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Hong Kong introduces one-stop company registration

Hong Kong’s Companies Registry and the Inland Revenue Department (IRD) jointly launched a new regime of one-stop company and business registration, together with a one-stop notification of change of company particulars, with effect from 21 February 2011.

Under the new regime, the Registry will process the simultaneous business registration applications and notify IRD of changes of the relevant company particulars.

Any person who submits an incorporation form of a local company, or an application form for registration of a non-Hong Kong company, will be deemed to make a business registration application at the same time. Therefore, under this new registration regime, companies will only require to lodge one single application for both company and business registration.

The new registration regime applies to both paper and electronic applications. Upon the approval of the application, the Registry will issue a Certificate of Incorporation together with a Business Registration Certificate to the applicant.

For applications lodged through the e-incorporation service at the “e-Registry”, if approved, the Registry will issue both Certificate of Incorporation and Business Registration Certificate in the form of electronic records. Any request for the issue of the certificates in paper will not be entertained.

The new registration regime will not be applicable to application for business registration by other types of businesses such as sole proprietorship, partnership businesses and branch registration. These should be lodged directly with the Business Registration Office, as previously.

Last year, the Companies Registry posted a record high of almost 140,000 local companies, an increase of 27.5% over the registrations seen in 2009. By the end of last year, the total number of live local companies registered under the Companies Ordinance was 863,762, up more than 91,500 from that in 2009. The total number of non-Hong Kong companies that had established a place of business stood at 8,165 at the end of the year.

Hong Kong’s new Companies Bill has been gazetted and was introduced into the Legislative Council for its first reading on 26 January 2011.

The Secretary for Financial Services and the Treasury, Professor K C Chan, said: "The Companies Bill aims to achieve four main objectives, namely, enhancing corporate governance, ensuring better regulation, facilitating business and modernising the law. Rewriting the Companies Ordinance (CO) allows us to leverage the developments regarding company law in other comparable jurisdictions and enhance our competitiveness. We look forward to enactment of the Bill in the 2011-12 legislative session."

The rewrite of the CO started in mid-2006, and three public consultations were conducted to gauge views on a number of complex subjects. Some of the measures introduced by the Bill to enhance corporate governance include: improving the accountability of directors to enhance transparency and accountability, and clarifying the directors’ duty of care, skill and diligence; emphasising shareholder engagement in the decision-making process; improving the disclosure of company information; and strengthening auditors’ rights.

Who needs a Tax Amnesty?

There are still legitimate, fully compliant and extremely effective offshore tax planning solutions which should be of great interest to those in the hedge fund industry whether they are working in the UK or elsewhere.

HMRC are clamping down on those who seek to avoid tax by failing to properly declare their offshore bank accounts and investments but our clients need not be concerned. For over 20 years we have been advising entrepreneurs and their corporations how to make effective tax savings on both income and capital gains.

If either you or your company are interested in making tax savings contact:

Hong Kong Office
Jacques Scherman
+852 2542 1177
info@SovereignGroup.com

Purchasing Property in Hong Kong

An article written by Howard Bilton, explaining what you need to know about purchasing property in Hong Kong.

There is much enthusiasm in Hong Kong for investment in property. Companies can go bust and their shares and bonds become worthless. Property will always have a value and it’s safe to say that any piece of Hong Kong property will be worth more in 10 years than it is now although it may be a roller coaster ride. . There is a shortage of housing here exacerbated by the government’s policy to release land slowly to maximize the price. The government announced a special stamp duty designed to curb property speculation and cool an overheating market. By way of reminder buyers and sellers are jointly liable to pay a special 15% tax on property sold within 6 months of acquisition, 10% if held between 6 and 12 months and 5% if sold within 24 months of purchase. Why not release some more land instead? Ultimately the market will only calm down if there is sufficient supply to meet demand. A properly analyst friend recently estimated that annual demand for new properties was 40,000 units and only about 15,000 units come on to the market each year so the cause of the rapid rise in prices seems clear enough.

The special ‘tax” is unlikely to make much difference. For those purchasing properties of a higher value or for investment it has probably always been the case that it is prudent to purchase in the name of a company and pay corporation tax on rental income rather than personal tax. This is due to the differing treatment of interest payable on loans taken out to purchase the property. An individual may only get a tax deduction of up to HK$100,000 in mortgage interest every 7 years and only for a loan on their primary residence. The deduction will have little impact on those purchasing more expensive properties and has no application to anybody purchasing property for investment. If a company makes the purchase it pays profits tax not property tax and all expenses in relation to the property are deductible from income. This is a rather compelling reason to purchase through a company.

Corporate ownership allows for anonymity. An individual purchaser’s name will appear on the public property register but it is relatively easy to disguise the true ownership of a company. Ownership of a company can easily be rearranged by transferring the shares and allows the special tax to be avoided because there is no transfer of title in the property. In some countries a transfer of the shares in a property owning company is treated and taxed as though it was a transfer in the property itself. This is not the case in Hong Kong. The government have not enacted any legislation with that effect so the special tax is relatively easy to avoid. In fact the government has always had legislation at its disposal which could have a similar effect to the special stamp duty. As long ago as 2008 the Financial Secretary indicated that a rapid purchase and sale of a property would be treated as trading in property and gains would be taxed as income not capital gains. The former is taxed the latter is not. Be aware of this possibility. This measure is similar to the position for foreign investors in UK property. Non residents of the UK are not subject to UK CGT. if an Hong Kong resident purchases UK property and exploits it by renting it out then on resale there will be a capital gain produced which is not taxable in the UK. However, if that same investor buys property and then sells it rapidly he can be considered as producing income from trading in property and would therefore have to pay UK income tax on the profit.

Frequently those going to live in a higher tax country are faced with estate duties and global taxes on income and capital gains. Often a solution to that problem is to transfer assets into a trust or foundation prior to arrival in the new country. Being able to achieve that by a transfer in shares of a company is much cheaper and easier than trying to rearrange title to the property.

A Hong Kong company can be used to purchase Hong Kong property but it will be frequently more advantageous to use an offshore company and register it in Hong Kong if necessary. Transfers in the shares of an offshore company can be made completely free of tax and stamp duty. Transfers in the shares of a Hong Kong company attract stamp duty, albeit at low levels, and some other costs and expenses.

Either way there are substantial advantages to corporate ownership so investors would be wise to consider this option but legislation and tax systems change rapidly and without notice so it would also be wise to check with your advisors before proceeding.

Hong Kong signs tax treaty with Japan

Hong Kong Secretary for Financial Services and the Treasury Professor K C Chan, and Consul-General of Japan in Hong Kong, Yuji Kumamaru, signed, on 9 November 2010, the text of the much anticipated Hong Kong/Japan treaty on the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

Under the treaty, double taxation will be avoided in that any Japanese tax paid by the companies will be allowed as a credit against the tax payable in Hong Kong in respect of the income, subject to the provisions of the tax laws of Hong Kong.

Currently Hong Kong residents receiving dividends from Japan not attributable to a permanent establishment in Japan are subject to a Japanese withholding tax, which is currently set at 20%. Under the agreement, such withholding tax is capped at 5% for a company holding (directly or indirectly) for a period of six months at least 10% of the voting shares of the company paying the dividends, and 10% for other cases.

Also, Hong Kong residents receiving royalties from Japan are subject to a current withholding tax at 20% in Japan. Under the agreement, the royalties withholding tax will be capped at 5%. The Japanese interest withholding tax on Hong Kong residents will be reduced from the current rate of 20% to 10%.

The treaty incorporates the latest OECD standards on exchange of information but unusually it does not include a limitation of benefits (LOB) clause similar to the comprehensive LOB Clauses which are based on a series of objective tests that have to be met to claim treaty benefits that have been included in Japan's most recently renegotiated tax treaties.

Rather, at article 26 the treaty includes a very brief clause headed "Limitation of Relief" that lists five specific paragraphs in the treaty and states that: " ... No relief shall be available under (the five paragraphs) if the main purpose of any person concerned with the creation or assignment of any right or property in respect of which income arises was to take advantage of the such provisions ..."

The new treaty will come into force after the completion of ratification procedures on both sides. It was the sixteenth comprehensive double tax treaty concluded by Hong Kong with its trading partners, coming after those with Belgium, Thailand, the Mainland of China, Luxembourg, Vietnam, Brunei, the Netherlands, Indonesia, Hungary, Kuwait, Austria, the UK, Ireland, Liechtenstein and France.

For more information on tax check out our main website The Sovereign Group.