Hawksford: Hong Kong as a jurisdiction for financial and corporate holding companies

Hong Kong is one of the most open, accessible and international economies in the world. It is a common law jurisdiction with an excellent reputation as a financial centre and English as official language. The following aims to outline the benefits of using Hong Kong as a jurisdiction for financial and corporate holding companies.

 

Why Hong Kong?

 

Hong Kong private limited liability company is one of the most suitable vehicles for multinational investments, whether it serves the purpose of personal wealth management or succession planning. Other solutions such as trusts are sophisticated alternatives, however usually not suitable for assets below a few million US Dollars. There are basically no limitations with regards to the kinds of investments a Hong Kong company can engage in. Further, there are no licenses required unless there are any funds invested on behalf of others.

A Hong Kong company must have at least one shareholder (officially named “member”) up to a maximum of 50. The shareholder(s) can be individuals or companies. The minimum number of directors required is one. Both directors and shareholders can be citizen/resident of any jurisdiction in the world. There is no minimum share capital. The incorporation process can be finalized by a professional service provider without the presence of the future director or shareholder in Hong Kong. Due to the complexity of corporate structuring projects involving foreign companies or individuals it is strongly recommended to engage a professional firm.

The standard profits tax rate in Hong Kong is 16.5% with a lower rate of 8.25% on the first HKD2,000,000. However, as Hong Kong does not impose any taxes on capital gains such as dividends, Hong Kong limited companies used for investment purposes are able to collect and reinvest dividend payments received efficiently at a tax rate of 0%. Those dividends which are the profits of the HK company can either remain in the company for future investments or be distributed partially or fully to the shareholders on a yearly basis.

 

Succession Planning

 

With investment vehicles it is usually crucial to have proper succession planning in place to ensure that the legal successors can gain control of the legal structure under which the assets are held. This is particularly important for companies owned and controlled by only one person.
This individual may appoint a reserve director, such as a family member or even a lawyer, who will be able to act as a director in the event of his death to ensure that important decisions can be made at any point. This is necessary as changing the shareholders requires a formal application with submission  of notarized evidence that the current owner of the company passed away. This process can take quite some time, hence the company would be without director unless there was a reserve director appointed before.
 

Privacy Protection

Hong Kong does have a Companies Registry which allows the public to access statutory documents of the company with details on directors and shareholders. Individuals who wish to protect their privacy may choose to appoint nominee directors or shareholders. As mentioned before, at least one director must be an individual, while the nominee shareholder can be an individual or a company. Legal documents can be prepared to keep a private record of the actual circumstances to ensure legal enforceability of all control and ownership rights. Since 2018 any direct or indirect ownership or control of 25% or more must be disclosed in the so called Significant Controller Register which would usually be kept at the service provider’s office. The Hong Kong authorities do not keep a copy of this register but they can gain access at the service provider’s office. There is no way for the general public to view this document. 

 

As previously mentioned, there are virtually no restrictions on the types of assets being held under  a Hong Kong company. The assets can be categorized into bankable assets and non-bankable assets. Bankable assets include cash, securities and loans. Non-bankable assets include private equity, real estate, art and jewellery.

 

Banking services for Investment vs Holding companies

 

Having a bank account is essential for every company to be capable of acting in today’s business environment. The main purpose of an investment company is to manage bankable assets for its shareholders. Banking solutions range from fully discretionary asset management to execution only mandates. Apart from bespoke investment solutions, a reliable banking partner should also be able to handle transactions related to non-bankable assets, such as paying and receiving dividend payments, rental income and transferring investments. This is especially important for companies holding shares of other companies, also known as holding companies. Therefore, the bank’s  understanding of the structure and establishment of close cooperation with the service provider are crucial to the client’s success. A bank with years of experience in international wealth planning structures is what clients seek.

Hong Kong is well-recognised by international banks. In recent years, regulatory requirements regarding KYC, AML, due diligence and tax transparency have been increasingly stringent. Cayman Islands and Seychelles are prominent examples as they were blacklisted by the European Council as “non-cooperative jurisdictions for tax purposes” in February 2020. Consequently, companies incorporated in these places face difficulties in being accepted by other countries’ tax departments. Furthermore, restrictions on making international transfers or having access to international securities markets were imposed.

On the contrary to the above, Hong Kong is an internationally well-recognized jurisdiction with a stellar reputation. Having benefited from the long history of financial industry and mature infrastructure, Hong Kong is home to a multitude of highly experienced professionals such as lawyers, bankers, asset managers and corporate services providers. The publicly accessible Hong Kong Companies Registry online system provides an official source of company information which allows efficient client onboarding and account opening process.

Since Hong Kong has full access to global financial markets, bank account opening for Hong Kong companies is not limited to Hong Kong banks only. Many clients prefer a separation of jurisdictions between the company’s domicile and the bank account’s location  with  the  purpose  of  booking assets in other jurisdictions. For instance, a Hong  Kong  incorporated  company  can   have  its bank account in Europe. Today, people can access their account information 24/7 and monitor their accounts more closely thanks to online banking.

Like more than 100 other jurisdictions globally, Hong Kong has put the Common Reporting Standard (CRS) in domestic legislation and enjoys therefore a first class reputation on the regulatory side. Also when it comes to bank account openings, legally required client background information can easily be provided by using a Hong Kong incorporated company.
 
To summarize, Hong Kong entities are ideal vehicles for wealth management and succession planning for their flexibility and cost-effectiveness, not to mention Hong Kong’s excellent privacy protection and full access to worldwide financial markets which facilitate the management of bankable and non-bankable assets. Since every company and family is different, there is no one-size-fits-all structure. Therefore, a reliable partner with a proven track record in establishing bespoke solutions is of utmost importance for the success. If you are interested in learning more about how you can preserve and protect your family wealth, our experts are happy to have a more in-depth discussion with you.

 

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