new piece of legislation (especially one which deals with a concept much more native to common law legal systems), the expectations are high, but it would be wise to tone these down a notch. The implementation of any new legal concept is not without challenges and most probably the Trust Law will have to be tweaked here and there in a not so long future.
Anyhow, on the flip side, it is undeniable that the Trust Law has the potential to play a key role in introducing new types of investment products and financial instruments, including bank wealth management products and private equity investment funds.
Similar to other jurisdictions, we should underscore that the Trust Law alone will not suffice, and a set of related regulations should be gradually introduced – such as those which should specifically govern the taxation regime for trust activities.
How will the trust regime help to create opportunities for the finance and wealth management market’s stakeholders, as well as enhancing the Macau finance services available to the public in general?
It should be noted (and commended) that in recent years, the Macao SAR´s government has directed its efforts towards a thorough review of the existing major financial laws and regulations, attempting to usher in a new era in the Macau SAR – much more focused in developing a modern financial industry capable of introducing Macau as a vibrant financial center equipped with the necessary tools to compete with its neighboring financial titans, and no longer so exclusively focused in the gaming industry (which is consistent with the overall plan to be put in motion within the Hengqin -Guangdong-Macao Deep Cooperation Zone).
The Trust Law forms part of this extensive legislative overhaul and will certainly be a useful instrument hopefully capable of ramping up the offer of financial services in the Macau SAR to foreign investors.