A group of islands in Caribbean Sea, east of Puerto Rico.

Why people make use of the BVI companies ?

 l        Concealment

l        Privilege

l        Taxation

l        Management

Concealment

For the reasons of safety and privacy, people do not want their personal information going public.

Filing of Shareholders and Directors information for public inspection are optional for BVI companies, no one can trace the identities of beneficiaries and management.  BVI registration agent will not release the company's information without the authorization of the client. The release of information for the purposes of general law enforcement is not likely happened. 

It means third party cannot get the information of the BVI company by performing Company Search from BVI Government. 

Privilege

 n        Independent Identity

The operation of a company must be subject to the law and regulations of the country at which the formation of the company be taken place. This means a company may lose its identity or rights, whenever there is change in law of the place of registration. An offshore company, like a BVI company, can enforce its rights through different jurisdiction. (This is similar to foreigner with own country's passport will get protection from embassy.)

n        Investment Advantages

In many occasions, an offshore company can get more advantages than local company under the policy of attraction of outsiders' investment, such as foreign company investment in PRC.

 n        Political Uncertainty

• Countries have different ideologies. Some people are more comfortable to hold their investment under a British Dependent Territory.

• The legal system of BVI is based on the English common law.

• Some people would like to make use of non-HK company identity to invest in PRC to avoid political uncertainty.

Taxation

Hong Kong's tax system is territory source principle.  This means only activities and assets existence in HK will be subject to tax. A BVI company doing business in HK will also be subject to HK Profits Tax and Properties Tax, calculation being same as a HK company.

BVI company may still be subject to income taxes as an outsider in some countries, e.g. NRA (Non Resident Alien) Tax of USA at 30% on dividend income.  

BVI does not have Estate Duty.

Management

 Simple and Minimal in:

²       Registration requirement

²       Administration requirement

²       Reporting Obligation

²       Closing Procedures

BVI Companies Updates

Offshore Company’s Economic Substance Laws

Many offshore company jurisdictions, including BVI and Cayman Islands, passed Economic Substance Laws under international efforts of the European Union (EU) and the Organization for Economic Cooperation and Development (OECD) to regulate the tax avoidance of multinational organizations. Those Economic Substance Laws raise the tax transparency requirements and reporting obligations of all companies registered in these traditional tax havens. Unless the conditions of economic substance are satisfied, the registered company will not be accepted as a tax resident in the place of company registration. And there is a presumption that each non-accepted local tax resident company should be a tax resident in another jurisdiction which is expected to report and disclose.

In addition, banking and commercial services are demanded to comply with AML verification about owner’s identity and nature of business activities. Companies in the recent years should come across more and more know-your-customer (KYC) enquiries in operation, e.g. in bank account operation, business license registration, investment and real properties transactions, legal and accountancy services, etc. 

New Recommendations to Non-Multinational Group Company & SME Business

Although the detailed guidance and reporting requirements are not yet fully issued or clarified by offshore jurisdictions, we trust the request to report each offshore company’s place of tax resident and taxpayer identification number (TIN) is unavoidable in future. In the past, we did not recommend customer to apply for registration as Non-Hong Kong Company in Hong Kong Companies Registries, as the Hong Kong law only requires the offshore companies which established a place of business in Hong Kong to apply for Hong Kong registration. Also, the registration would lead to obligations to report the business performance to the Hong Kong Inland Revenue Department for their assessment of Hong Kong Profits Tax. For the companies not having trading activities in Hong Kong and not subject to Hong Kong tax liabilities, the Hong Kong registration would create unnecessary administrative burden to prove its non-taxability status in Hong Kong. Moreover, even an offshore company has obtained registration from Companies Registry and Inland Revenue Department (IRD), it is still not able to obtain Certificate of Resident Status from IRD for enjoying tax benefits in double taxation arrangement with other countries. 

In the coming days, we would like to give new general recommendations to clients maintaining offshore company registration for private or business purposes as below.

1. Client is required to review its cost/benefits analysis for continuous renewal of offshore company registration. The benefits normally include keeping a greater privacy in shares ownership and keeping bank accounts for private money remittance between different countries or locations.

2.  If an offshore company client has trading activities or income not subject to income tax in Hong Kong or other jurisdictions, it needs to decide which location is the most appropriate place of tax residence for the offshore company. If the most appropriate place is Hong Kong, the company should consider obtaining Non-Hong Kong Company Registration and Business Registration Certificate as a supporting document of Hong Kong tax resident reporting in future.

3.  If an offshore company is a pure equity holding company (except for dividend income and         capital, it should not have financial loans due from or to other parties or other activities), it can also consider obtaining Non-Hong Kong Company Registration and Business Registration Certificate for the easy reporting and compliance purposes. If an offshore company decides not to obtain Non-Hong Kong Company Registration and Business Registration Certificate, it needs to avoid having trading income or activities be subject to reporting obligations in the jurisdiction concerned.

4.  As revised and new guidelines or regulations based on the economic substance laws may be issued by offshore company jurisdictions in future, the above recommendations should be adjusted and updated periodically.

There are four  approaches in measuring the value of a company as below. 

Relative Valuation

The value of a company can be based on the pricing of comparable companies in the market.  Industry average price-earnings ratio (P/E ratio), price-dividends, price-turnover ratio, price-book value ratio and price-replacement value ratio are multiples widely used in relative valuation.  This approach assumes that the market is correct in the way it prices companies on average and any errors will be corrected over time. 

Discounted Cash Flow Valuation

The value of a company can be the present value of expected future cash flows arising from it.  A discount rate reflecting the risk level or uncertainty of the cash flows will be adopted to calculate the present value of which it will be treated as an estimated intrinsic value of a company.  Dividend Discounted Cash Flow Model is a common example of equity valuation. 

Contingent Claim Valuation

The value of a company can be greater than the present value of expected cash flows if the cash flows are contingent on the occurrence or nonoccurrence of an event.  This kind of valuation approach is applicable to business involved options, patents or undeveloped reserves. 

Asset-Based Valuation

The value of a company can be based on the aggregation of value of individual assets owned by the company.  Liquidation value to estimate the sale proceeds of assets or replacement value to estimate the purchase costs of assets are normally used to derive the value of individual assets.  This approach is applicable if the income stream of the asset is non-recurring or the return on the asset is too low.  This may include investments in securities or properties.

Private Company (Local company having a share capital)

Annual Registration

A local company having a share capital has to file statutory returns to the Companies Registry within the prescribed time limit.  Annual Return is one of the most important returns to be filed.  If the annual return is not filed within the prescribed time limit, the company and every officer of the company will be liable to face prosecution and, if convicted, default fines. In addition, substantially higher registration fee is payable for the late filing of an annual return of a company having a share capital.

Other Matters to be handled annually:

• Pay annual Business Registration Fee before the anniversary of incorporation.

• Prepare annual financial statements and auditors’ report and have it approved in Annual General Meeting within 9 months from the financial year end.

•  Receive various tax returns in April or other months from Inland Revenue Department, e.g. Profits Tax, Employer’s Return, Properties Tax, etc, and furnish them according to their due date or extended due date.  

Trade Association, Church, Clan Association and Charity (i.e. Local company not having a share capital or company limited by guarantee)

Annual Registration

A local company not having a share capital has to file statutory returns to the Companies Registry within the prescribed time limit.  Annual Return is one of the most important returns to be filed.  If the annual return is not filed within the prescribed time limit, the company and every officer of the company will be liable to face prosecution and, if convicted, default fines. 

Other Matters to be handled annually:  

1      Pay annual Business Registration Fee before the anniversary of incorporation (this requirement is not required for those already be approved for such exemption).

2      Prepare annual financial statements and auditors’ report and have it approved in Annual General Meeting within 9 months from the financial year end.

3      Receive various tax returns in April or other months from Inland Revenue Department, e.g. Profits Tax (Profits Tax filing is not required for those already be approved for such exemption), Employer’s Return, Properties Tax, etc, and furnish them according to their due date or extended due date.

Banking FAQs

Q1.   How is the banking system in Hong Kong?

Q2.   Is my company required to open a bank account in Hong Kong to 

          run my business?

Q3.   Which banks can my company open business bank account and 

         what service does you provide?

Q4.   Is it necessary for our sole proprietor / partners / directors or 

         shareholders to visit the bank in person?

Q5.   What information and documents are required for application of 

         opening business bank account?

Q6.   If my company is an offshore company, can I open a bank account 

         in Hong Kong?

Q7.   How long can I apply for the banking facilities after the formation 

         of my company?

Q8.   What should we do if we want to ask more questions about the 

         opening of bank account or if we want to have a further advice?

A1.  The banking system in Hong Kong is reliable and stable.  The 

        Banking Ordinance provides the legal framework for banking 

        supervision in Hong Kong.  Also, the Monetary Authority promotes 

        the general stability and effective working of the banking system.

Q2.   Is my company required to open a bank account in Hong Kong 

         to run my business?

A2.   It is not compulsory for every local or offshore company to open 

         bank account in Hong Kong to carry out business.  Companies 

         can use their overseas bank accounts to deal with the business 

         transactions.  However, it is more convenient to operate a bank 

         account in Hong Kong to carry out business because there is no 

         exchange control for the banks in Hong Kong. 

Q3.   Which banks can my company open business bank account and 

         what service does you provide?

A3.   Normally, we can prepare documents for your company to open 

         bank account for the bank you choose.  Also, we can give your 

         company advice on the selection of banks.

Q4.   Is it necessary for our sole proprietor / partners / directors or 

         shareholders to visit the bank in person?

A4.   Most of the banks in Hong Kong require the following persons 

         of your company to visit the banks in person:

·         For limited company,

-   at least the number of directors needed to form a quorum; or

-   Principal shareholders / beneficial owners with 10% or more 

    ownership if your company has corporate director / shareholder

·         All partners for partnership;

·         Sole proprietor for sole proprietorship

        In case of impossibility of visiting to the bank in person, certain banks may 

        accept certified true copy of identification documents issued by notary public.

Q5.   What information and documents are required for application of 

         opening business bank account?

A5.   Limited company:

·     Certified true copy of certificate of incorporation and subsequent certificate of change of name, if any

·     Certified true copy of business registration certificate

·     Certification letter from certified public account or lawyer for the director’s declaration detailing the particulars of directors and principal shareholders, copy of notification of first secretary and director , all subsequent notification of change of secretary and director (appointment / cessation) or copy of latest annual return

·     Certified true copy of identification documents, nationality proof and residential address proof of directors, authorised signatories and principal shareholders

·     Mandate, account opening form and signature cards

·     Initial deposit

·     Other specified documents or forms requested by the bank

Partnership:

·     Certified true copy of business registration certificate

·     Certified true copy of Business Registration Regulations Form 1 (c) 

      issued by the Inland Revenue Department

·     Certified true copy of identification documents, nationality proof and 

      residential address proof of partners and authorised signatories

·     Mandate, account opening form and signature cards

·     Initial deposit

·     Other specified documents or forms requested by the bank

Sole proprietorship

·     Certified true copy of business registration certificate

·     Certified true copy of Business Registration Regulations Form 1 (c) 

      issued by the Inland Revenue Department

·     Certified true copy of identification documents, nationality proof and 

      residential address proof of sole proprietor and authorised signatories

·     Mandate, account opening form and signature cards

·     Initial deposit

·     Other specified documents or forms requested by the bank

Q6.   If my company is an offshore company, can I open a bank account in Hong Kong?

A6.   An offshore company can open a business bank account in Hong Kong. 

         However, banks in Hong Kong have a relative strict conditions and 

         considerations for offshore company to open bank account.  The procedures

         are more complicated and additional documents may be submitted for

         consideration.

Q7.   How long can I apply for the banking facilities after the formation of my company?

A7.   Normally, banks need to examine the latest audited financial statements 

         of your company before approving and granting the banking facilities 

         (e.g. bank loan, documentary credit, L/C) .  Thus, it is more important 

         for your newly incorporated company to prepare the first audited financial

        statements.  If you urgently need to obtain the banking facilities, you can 

        negotiate with your certified public accountant to certify the latest management

         account.

Q8.   What should we do if we want to ask more questions about the opening 

         of bank account or if we want to have a further advice?

A8.   You are welcomed to email to us or call our colleagues Ms Queenie Wong

         at 2281 5108 or our office telephone number 2544 2323.

Frequently Asked Questions For Setting Up A Limited Company

How to set up a limited company in HK?

 There are two ways to set up a limited company.  One is to buy a ready-made company and the other way is to apply for the formation of a limited company  (tailor-made).  If you have a specific name for the new company or you have special requirements about the internal regulations for the new company, you should use the tailor-made method.  However, no registration is allowed if the name has already been registered, and any existing company also has a right to prohibit new company from using name of which is similar to its registered name.  If you need a limited company immediately for signing contract (eg purchase a property), you should buy a ready-made company.  We shall prepare all the relevant documents for your signature and submit them to the appropriate departments for registration and shall assist the company to open bank account.   

How many shareholders/directors/secretaries are required?

Every company need to have at least one shareholder, one director and one secretary.  One can simultaneously acts as shareholder, director and secretary, except that sole director cannot also act as secretary.

Whether a limited company can act as shareholder/director/secretary?

A limited company can act as shareholder/director/secretary of a private limited company. But body corporate cannot act as director of a company limited by guarantee.

Whether non-Hong Kong resident or overseas company can act as shareholder/director/ secretary?

Non-Hong Kong resident or overseas company can act as shareholder/director of a private limited company.  However, secretary must be a Hong Kong resident or a Hong Kong company.

 What are the statutory duties a limited company is required to perform every year?

        a.      filing of annual return annually

b.      preparing audited financial statements and filing tax return

What will be available to client after the company has been set up?

 A company kit which includes the following:

a.       Pri-ink stamp

b.      Company seal

c.       Share certificate

d.      Statutory book (include minutes and copies of relevant documents)

e.       Certificate of incorporation

f.        Business registration certificate

g.       Memorandum and Articles of Association

Whether it is better to operate through an overseas company than a Hong Kong company?

Under normal circumstance, it is more convenient for a Hong Kong company to do business in Hong Kong.  An overseas company is required to register in both Companies Registry and Business Registration Office of Inland Revenue Department if that overseas company has established its place of business in Hong Kong.