Is it difficult to open a corporate bank account in Hong Kong? Clayton Chan K. M. Chan & Company, CPA 22 February 2016

Transcription

1 Is it difficult to open a corporate bank account in Hong Kong? Clayton Chan K. M. Chan & Company, CPA 22 February

2 Speaker Clayton K. M. Chan FCA, FCCA, FCPA, CFE, CPA (Practising) Clayton is a Certified Public Accountant (Practising) in Hong Kong, and a Certified Fraud Examiner in USA. He has years of combined experience in performing public auditing, advising tax efficient onshore/offshore structure for HK companies, contesting tax field audits and tax investigations, and conducting financial due diligence and investigative accounting. He has also been involved personally in attestation engagements for small and closely held companies, local and national businesses, and public held enterprises listed in US, Japan, Australia, Singapore, South Korea, China and Hong Kong. 2

3 Disclaimer The information contained in these materials is intended to provide an introduction of the subject matter and not as the only source of reference. The readers should take appropriate professional advice in their particular circumstances. The speaker shall have neither liability nor responsibility to any person or entity with respect to any loss, damage, or injury caused or alleged to be caused directly or indirectly by any information contained in or omitted from this handout. 3

4 Choosing HK---Some Major Reasons: No foreign exchange control Sound legal and banking system Comprehensive banking services (e.g. internet banking, ATM card, phone banking, investment account, multi-currency account) Without undue bank balance requirements No withholding tax on interest income Proximity to Mainland China for fund repatriation 4

5 The Puffery:.Specialist in Company Formation Bank Account Opening in 1 day. Opening a corporate bank account is a relatively simple and straightforward procedure. There is no need to come to HK for opening HK bank accounts.. 5

6 The reality: It is taking the banks anywhere between one to two months to open an account, sometimes four months, and sometimes the banks refuse altogether to open an account. On top of that the banks are closing down accounts. Sometimes payments are frozen. As part of its 2012 Deferred Prosecution Agreement, HSBC had to employ a monitor and an army of lawyers who crawl all over the bank to ensure it has what it considers an appropriate level of compliance. A bad report from the monitor could result in prosecution and the loss of its US banking licence. One professional told Lai See he now feels he has to tell prospective clients looking to set up a business in Hong Kong that: I don't know if I can guarantee that you will get a bank account. It's not clear any more - you may not tick the right boxes. Said one irate corporate services provider: Getting a bank account in Hong Kong now is like going to a restaurant and being pleasantly surprised when they take your order." [Source: Banking account difficulties turning business away from Hong Kong, Howard Winn, SCMP, Thursday 26 March 2015] 6

7 Basic Documents Required Corporate records (e.g. certificate of incorporation, business licence, articles of association) Organisation chart Personal identification documents of the directors and shareholders Recent residential address proof of the directors and shareholders 7

8 Additional Information Source of fund (e.g. personal bank statements, tax demand note) Business proof (e.g. invoices, agreements, plans) Product catalogue/brochure Referral (e.g. CPA, lawyer, existing customer) Special licences/permits 8

9 Common Pitfalls in Account Opening Application No appointment Key relevant persons (including majority shareholders; directors; nominees and authorised signatories) not attending the interview Documents not written in English/Chinese Documents without proper authentication No acceptable UBO documents No business cards No original passports 9

10 Outdated and/or unacceptable residential address proof Inadequate business records, especially for start-up company Inadequate information about the background and experience of the directors/shareholders Inadequate explanations about the need of setting up a company in Hong Kong Inadequate justifications for approaching the bank in question, and in particular the need for a second account Doubtful business model or dealing with risky business or sensitive countries Inappropriate corporate structure Not desperate to get more banking services 10

11 Business Nature and Account Acceptability Matrix Need for comprehensive banking services Securities Investment Property Investment Private wealth holding Trading Retail Manufacturing Investment holding Conduit financing Trust account Consulting services Group treasury Transportation Volume of bank transactions 11

12 A Right Corporate Structure? 12

13 Scenario 1: HK Co. + HK Resident S/D HKR S/D HKR 50% 50% Any impact if the UBO is not a HKR? HK Co. PRC Subsidiary 13

14 Scenario 2: HK Co. + Offshore Co. + HK Resident S/D HKR 100% Why using an offshore co.? 100% Offshore Co. HK Co. Any impact for layers of intermediary companies? PRC Subsidiary 14

15 Scenario 3: HK Co. + Offshore Co. + Non-HK Resident + HK Resident S/D HKRSNHKRS/DNHKR HK Co. Offshore Co. Trust 10% 45% 45% Any tax-driven reasons for the structure? HK Co. PRC Subsidiary Who are the UBOs? 15

16 Scenario 4: Offshore Co. + Non-HK Resident S/D NHKR Why coming to 100% Hong Kong? Offshore Co. 16

17 KYC Procedures Documentation requirements HK residents Non-HK residents and non-hk citizens HK-incorporated company Offshore company Offshore company registered in Hong Kong 17

18 Difficult Applications--Examples of activities or mode of operation subject to close scrutiny: Money changing and remittance Jewelry and gem trading Money lending Futures/commodities trading Environmentally-unfriendly business Entertainment business with potential ethical issues MLM Offshore transactions Online trading Start-up business Activities not matching with the experience of the directors/shareholders 18

19 Account Maintaining Impact of FATCA Banks in HK have started sending FATCA returns annually to all relevant accounts since Every year the banks report information on relevant accounts held directly or indirectly by US Persons. Relevant accounts include offshore companies, and HK companies with a corporate shareholder and/or a corporate director. US Persons include Individuals (US residents, citizens and permanent residents) and Entities (typically those incorporated, organised, establised or formed in the US, including a corporation, trust, estate or partnership). No need to report information on an Active Non-Financial Foreign Entity or its shareholders under FATCA if meeting the relevant criteria. 19

20 Account Maintaining If an account holder ignores the reporting requirements, the banks may: close the accounts keep 30% withholding tax for any amounts paid into the accounts report the information relating to the accounts to the appropriate tax authorities 20

21 Account Maintaining Impact of AEOI EC updated its website on 12 October 2015 about the list of noncooperative tax jurisdictions amongst the EU Member States--- Hong Kong on the Spanish tax blacklist was rectified HK Government will implement the new OECD standard on automatic exchange of financial account information in tax matters. Relevant FIs will be required to identify, collect and report certain account holders to IRD. IRD will exchange annually the information (automatically) with the CRS signatory countries in which those bank account holders are tax resident. FIs in HK will report information to IRD in May IRD will exchange information with CRS signatories towards the end of 2018 (for information relating to 2017 calendar year). Bank s Compliance Costs v. Benefits 21

22 Account Maintaining AML Procedures--Quoted Comments from an Aggrieved Client. In January 2016, I have made 3 payments, and all 3 have been delayed. So, this is getting worst.i am seriously thinking of changing bank.. For all the delays, the reason is always the same, the need more info and ask me 7 questions.the name of my company, the name my company operate under, the HQ of my company, the operating countries of my company, the offices of my company, the business of my company, and finally, the reason for the transfer.. Always the same thing, and they always tell me it is because the receiving bank is asking for those info..this is really getting ridiculous.i wish there would be someone that I could complain to. 22

23 Account Maintaining Annual Customer Information Update--- similar to the documents required for opening a new bank account Amendment of Bank Authorised Signatory and Changes in Directors/Shareholders--- similar to the procedures required for opening a new bank account 23

24 Account closing Red Flags for Account Closure Non-transparent corporate structure Low or no balance account Dormant account Hold mail account Remittances from/to sensitive countries Shareholders/directors from sensitive countries AML alerts triggered by the internal compliance system Beneficiary address different from the business address on record Loss of contact Overdue bank charges Not responsive to ongoing compliance review Inadequate supporting documents for compliance review No physical office in HK 24

25 Account closing Opening a New Bank Account Elsewhere? Following a review of account activities, we have decided to discontinue the banking account relationship with the captioned accounts. Bank X We will from time to time conduct a review of customers accounts in order to meet the highest standards of banking practice. Upon our recent review of xx Ltd, we regret to inform you that we have decided to close the accounts listed below. ---Bank Y 25

26 Account closing Overview of application preferences for certain banks in HK Bank A Bank B Bank C Bank D Bank E Minimum Turnover N/A Preferably above HK$5m Variable Variable Variable No. of Director/ Shareholder Statutory requirements Either 1 director + 2 shareholders Or 2 directors + 1 shareholder 2 directors 2 shareholders Statutory requirements Statutory requirements Virtual office address Acceptable Acceptable NOT Acceptable Acceptable Acceptable Cross-selling opportunity Helpful Helpful Important Important Helpful Referral Not relevant Not relevant Not relevant Not relevant Essential Consulting services as Principal activity Acceptable Not preferred Not considered Not considered Not considered 26

27 Conclusions and Actions KEY TAKEAWAYS Don t simply walk in a local bank branch near the hotel Don t set up a company with complex corporate structure Do match the company s needs against the bank s customer acceptance policy Do provide compelling reasons for opening a bank account in HK Do ask for referral from existing account holders or overseas bank branch Do obtain an approval-in-principle Do seek professional advice See revised General Guide to Account Opening issued by the Basel Committee on Banking Supervision in Feb 2016 ( 27

28 QUESTIONS? THANK YOU! 28