How to avoid a Suspicious Activity Report (SAR)?

A Suspicious Activity Report (SAR) named in Hong Kong a STR as Suspicious Transaction Report is raised mainly by Financial Institutions and sent to the Financial Intelligence Unit (FIU).

Being subject to a SAR is a risk to international entrepreneurs and companies with cross-border activities. The bank compliance department will raise a SAR if they don’t understand part of the transactions and / or have difficulties with the company activities.

For legitimate activities , for companies located in offshore jurisdictions with or without complex business models, for businessmen with activities located in medium or high risk countries the emission of a SAR could simply destroy your bank relationship and see the termination of your account.

Additionally working with a company which was once signaled by a Suspicious Activity Report (SAR) could also impact drastically your business.

Banks are de-risking , terminating many bank accounts for ” administrative reasons ” , its obviously difficult to blame them when noticing the huge pressure they are facing from regulatory bodies and recently again with the FINCEN leaks.

YOU are concerned!

Its easier to terminate an account than to conduct a proper compliance, the pressure on banks will impact drastically small and medium enterprises as when the account is important a Suspicious Activity Report (SAR) is raised and this also will trigger additional compliance from the bank, but if the account as only few millions deposited the bank will be at ease to terminate the account.

A Suspicious Activity Report (SAR) can be avoided with simple and effective steps:

  1. A very detailed onboarding compliance report , with explanation and proofs to have the bank au fait of your activities
  2. A continuous monitoring of your business partners , making sure that their potential issues might not impact your own bank relationship.
  3. Immediate information to your bank if you have to process a transaction not in line with your onboarding compliance report.
  4. immediate information to the bank if your activities are growing fast, if you develop new markets, with explanations and the copies or agreements.
  5. Immediate and diligent answer to a question from your bank , remaining calm in front of poor and often difficult to comprehend questioning.

Using the services of your corporate services provider to answer to a financial institution is a good concept, avoiding emotional reactions and demonstrating with documents being the only valid answer.

Hong Kong Holding Company, powerful advantages in 2020.

A Hong Kong Holding Company will benefit from the territorial tax system,

  1. The dividends received from a local company subject to profits tax, so resulting from an investment by the Hong Kong Holding company into another Hong Kong company are specifically exempt from profits tax.
  2. Dividends received from companies that are managed and controlled outside Hong Kong and carry on no business in Hong Kong are in practice exempt on the basis that they are not derived from Hong Kong.
  3. Any profits derived from the subsequent exit by sale or disposal of the local holding company should generally be treated as exempt from profits tax because Hong Kong does not tax profits derived from the sale of capital assets.
  4. The disposal of any foreign subsidiaries held by a Hong Kong holding company is not taxed in Hong Kong unless the acquisition of these subsidiaries is considered as speculative or as part of a trade carried out in Hong Kong.
  5. Disposal of a Hong Kong subsidiary is subject to 0.02 % stamp duty on the value of the shares transferred.

Additionally, there is no dividends tax in Hong Kong so no withholding taxes on payments of dividends and interest.

Hong Kong signed Double Treaty Agreements with numerous countries

IRD (Hong Kong Inland Revenue Department) is making it more difficult to obtain Tax Residence Certificates for HK companies to claim tax benefits and foreign tax authorities are also expecting the Hong Kong Holding Companies to demonstrate their place of control and management in the city in order to enjoy the tax benefits. This means that the Hong Kong holding company would not be considered as having an offshore status.

In order to obtain the Tax Residence Certificate, the Hong Kong Holding Company will have to demonstrate the below;

  1. Local resident Director with the abilities to 1. Formulate strategic policies 2. Determinate business directions 3. Organize the work plan 4. Decide on the mode of business financing 5. Implement management policies, work plan etc. 6. Evaluate the business performance
  2. The Director will organize the meetings in Hong Kong for the directors/partners to make resolutions with a description of the subject matters discussed.
  3. The company should hire employees besides administrative officers; this could be “solved” with an employment contract for the local resident Director.
  4. The fix place of business should be in Hong Kong, an office lease (sublet) would suffice
  5. The main banker should be in Hong Kong.

Hong Kong Company Registration Search

Hong Kong Company information are publicly available with a simple registration search.

Forget about business confidentiality and privacy, we live in a new era of transparency and everybody could access information.

A Hong Kong Company registration search will reveal the director(s) name and addresses with their passports number.

A Hong Kong Company registration name will also reveal the shareholders names, addresses, passports numbers, corporate shareholders names and addresses as well as additional information about the capital and the number of shares.

To access information about a Hong Kong Company you should go online and pay a small fee, at least not all the information are available free of charge as it is the case for the UK company house.

Less to say a small fee will not be a constraint to unwanted curiosity so how to protect you personal information ?

A ) by using Hong Kong nominee director services

B) by using Hong Kong nominee shareholder services

Hong Kong Company registration search could be performed on https://www.cr.gov.hk/

Hong Kong nominee director services are facing some reluctance by the banks during the onboarding process, the reasons behind privacy needs should be explained in details and the financial institution should be convinced of the treat created by a public exposure.

Hong Kong nominee shareholders services don’t pose the same issues when banking in Hong Kong, its a more common situation.