How to choose an Hong Kong company with bank account for your Offshore Operation after Pandemic?
If you are going to run a global business, you may encounter a lot of restrictions, especially you might find it is almost impossible to open a business account for your global business. Even luckily you can find one, then after doing proper research on it, you will end up knowing that it has a lot of bad comments.
Anyway, if you run or are going to run an international business, a lot of factors have to be considered. To exclude political reasons, due to recent demonstration moments in Hong Kong, I can tell you it is better to choose Hong Kong company as your offshore business. I will definitely tell you why in terms of practical views later in my discussion.Realities about Offshore Company or Offshore Jurisdictions
As a beginning, you must know what is an offshore company or offshore jurisdictions. You probably have heard about some offshore jurisdictions, such as BVI, Seychelles, Belize, and similar others, which are commonly known as offshore jurisdictions for offshore companies.
Firstly, do not register "offshore companies" in those offshore jurisdictions, as you will most probably get troubles from your local tax authority even if you have a good explanation. Why?
Let's take an example to understand it properly. HMRC (UK Tax Authority) presume you as tax evasion at first glance if you are in the UK and register an offshore company for local or offshore business. It will definitely trigger for immediate tax investigation.
Secondly, if you go to the banks and ask them to open a bank account
for your newly established offshore company, then you will definitely have rejected outcome without explanation. Why?
Let's clear this rejection issue from the recent past history, the "Panama leak of information". It revealed that famous big names having tax evasion of over $11.5 billion. Panama is regarded as an offshore country, so opening a company and a bank account there are 100% offshore and meant for tax evasion purposes. Owing to this issue, G7 countries via support from some other countries have developed tax evasion prevention guidance:
- Money Laundering Practice
- Common Reporting Standards (CRS)
So, if you request to open a business account for your offshore company, then the bank manager will regard the offshore company as a very high-risk business according to Money Laundering Practice. Basically, it is why you will be rejected without reason. However, if you do get acceptance from the bank, then the banking system will declare your offshore bank account as "Very High Risk". You might also hear from your friends that their bank accounts got suspended suddenly without any reason. The bank manager will always ask you for supporting documents even if you receive USD500 from your client.
Nightmare will come next year as your local tax authority will approach you and ask you to explain all the bank transactions from the overseas bank you opened for your offshore company. Remember according to CRS, the overseas bank will report your bank transactions data back to your local tax authority.Tax Investigations – An Income Source for Governments
In the present global COVID-19 pandemic, countries are spending significantly on tackling the virus, implementing lockdowns, buying vaccines, and similar other hefty expenditures. But how do they manage to keep spending on the pandemic?
UK Chancellor, Rishi Sunak, in the recent meeting in April 2021 in the House of Commons says that he is going to employ more people to assist tax investigation. On average, after a tax investigation, the tax penalty is 3 times the original tax amount that must be paid. For example, if you made a profit of US$100, you should have paid US$50 tax. But after investigation, now you have to pay a US$150 tax amount. Similarly, if you made a profit of US$1 Million, you should pay US$500,000 tax, but now you have to pay a US$1.5 Million tax amount. These are the cases I have witnessed for many of my clients.
It is why I recommend you to opt for Hong Kong company as your offshore business. I am not here to quote you the pros and cons. I am just giving you some practical points based on real-world experience.Why Opt for Hong Kong Company?
Hong Kong is using the territorial tax concept. According to s.14 of the Inland Revenue Law of Hong Kong, business profits are to be charged in respect of the profits which were made inside Hong Kong. Profits outside Hong Kong are not chargeable. This is a basic principle of the tax system in Hong Kong. All incomes outside Hong Kong are not taxable. It is why a lot of clients advise me how to make evidence to prove "All incomes outside Hong Kong". You will be one of my clients too.
Each year, Hong Kong Tax Department will issue a notice of tax documents to you. You have to submit all the tax data, including gross turnover, profit margin, net profits, expenses, salaries, and similar others, along with supporting documents, like auditor reports and tax computation documents in time. Afterward, Hong Kong Tax Department assessor will make an assessment according to the data you submitted. If everything goes smoothly, you will receive a notice of conclusive tax information and the tax payment charge notice. Then, as for our firm, we will make tax payment accordingly. However, if the data you submitted comes out irrationally or irregularly, or unreasonably, then a tax investigation will be placed for you. It is why a lot of overseas clients come to us for help.
We have helped clients in tax investigations and even entitled them to exempt the whole tax amount. They get a tax notice of exemption of profits tax and paid nothing at the end.
By now, you will recognize that you have received two powerful legal tax documents in your hand:
Annual Bank Account Review Concerns for Offshore Companies
- A tax notice and documents of your HK company having reported all your company income and profits to Hong Kong Tax Department and a tax payment charge notice.
- A tax notice of exemption of profits tax of your HK company.
According to Money Laundering Practice, the bank has to do an annual review of your bank accounts. Say if your company was registered in BVI. When the annual review times come, your bank account will be suspended and the bank manager will request tax documents of your BVI company. According to BVI law, as there is no need to file financial statements and there is no such tax law procedure to file for a BVI company, you will explain to the bank manager that your company has no such tax documents. But instead of reopening your bank account, it will be suspended permanently without your right to recourse your money back. It is a very high-risk game to use an offshore company for your global business.
However, let's assume that your company was registered in Hong Kong. Now apply the same above review scenario, but this time you will submit auditor report and supporting financial documents, plus "A tax notice and documents of your HK company having reported all your company income and profits to Hong Kong Tax Department" and “and a tax payment charge notice”. Your bank account will be released immediately, and your bank account status will be remarked as "Very Low Risk" according to Money Laundering Practice. After that, you will never encounter the situation where you are getting asked for supporting documents even if you receive USD1,000,000 from your client at once. In this stage, if you are a smart client, you must be clear about how to choose your offshore company for your global international business.How to Choose a Bank?
To clear concepts on how to choose a bank, we will classify banks into two types. The first one is the banks in countries without CRS and the second one is the banks in countries with CRS. But, what is CRS?
CRS stands for Common Report System. It is an automatic exchange system of financial information between countries. If you live in the UK, you should open a Barclays Bank in the UK, but instead, you open a bank in the USA for your global business. Basically, UK and USA are CRS banks. So there is no difference in terms of financial data reported back to the UK Tax Authority. At final, your global business will be taxed according to the UK Tax System. You might even encounter a double tax charge between the UK and the USA if you do not handle your tax matters properly.
As a tax adviser for decades with extensive global banking networks relationship, I still cannot find any reliable banks outside CRS in which I can advise clients to open a bank account. The conclusion is that reliable and good banks only come to CRS banks.How are the Banks in Hong Kong?
European Commissioners reported Hong Kong jurisdiction as an "offshore tax evasion center" 10 years ago, and since then, the Hong Kong government had tried its best to remove this "offshore tax evasion center" status from the European Commissioners list. It is why banks in Hong Kong have become very strict. Presently, Hong Kong is not regarded as an "offshore tax evasion center".
If you want to open a bank account in Hong Kong, you must have a real established business in Hong Kong. An established business means you must have a true office in size, have Hong Kong employees, and have concrete local business proof records. Otherwise, you cannot open a bank account in Hong Kong.
If you go search in Google about opening a bank account in Hong Kong, you will find some professional firms claiming to facilitate in it. Please read carefully! They charge you the service fee for an arrangement. But when the bank rejects your application, the service fee is not refundable.Don't get into the Trap of Money Processing Licence Firms
Some professional firms provide services for opening bank accounts in Hong Kong remotely in Neat, Currenxie, Statrys, etc. But the reality is that Neat, Currenxie, Statrys, and similar others are not banks and they do not have a banking licence. They hold money processing licence only issued from Hong Kong Customs And Excise Department. Take "ABC money processing licence provider" as an example. ABC open two bank accounts in Hong Kong, one in DBS Hong Kong, and the other one in Citi Bank in Hong Kong. The bank account in DBS Hong Kong is ABC's main business account. This is the business account for its general business. The bank account in Citi Bank in Hong Kong is ABC business account for the client account. Say the ABC business account for the client account is 123-456-789
Now ABC has three clients.
Client A name is David Lam & Co Limited
Client B name is Peter Son Limited
Client C name is General Asia Limited
ABC will assign the same client account number for A, B, and C clients, and say that their banking instructions are below:For Client A
Client name: ABC Company Ltd - David Lam
Account number: 123-456-789For Client B
Client name: ABC Company Ltd – Peter Son
Account number: 123-456-789For Client C
Client name: ABC Company Ltd – General Asia
Account number: 123-456-789
From the ABC company's perspective, it has assigned its "ONE" business account for all clients. In terms of David Lam, David Lam thinks Account number: 123-456-789 is the bank account only for David Lam, but in fact, it is not.
It is a very high risk game. For example, if Peter Son commits fraud or just encounters review but without providing supporting documents to support his business. The client account for this one account number 123-456-789 will be frozen. That means all clients' money kept in this ONE client bank account will be frozen immediately. It is a very high risk for global clients if they open these E-business accounts under a money processing licence.Concerns associated with Opening Traditional Bank Account in Hong Kong
Some professional firms even claim that they can open a traditional bank account in Hong Kong, but they request a very big sum of money, say US$5,000 to US$8,000
Please click Here
to learn about a very serious financial crime that happened in Hong Kong in 2021. A lot of bank managers were arrested, due to the corruption of receiving funds to help overseas clients to open a traditional bank account in Hong Kong.
If you open a traditional bank account in Hong Kong either by remote or visit through some help of professional firms in Hong Kong or overseas, then after your bank account has been opened, your file will be reported to Hong Kong Police Financial Crime for further investigation. This way, your traditional bank account will suspend suddenly one day. Opening a traditional bank account in Hong Kong is a very high risk game now. We have clients coming to us for help. They spent US$8,000 and opened bank accounts, but they got suspended within days.How about EU Banks?
If you come from EU countries, you must understand that EU banks are very strict. They will always suspend your bank accounts without notice, and your bank accounts are always subject to compliance checks. EU banks will not open for offshore companies. If they can open, try to avoid getting into their trap. You will feel badly frustrated someday. Trust me.How about Singapore Banks?
As banks in Hong Kong no longer open bank accounts for overseas clients including Chinese, a lot of Chinese businessmen came to Singapore and opened Singapore bank accounts. However, it comes out with a lot of crime and fake issues. In addition, Singapore banks now no longer open bank accounts for overseas clients, even they have very concrete business records.
As a professional in this field with decades of market experience, we have a team of bank managers in CRS belonging to highly reputed and trustworthy banks.
- They can only open for Stephen M.S.Lai & Co CPA Limited, as our clients are very good clients without troubles.
- They are willing to open for our clients through Hong Kong company as an offshore jurisdiction for their global business, as Hong Kong company is regarded as “very low risk” according to Money Laundering Practice, and Hong Kong is not regarded as “offshore evasion center”.
- They are willing to open by remote without a visit.
- They accept identity records only with copies without through strict procedures of Notary Public or international lawyers to certify identity records. They only accept copied documents certified by Stephen M.S.Lai & Co CPA Limited.
- They have very good international banking facilities and multi-currencies.
- They can open within 3-4 weeks by remote.
- They have branches in Hong Kong, China, and over the world.
- They provide other banking services in addition to general banking services, including Fixed Deposit, Funds Management services, Loan services, Investment services, etc.
- The important one is that they will not ask you to sign CRS (Common Report Standards) and submit directly go through the Compliance Department. Without CRS means that the bank cannot report your financial data from the bank account to your tax local country authority.
If you want to know more, don't hesitate to contact us.
Stephen Lai, Partner, FCCA, HKICPA, MBA(UK), LLB(UK)
Stephen M.S.Lai & Co CPA Limited
Senior Partner of Stephen M.S Lai & Co. CPA Limited, Mr. Stephen Lai
FCCA (A fellow member of the Association of Chartered Certificate Accountants)
HKICPA (A practising member of Hong Kong Institute of Certified Public Accountants)
MBA (Master of Business Administration from Heriot-Watt University, UK)
PDA (Postgraduate Diploma in Business Administration from Heriot-Watt University, UK)
PCA (Postgraduate Certificate in Business Administration from Heriot-Watt University, UK)
LLB (Undergraduate of Law Degree from Nottingham Trent University, UK)