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2018.03.15 - Hong Kong: introducing registers of significant control.

 

In accordance with the Hong Kong Companies Ordinance Law (Cap. 622), Hong Kong on 1st of March 2018 introduced Companies (Amendment) Ordinance 2018, a rule which obliges for preparing and keeping of the information on controlling persons (Significant Controllers) for all companies registered in Hong Kong, i.e. - Companies limited by shares, Companies limited by guarantee, as well as Unlimited companies.

With the abovementioned law, Hong Kong becomes one of those jurisdictions outside the EU in which the obligation to keep the information about the controlling persons is stipulated not only by AML regulations, but also by the corporate law itself.

Part 12 of the Hong Kong Companies Ordinance is now amended by a new section 2A - “Register of Significant controllers”.

Below are some of the most meaningful details of the new regulations:

  1. The conditions under which an individual is recognized as the Significant Controller, in general do not differ from the definition of this term in other countries; namely, the Significant Controller is a person who:
    1. Owns, directly or indirectly, more than 25% of the shares in the company,
    2. Holds, directly or indirectly, more than 25% of voting rights in the company,
    3. Has the right, directly or indirectly, to appoint or remove directors of a company,
    4. Has the right to exercise, or actually exercises, significant influence or control over the company,
    5. Has the right to exercise, or actually exercises, significant influence or control over a trust or a firm and this trust or a firm exercises significant influence over the Hong Kong company.
  2. According to clause 653P of the Ordinance, the company is obliged to take the necessary steps to determine its significant controllers. In particular, the company has the right to send a Notice to a particular person if the company knows or has reason to believe that the person is the significant controller - and require a written confirmation from him. In turn, the person who received such a request, according to the law, is obliged to provide an answer within one month.
  3. According to section 653T of the Ordinance, a company is obliged, if it knows or has reason to believe that the data on the controlling person held by the company is not accurate, send a Notice to such a person and require to confirm whether the information is accurate - and if not, provide updated information. In turn, the person who received the Notice, according to the law must provide an answer within one month.
  4. According to clause 653 of the Ordinance, the register of controlling persons must be kept at the legal address of the company, or elsewhere in Hong Kong. Furthermore, in the case of keeping of the register at the legal address, there are no requirements for additional notifying of the register of companies. On contrary, in the case of keeping of the register elsewhere in Hong Kong – it is compulsory to notify the register of enterprises about the address by using a special form NR2.
  5. At the moment, the Ordinance does not require the submission of the above information or part of it to the register of enterprises or other state institutions. On other hand, persons defined in Hong Kong as “law enforcement officers” - which, among others, include: employees of the register of enterprises, employees of customs institutions, tax authorities, law enforcement agencies, etc., have the right to acquaint themselves with this information.
  6. In case of change of the controlling person of the company, the actual data must be introduced in the register of controlling persons not later than within 7 days after the date of change.
  7. The company is obliged to keep the information about a particular controlling person during 6 years after the person has ceased to be a controlling person.
  8. Clause 653ZC states that each Hong Kong company must appoint the Designated Representative, a resident of Hong Kong, who is responsible for keeping of the register of controlling persons of the company. The Designated Representative may be either an individual (a resident of Hong Kong), or a Hong Kong company which is a subject to the professional regulation; for example - a Hong Kong law firm licensed as a Trust and Company Services Provider.
  9. In the case of non-compliance with the regulations of the registers of controlling persons, both the company itself and each of its officers who committed the non-compliance are subject to a fine of 25,000 HKD, further increasing by 700 HKD for each day until the non-compliance has been rectified. In addition, an identical fine may also be imposed on the persons descrited above in clauses 2), 3), i.e. – those who received a request from the company, but did not provide a proper answer to this request.
  10. Providing of the false information in relation to the register of significant controllers is punished on more serious level - with a fine of up to 300,000 HKD, or, under a court decision - for imprisonment of up to 2 years.

Comments by INTERNATIONAL OVERSEAS SERVICES:

By adopting this new amendment to the existing legislation, Hong Kong has confirmed its status as a jurisdiction with one of the most progressive and advanced corporate law.

As is known, the registries of controlling persons in the EU countries were introduced in 2017 in accordance with EU directive 2015/849. Hong Kong follows the same principle - but at the current stage this jurisdiction does not provide a legislative obligation to pass the information on controlling persons to a centralized state register.

It should be noted that the Designated Representative charge the fee for services mentioned above in paragraph 8) – so from a technical point of view, the new legislation entails an increase of the cost of maintenance of Hong Kong companies. The amount of the increase (i.e. - the remuneration for a Designated Representative) is established by each Designated Representative individually.

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