Director Services With Economic Substance

Paying taxes in Hong Kong isn’t a demonstration of substance, in order to obtain the Hong Kong Tax Residence Certificate, a Hong Kong company should have as a Director a qualified individual.

Time has passed when hiring a nominee Director from the accounting firm and having board meetings in Hong Kong was sufficient, the new reality requires related experiences and a public profile not being the one of a CPA or a Legal professional (no disrespect – we are working with them everyday).

The western pressure to the Hong Kong tax authorities is high, the Hong Kong Tax Residence Certificate isn’t anymore lightly given. Of course, if as the owner of a Hong Kong Company you do not intend to benefit from a double tax treaty agreement the requirements would have less impact but under no circumstances no impact.

Demonstrating that your Hong Kong Company is not managed from the country of residence of the shareholder is becoming a difficult exercise, especially because of the Covid travel constraints.

Business Acumen

Provision of a qualified individual with the capacities to:

  1. Formulate strategic policies
  2. Determinate business directions
  3. Organize the work plan
  4. Decide on mode of business financing
  5. Implement management policies, work plan etc.
  6. Evaluate the business performance

Engagement

The Director will be hired under an employment contract, with a monthly remuneration subject to the Mandatory Provident Fund and will be named on the employer return declaration to the Inland Revenue Department.

Health insurance will be contracted (legal minimum level) as well as a director liability insurance.

Agreements signatory powers

Agreements with be reviewed by para-legal services to ensure that they don’t contravene to any laws and regulations and particularly that Hong Kong laws and regulations are well respected. Additionally, a compliance on the involved parties will be conducted as this is often requested by Financial Institutions. If the agreements are provided by the law firm referring the client the compliance and the review will be shortened.

Organization and monitoring

The Director will organize the meetings in Hong Kong for the directors/partners to take resolutions with a description of the subjects matters discussed.

The Director will monitor the state of affairs and review Monthly P&L which should be prepared for the 20 of the next month, he will obviously sign all management accounts and the audit / tax declaration.

Terms and conditions

Due to the high level of responsibilities and in order to not engage resources for a full compliance before entering into agreement a first review will be based on:

  1. The nationality and country of residence of the beneficial owner(s)
  2. The detailed activities of the HK company with information about the products and services, the market environment and the competition.
  3. The locations of clients and suppliers
  4. The expected number of agreements to be signed and the turnover forecast

The first review is free of charge and if the client is referred by a regulated professional will not necessitate the disclosure of the client’s identity and any information requiring a Non-Disclosure Agreement. At this stage we will only confirm that in principle and before an enhanced due diligence report we could envisage to act for the client and this under which terms & conditions.

Then only, a service agreement will be executed and the compliance work will start.

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