How to increase your chances of bank account approval in Hong Kong

increase your chances

One of our articles have discussed and narrated how several banks in Hong Kong are leaning towards rejecting almost every client that falls under their ridiculous high standards. Most of the time, their criteria are hard to meet, or even match. That’s why most of applicants are left with no choice but to accept the fact that they are rejected.

First of all, in order to lower the possibility of rejection, you need to prepare yourself and your business. Companies, entrepreneurs, start-ups and SME’s, notwithstanding their size has to go over the prescribed requirements, policies and mandates of banks. This approach is to save you money, time and efforts.

Even though the horizon for some businesses and companies are oblique, we feel that it is NOT IMPOSSIBLE. This is why we have made a compilation of various things you can do in order to prepare you and your company from bank scrutiny and secure a fighting chance of that seal of approval.

We would like to set thing straight, these tips and words of advices are based on our actual experiences in dealing with various banks in Hong Kong.

STEP 1: Simplify Your Corporate Substance

Oftentimes, companies and entrepreneurs will make super complicated structure of business in terms of ownership and layering that it actually affects the overall business acumen of your company. To avoid this, simply define your purpose and outline the UBO structures.

You can use several solutions to this, which would involve offshore companies such as BVI, Seychelles, Samoa and other credible jurisdictions. Only thing left is to structure this solution properly in order to avoid any undue tax issues and operational problems.

STEP 2: Solidify Your Business Portfolio to the Bank

Think of this through this manner.

You are simply strengthening your business proofs to evidence that you are running a legitimate company. In basic terms, ensure that your business is legit and will operate in Hong Kong with a justifiable purpose, as well as being supported with specific business licences with no hidden agenda whatsoever.

Comply with KYC protocols in the bank, whether it be Customer Due Diligence (CDD) or Enhanced Due Diligence (EDD). Always bear in mind that these processes are normal and conventional.

Most importantly, beef up on company presentations, client portfolio database, product catalogue, online present boosting, as well as other business company operation proofs in order to give a safety net on your approval.

Basically, anything that can help the bank to get a better understanding about your company and the industry that you are operating from.

STEP 3: Optimise your Financial Transactions

Making sure that your origin of funds is important to avoid any suspicion on your agenda in opening a bank account.

Assure the bank by being cooperative and compliant that you are not a security risk in terms of AML-CTF matters and other illicit purposes. As much as possible, refrain from venturing into high risk and high value commodities including precious stones and metals.

Another thing to also do, is to avoid high volume, multiple or frequent transactions for service type of dealings solely for the purpose of procuring funds to a single beneficiary or otherwise.

Make certain that you will provide all pertinent details about your suppliers and customer information or data such as business cards, email correspondences, contracts/agreements, as well as quotations and invoices in order to bulk up on your business and assure the bank that you are a legit business person with a legitimate purpose.

STEP 4: Do Not Corroborate with High-Risk or Sanction Countries

This part is really important, review the current FATF, SDN and other global sanctions databases in order to determine whether a business partner, client, or supplier is belonging to a high risk or sanctioned countries such as Zimbabwe, Sudan, Iran, Syria, and others.

Consider trying to run a background check on the controlling persons of your clients and suppliers in order to ensure that they do not have ties to a high risk or sanction countries.

STEP 5: Acquire Our Services

Perhaps the most important part of these article is we would like to let you know that we offer various services that includes bank account opening in Hong Kong, Singapore, Macau, and other offshore jurisdictions such as Malta, Mauritius and others.

To know more of what we can do to ensure that you have an increased chance of bank approval, Contact Us Now!

Picking the right company type in Hong Kong

company type in Hong Kong

Being one of the largest financial centers in the world, Hong Kong is chosen by entrepreneurs and global companies worldwide due to its flexible type of companies to choose from when you opt to incorporate a company there. There are several company type to choose from, ranging from:

  • private or public companies,
  • limited by shares or guarantees,
  • sole proprietorship,
  • partnership,
  • branch, or a representative office/liaison office.

All of which has pros and cons depending on the purpose and usage of the company itself. Although there are many kinds of company types in Hong Kong, this article will focus directly on the most attractable, popular and pragmatic companies to choose from.

Hong Kong limited liability companies (LLC)

An LLC in Hong Kong can either be a private or a public company that is limited by shares. To give you an exact account on their unique potentials, these are their respective characteristics:

Private company limited by shares

  • Mostly aligned with SME’s who are engaged in the business of trade and commerce.
  • Corporate substance dictates that it requires at least one (1) shareholder (maximum of 50 shareholders), a Hong Kong based Company Secretary and Director, with a registered office in Hong Kong as well.
  • No minimum share capital is required.
  • No bearer of share / shares has no par value.
  • Shares are deemed transferable.
  • Profits in the company can be proportionately distributed to the shareholders.

Public company limited by shares

  • Applicable at best with large multinational companies.
  • In terms of corporate substance, at least two (2) directors, one (1) member and a Hong Kong based Company Secretary is required, along with a registered office in Hong Kong.
  • No corporate directorship is permitted.
  • Shareholders can be over 50 in number.
  • No minimum share capital is required.
  • No bearer of share / shares has no par value.
  • Shares are traded with no restrictions with regards to transfers.
  • Options are available to list the shares of the company in the Hong Kong Stock Exchange or not.
  • Profits in the company can be proportionately distributed to the shareholders.

Pros

  • Hong Kong companies has an innately lawful nature of being a separate juridical entity. Thus, having the right to acquire tangible assets, enter into legal contracts/agreements, as well as having the capacity to sue or be sued under its own pretenses, and otherwise having a separate legal capacity apart from its shareholders, which makes their shareholders not personally and legally liable on debts incurred by the company.
  • Shareholders has a proportionate limited that is based on their shares on the company.
  • Shares has a free flow of transfers without any restrictions. Shareholders can also completely or partially sell their shares.
  • To increase its cash flow and overall wealth, private companies can issue additional shares to other members in order to bring in more investments to them.
  • Private companies benefit from a two-tier tax scheme in Hong Kong, which means that profits tax is at 8.25% for the first HKD 2,000,000, meanwhile revenues generated outside of Hong Kong are exempted from profits tax.

Cons

  • Private companies are required to maintain a good compliance practice in terms of its tax and company obligations with the Hong Kong Companies Registry as well as the Hong Kong Inland Revenue Department (IRD).
  • Not too much privacy protections, oftentimes in just a few hundred HKD, the identity of the shareholders and directors of a private company can be purchased from the Companies registry itself, since under the law, these kinds of data pertaining to this type of companies must be publish.
  • Cost can sometimes be an issue since it’s not the same with the actual cost to put up a sole proprietorship or partnership in Hong Kong.
  • Company closure can be costly and oftentimes a very long process.

Private companies are generally encouraged if you

  1. want to run a company which has a separate legal capacity when entering into contracts,
  2. increase your financing capabilities by utilizing the assets of the company to enter into loans with banks or other financial institutions, and
  3. allow other shareholders to partake in your capacity as a shareholder or director of the company in representing you in entering into contracts or agreements.

    Sole proprietorship in Hong Kong

    This type of business model is registered under the Business Registration Office. Every so often, the process of registration is quick, fast and not too costly. In nature, it is ran and operated by a single person who acts and assumes the sole role of being the owner of the business. Thus, tax coverage on this kind of business is lulled at 7.5% to 15%, heaving depending upon the income bracket of the sole proprietor.

    Pros

    • Registration process and maintenance thereafter is a lax process.
    • Audit task is not required on its annual tax filing.
    • You can register as a sole proprietor only after one month from when you started operating your business.
    • Profits on this kind of business is enjoyed solely the owner alone.
    • The sole business owner can exercise an independent decision making process without the need to consult other stakeholders.

    Cons

    • Sole proprietorship are not capable in raising large amounts of financing or capital related injections from banking institutions.
    • Capital injection in the business solely relies on the personal assets and wealth of the business owner.
    • Does not have a separate juridical entity. In other words, if sued or goes into a bad debt, the personal assets and wealth of the sole proprietor is covered under those liabilities. In fact, the chances of going bankrupt is so high that even the court can hold the business owner personally liable on debts.
    • Sole proprietors are independently reliant unto themselves to solve business problems and keep the business afloat without the help of other investors.

    Sole proprietorship is beneficial if you are looking for a quick fix in establishing a legit business that can be registered easily with low cost, simple compliance and maintenance.


      Partnerships in Hong Kong

      Requiring at least two members, a partnership business in Hong Kong is regulated by the Partnership Ordinance. Said firm needs to secure its Business Registration Certificate within one month from starting the business. In view of tax obligations, partnerships are required to pay 7.5% rate. There are two kinds of partnership that you can register in Hong Kong, it can either be a Limited or a General Partnership.

      Pros

      • Partnerships are a collaboration between two or more people that intends to build and develop their business. Each and every partner in the business can contribute on their professional backgrounds and personal aptitudes since they would differ in some way in order to build a stable business portfolio.
      • Registration processes can be smooth, and maintenance can be inexpensive at times.
      • Partnerships can expand exponentially if they want to increase their pool of partners to develop the business and grow capital.

      Cons

      • All members of the partnership assume a group type hold on liability and that no one is left out, and everyone are personally responsible at their own capacities.
      • Partnerships are prone to disagreements with the other partners since they differ from standpoints due to personal capacities. These kinds of disagreements can result to legal problems if unresolved.

      A partnership type is advisable for people who wants to establish a partnership with similar mindsets and goals. It can even be suited if you want to diversify the risk associated in a business.


        Representative or liaison office

        A Representative or Liaison Office is a legal entity that is an extension of a parent company with a jurisdiction separate from Hong Kong. It is required also to utilized the same company name as that of its parent company counterpart. However, annual tax return with NIL is mandatory to be submitted.

        Pros

        • This type of business benefits from an already registered parent company, without the need to operate under a separate entity.
        • The government agency tasked to regulate this kinds of businesses are confined within the powers of the Inland Revenue Department (IRD) of Hong Kong.
        • It is very easy to establish and register.

        Cons

        • Are not allowed to conduct businesses in Hong Kong.
        • Its operational and business conducts or pursuits are very limited and well regulated.
        • Funding are only allowed through the parent company that owns the Representative/Liaison Office.
        • During the registration process, Hong Kong requires that a local representative, that can either be a Hong Kong resident or a solicitor who will be representing the business entity in the process.

        Our thoughts

        All companies or businesses, regardless of jurisdictions are regulated in some way, with their own inherent risks, similarities, disadvantages or advantages. One thing is certain, ensuring that what you choose to register must meet your requirements and setup as an entrepreneur.

        If you are planning to choose the best business type in Hong Kong, you can talk to us, so you can make an informed decision


          Offshore tax exemptions in Hong Kong

          tax exemption offshore

          Contrary to popular beliefs that are villain oriented, just like in the movies that portrays the antagonist characters hiding their money in offshore accounts, it is however different in reality. Offshore companies are merely juridical entities that conducts business outside of their original jurisdiction where they are incorporated. Also in reality, offshore entities are tax havens since most jurisdictions that regulates these companies have lenient tax laws or tax exemptions that does not eat away your corporate profits.

          Hong Kong provides a venue for offshore companies and businesses to thrive on. Some people may not have known that Hong Kong itself is considerably an offshore jurisdiction, but instead of a tax exemption, it provides low tax regulations. One perfect example of such is that in Hong Kong, profits emanating outside of the jurisdiction of Hong Kong are not subject to taxation.

          Local companies in Hong Kong can file for an offshore status by way of offshore claim. Although the process is rigorous and requires a specific skill-set in terms of the application process in general, the goal though is beneficial in the long term scale.

          Applications for offshore status by local companies can be availed and granted by the HK Inland Revenue Department (IRD). All applications for offshore claim is diligently screened and vetted through a complicated process. Upon approval, the validity usually range up to 5 years. It is important to remember that offshore status in Hong Kong is not retroactive, and any corporate tax payments made before gaining the status is not covered. Hence, the absence of an offshore claim can result to a company paying the actual applicable tax on profits that is required by law, regardless if those profits are derived from sources outside of HK.

          Before filing for an offshore status, you should first evaluate whether or not you are qualified to avail of this privilege. Since the said status is granted by law, the applicant must ensure that they are covered under the realms of the law allowing the status to be given to companies. Otherwise, your application for offshore status will definitely be rejected on valid causes, and it boils down to the matter of not being eligible.

          To give you an actual insight on what you should consider before filing for an offshore status. There are several tests that are conducted to determine if your company’s request can be granted by the IRD. These tests are conducted based on the nature of business of the applicant.

          Contract Effected Test

          This test is utilized in order to ascertain the taxability of the income accruing to the taxpayer engaged in a trading business. This phase is design to also gauge whether or not the purchase or sale contracts are executed in Hong Kong. Moreover, the IRD will look into the execution of the contracts by the company, particularly on how the goods are shipped, how sales are solicited, how orders are processed, how goods are procured and stored, and how payments are made.

          Operations Test

          If you are not engaged in the trading business or money lending, you will then be subjected to this test. For commission income, the test will scrutinize the origin cause of the income. If indeed the income emanated and took place in Hong Kong, and what has been executed to earn those profits and where was it rendered. Furthermore, enterprises are subjected to a different set of test, and they would normally gauge if you have no operational office in HK, no workforce are hired or employed in HK, no clienteles in Hong Kong, no suppliers in Hong Kong, contracts are not negotiated and executed in HK, goods should not be entering HK, service agreements or sales/purchase invoices must not involve any Hong Kong based entities, and the actual operation of the business is conducted outside of Hong Kong. If you meet these criteria, you have a chance in being granted with an offshore status.

          Final thoughts

          It is very important to know and to understand, that even if you meet the necessary requirements for an offshore status, it does not guarantee an approval from the IRD, since a thorough evaluation will be made to validate and verify all submitted documentations in the application process. Aside from this, there are several requirements that are mandatory to be submitted by the company itself which would involve the actual operation and conduct of business. Hence, all must be evidenced by irrefutable and valid documentations.


            Director Services, the related risks & solutions for the clients

            Director Services

            The risks for the clients requesting Directors Services are not often considered accurately. There are opportunities to mitigate the risks and to protect the client’s interests.

            Directors powers and duties

            The notion of Nominee Director and the corresponding nominee agreement are unknown from third parties (except bankers and we will engage this topic below) and this leave room to Directors powers being potentially abused. Having an agreement mentioning that the Director will only act on written instructions is enforceable but obviously only after the commission of potential illicit actions.

            Directors engaging in good faith the company into a delicate situation

            Honesty doesn’t compensate experience and skills, a Director could fail his Director’s duties by inadvertence, misjudging an operation and not taking into consideration a specific law or regulation. The potential to see errors is important, the demonstration of this is reflected by indemnify agreements and liability insurances requested to protect the Directors.

            Directors personal reputation and private activities

            Extreme political views, engagement into private activities in opposition with the Company values, the Directors activities on social medias could damage the company reputation. The public exposure of a Director is nowadays easily accessible to competitors, business partners and compliance departments.

            Directors professional profiles

            Directors are often selected from the team of the Corporate Services Provider, from a Certified Public Accountants firm or from a Legal professional’s firm. Despite the Company obvious advantage to have such professionals well aware of the compliance process as Directors, this is also a demonstration that the Directors are not specialized into a specific activity, say digital marketing, and this only will drag attention to their Nominee roles.

            Directors Business activities

            Risks are attached to every operation, to every Companies, by multiplying operations and companies and by engaging in many Directorships the risks are increasing drastically. The possibility to see a director bringing reputational, or worst, issues to a new client is real. Additionally, the Directors access to proprietary information (and the multiplication of such clients) is generating difficulties to always maintain a “Chinese-wall” between clients.

            Banking difficulties

            This subject itself could be expended into a long article, as a matter of fact the most important notion is the UNUSUAL CONFIDENTIALITY level so, basically, it’s a judgment call from the bank compliance department about the use of Nominee Director Services. Some banks are very reluctant to accept Companies using Nominee Directors and Nominee shareholders services.


              The risk assessment process could be supported by an unbiased legal professional (not providing the said Directors Services). In addition to a compliance on the company providing the individual directors I would suggest the below actions.

              1. Hiring two Directors

              One Director could go rogue, two at the same time would be extremely rare. Having the directors not located in the same country could also represent some tax advantage.

              2. Request for a qualified, fit & proper, Director

              The Director should have at least 5 years of experiences in a Senior position, plus adequate experiences as a Director for other companies.

              3. Request for a list of occupied positions

              The Director in addition of his/her qualifications should present an impeccable public profile, a compliance should be effectively prepared on his/her profile and the client should obtain a list of all the Direction positions held, at least in the company jurisdiction.

              4. The Director should have something to lose

              Let’s be straight-forward, a taxi-driver would not attach great importance to his public exposure as a company Director, a director should suffer (and will but it’s another story) from any wrong doing by any of the Companies for which he does act as a Director.

              5. Soft factors are important too

              Where does the Director reside? A public housing location will not be credible for an important company, his age and professional experiences are also informing about his qualities when your business partners will search the public register.

              6. Documents list to obtain

              Passport copy, identity card copy, address proof (utility bill) of less than 3 months old, Resume (CV), list of positions as Director in the same jurisdiction.

              7. Compliance to be performed

              Short compliance on the Companies for which the Director is acting, searching for red flags about activities and adverse medias. Full compliance on the proposed Director – private database and open sources.


              Few words about the Hong Kong situation:

              In Hong Kong there is No PUBLIC Register of significant controllers, so the use of Nominee Directors and Nominee shareholders is effective to protect confidentiality, privacy and business freedom.

              These services were in the past very well accepted, quite common and so obviously misused by criminal and tax cheaters. AML laws and regulations and more effectively bank’s reluctance to onboard clients using nominees did put the services providers on heavy pressure.

              The main issue is the compliance, and so the associated costs, incurred by a Corporate Services Provider before accepting a client and for the continuous monitoring of the Company activities.

              The Corporate Services Provider is confronted to a long list of risks, this will be explained further in another article. Offering nominee services is often reserved to existing clients or to other professionals whom performed due compliance and are knowing their clients very well.

              Disclaimer:
              
              I the co-founder of a Corporate Services Provider licensed in Hong Kong which provide Nominee Directors and Nominee Shareholders services.