What is KYC?

Know Your Customer (KYC) is a process of collecting information to sufficiently confirm the identity of a client. It is made mandatory by Hong Kong regulations with the purpose of combating money laundering.

Money laundering can be defined as any operation aimed at hiding the wrongful origin of the proceeds of crime.

What are the consequences for the creation of a company in Hong Kong?

For any new client, we must collect sufficient information to confirm their identity. For an individual  (director and / or partner of a company) in Hong Kong, we always ask for a copy of their passport and proof of address dated less than 3 months. For a legal entity (company, foundation, etc.), we systematically ask to identify the director and the beneficiaries of this entity. In the case of a nominee service and to open a bank account, a Business Plan will be required.

The banks we work with always check the authenticity of submitted passports. This means a request for certification abroad if client is not present in Hong Kong and a copy of the stamp of the Immigration Services if opening the bank account in Hong Kong.  The bank will also apply their own KYC rules according to the risk profile of the client.

We rigorously apply these principles, which ensures our clients of reliable and long term support from our service and uncomplicated relations with local banks the Hong Kong authorities.

Our professionalism explains our longevity and reputation.

Automatic Exchange of Tax Information via CRS

Hong Kong is a signatory of the OECD convention on the Automatic Exchange of Information using the Common Reporting Standard (CRS).

This means that participating jurisdictions, such as Hong Kong, will report bank account information of individuals and companies to the tax authorities of other participating jurisdictions when the account holder qualifies as tax resident of that jurisdiction.

We invite you to contact us if you have any questions about this process and review whether your company and its bank account are concerned by it or not.

What do the Paradise Papers reveal, and why it’s a good thing for the global economy?

The “Paradise Papers” scandal and the regulations put in place across the globe in response to it reveal that the complicated business structures recommended by some firms no longer work. In addition to the very negative impact on public opinion of the international business community, these revelations show that tax administrations will no longer permit tax optimization structures that do not meet the key tests of “Compliance” and “Substance“.

Compliance refers to abiding by the regulations of any and all authorities, administrations, or tax conventions, etc. This usually involves maintaining truthful and up to date accounting, an annual audit of that accounting and submitting an annual tax return, even if it is nil.

Substance refers to having an office, staff, a bank account, a resident leader, a computer server, etc. all located in the country of registration of the company. Tax Administrations no longer accept “Post Office Box” companies but require a “real” company which can justify that at least part of their business cycle is carried out in the country of registration. This point is particularly essential to benefit from the advantages of non-double taxation treaties.

Merrit Asia is a “Corporate Services Provider”, and we do not sell legal or tax advice. However, we feel compelled to point out to our prospective and existing clients that the Offshore Company structure is, in most cases, no longer viable in the current global legal and tax regulation environment. The notions of Compliance and Substance are now mandatory tests to meet to set up any legal and lasting tax optimization package.

Hong Kong is an appropriate jurisdiction to meet all these criteria under the following conditions:

  1. Create a company with offices in Hong Kong. The corporate tax rate will then be at maximum 16.5%;
  2. Hire staff on site. Employer charges related to an employee are very low in Hong Kong.

It should also be noted that in recent years bankers in Hong Kong have tightened the conditions for opening a bank account and are increasingly demanding that an existing professional activity in connection with China or Hong Kong is demonstrated. Having local offices in Hong Kong makes it much easier to satisfy this demand and open a bank account in Hong Kong.

In the end, the “Paradise Papers” scandal  will be beneficial if it demonstrates to entrepreneurs looking to create a company abroad that they should think twice about flawed business structures and seriously consider the importance of Compliance and Substance.

It is still possible to legally reduce the taxation of a company with global operations, but it will require a “real” and compliant company if it is to be sustainable.

© Copyright - Merritt.group