By Dezan Shira & Associates
Editor: Weining Hu
Hong Kong’s Financial Services and Treasury Bureau (FSTB) recently issued a consultation document on amending the Companies Ordinance law. If the amendment proposal is approved, companies incorporated in Hong Kong will need to identify their beneficial owners and register such information with the Hong Kong Companies Registrars.
This rule applies to all companies incorporated in Hong Kong, including those limited by shares, by guarantee, and unlimited companies. However, publicly listed companies will be exempted from the proposed requirements as the Securities and Futures Ordinance already have a stringent set of rules requiring listed companies to register their interests of shares.
Given Hong Kong’s strong commitment to global governance on combating money laundering and terrorist financing, it is highly likely that it will introduce a bill into the Legislative Council in the second quarter of 2017. It is recommended that Hong Kong-incorporated companies stay current with the ongoing changes, so as to make adjustments to comply with the laws and mitigate potential business losses.
The FSTB adopts a similar definition of “beneficial owner” as that proposed by Financial Action Task Force, an inter-government body developing and promoting policies to combat money laundering and terrorist financing, and that adopted by the UK, Italy, Spain, Belgium, and Switzerland. Under the proposed amendments, a beneficial owner in relation to a company is an individual who meets one or more of the following specified conditions:
RELATED: Business Advisory Services from Dezan Shira & Associates
When registering beneficial ownership information with the Hong Kong Companies Registrars, a company needs to accurately file a “Register of People with Significant Control” (PSC register) in a timely manner. A person with significant control (PSC) is an individual who meets one or more of the specified conditions set out in the above definitions for beneficial owners (i.e. a registrable individual).
Given that a registrable individual may hold an interest in a company indirectly through successive layers of holding companies in a chain of ownership, a company also needs to register a relevant legal entity (i.e. a registrable legal entity) with significant control over the company. This registrable legal entity does not have to be formed or incorporated in Hong Kong. It is registrable as long as it meets one or more of the specified conditions set out in the definitions of beneficial owners. Additionally, only a legal entity immediately above the company in the company’s ownership chain is deemed as a registrable legal entity.
When a company has identified its registrable individual and registrable legal entity, it should file the following information in its PSC register in addition to the already required registration details under the Companies Ordinance:
Here is an example of how to identify a registrable individual and a registrable legal entity for entry into a PSC register.If HK Company A is directly owned by Person 1 (20 percent) and HK Company B (80 percent), then HK Company B is deemed a registrable legal entity since it is the direct owner of HK Company A and it holds 80 percent – more than 25 percent – of the shares. Although Person 1 does not directly own more than 25 percent of the shares in HK Company A, Person 1 is still considered a registrable individual because this person indirectly holds 80 percent of HK Company A through intermediaries HK Company B and Non-HK Company C. Therefore, when filing the PSC register for HK Company A, Person 1 is its beneficial owner (registrable individual) and HK Company B is its registrable legal entity.
Similarly, HK Company B also needs to keep a record in the PSC register due to its Hong Kong incorporation status. In this case, since Non-HK Company C is directly above HK Company B in the corporate ownership structure and it is the sole shareholder of HK Company B, Non-HK Company C should be filed in the PSC register as the registrable legal entity of HK Company B. HK Company B also needs to register Person 1 as its beneficial owner since this person indirectly owns the company (100 percent) through intermediary Non-HK Company C.
RELATED: China Introduces Wide-Sweeping New Transfer Pricing Rules
Although the major contents required for entry into PSC registers have been listed in the proposed consultation document, it is still unclear how the PSC register form will look like in practice. It is also unclear what will happen to a company, if it is not able to identify its registrable individual or registrable legal entity and despite the fact that this company has stated its situations in the PSC register.
As a major international financial and business center, Hong Kong has been seeking to strike a balance between maintaining the robustness of its regulatory regime and ensuring its competitiveness on the global stage. Given recent high profile cases of companies using complex ownership and control structures for illicit purposes, the need for tracking beneficial owners of opaque corporate vehicles has been increasingly urgent.
The trend towards enhancing transparency in beneficial ownership will only become more apparent in the future. Businesses must therefore prepare to reveal and, if necessary, restructure ownership arrangements to ensure compliance with new regulations and avoid incurring heavy penalties.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. We can assist with Hong Kong company issues including changes in directorships, shareholdings and domicile. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Dezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
An Introduction to Doing Business in Hong Kong 2017
Doing Business in China 2017 is designed to introduce the fundamentals of investing in China. Compiled by the professionals at Dezan Shira & Associates in January 2017, this comprehensive guide is ideal not only for businesses looking to enter the Chinese market, but also for companies who already have a presence here and want to keep up-to-date with the most recent and relevant policy changes.
New Considerations when Establishing a China WFOE in 2017
In this edition of China Briefing, we guide readers through a range of topics, from the reasons behind foreign investors’ preference for the WFOE as an investment model, to managing China’s new regulations. We discuss how economic transformations have favored the WFOE, as well as the investment model’s utility, and detail key requirements that businesspeople need to examine before initiating the WFOE setup process. We then walk investors through the WFOE establishment process, and, finally, explain the new and idiosyncratic “Actual Controlling Person” regulation.
Our free webinars are packed full of useful information for doing business in China.
Meet the firm behind our content. Visit their website to see how their services can help your business succeed.
Subscribing grants you this, plus free access to our articles and magazines.
Subscribe to receive weekly China Briefing news updates,
our latest doing business publications, and access to our Asia archives.
Sign up for your complimentary subscription to our weekly newsletter here.
No subscription charges!
Type keyword to begin searching…