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Rm A 15/F Hillier Comm Bldg 65-67 Bonham Strand East Sheung Wan
24/7 Customer Support
Online Inquiries Always Open
Please spend 5 minutes reading the article below; I am sure you will gain invaluable information which you cannot find on other professional websites.
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 demonstrations in Hong Kong, I can tell you it is better to choose a Hong Kong company as your offshore business. In terms of practical views, I will tell you why later in my discussion.
As a beginning, you must know what an offshore company or offshore jurisdiction is. You probably have heard about offshore jurisdictions, such as BVI, Seychelles, Belize, and similar others, commonly known as offshore jurisdictions for offshore companies.
Firstly, do not register “offshore companies” in those offshore jurisdictions, as you will probably get trouble 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) presumes 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 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 the 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 have 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:
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.
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, said that he is going to employ more people to assist in tax investigations. On average, after a tax investigation, the tax penalty is three times the original tax amount that must be paid.
For example, if you made a profit of US$100, you should have paid US$70 tax (20% VAT + 20% Profits Tax + 30% Dividend Tax, on average). But after investigation, now you have to pay a US$210 tax amount. Similarly, if you made a profit of US$1 Million, you should pay US$700,000 tax, but now you have to pay a US$2.1 Million tax amount. These are the cases I have witnessed for many of my clients.
It is why I recommend you opt for a 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.
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 on 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 payments 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 pay nothing at the end.
By now, you will recognize that you have received two powerful legal tax documents in your hand, which will explain your SOURCES OF INCOME without being tax which is issued by Government:
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 from 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 an 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.
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. You may think if I open a bank on offshore islands like BVI, Cayman Island, Seychelles, etc., these banks will not follow CRS policies. The answer is No. They all follow CRS policies. Don’t open banks there, as you will get a trigger for tax investigations.
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.
European Commissioners reported Hong Kong jurisdiction as an “offshore tax evasion center” 10 years ago, and since then, the Hong Kong government has tried its best to remove this “offshore tax evasion center” status from the European Commissioner’s 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 because you, as an overseas investor, hold an overseas passport.
If you go search Google about opening a bank account in Hong Kong, you will find some professional firms claiming to facilitate 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.
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 remotely or visit through some help from 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.
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Address: Rm A 15/F Hillier Comm Bldg 65-67 Bonham Strand East Sheung Wan
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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 it, try to avoid getting into their trap. You will feel badly frustrated someday. Trust me.
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 if they have very concrete business records.
Some professional firms provide “Business Account” 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 banking licenses.
They hold only Money Processing Licence issued from Hong Kong Customs And Excise Department. Take “ABC money processing license provider” as an example of how ABC operate this business. ABC opened three bank accounts in Hong Kong. Two bank accounts are opened at DBS Bank in Hong Kong, and the other bank account is opened at Citi Bank in Hong Kong.
The first bank account at DBS is the business account for ABC’s general business operations like client service income fees received, rental payments, payroll, etc. The second bank account called the Client account at DBS, is to deposit “All Clients Accumulated Funds” from clients transferred from the Citi Bank account in HK assigned to clients for clients’ businesses.
The bank account in Citi Bank in Hong Kong is an ABC business account for client uses and operations. Say the ABC business account in Citi Bank for the client account is 123-456-789.
Now ABC has three clients:
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
For Client B
For Client C
From the ABC company’s perspective, it has assigned its “ONE” business account for all clients. In terms of David Lam, David Lam has been assigned the bank account for David Lam’s business. It is the same as for Peter Son and General Asia.
David Lam, for example, receives USD1,000,000 from “ABC – David Lam” from Account number: 123-456-789. ABC will transfer the fund of USD1,000,000 to the ABC client accumulated funds account at DBS Hong Kong. The fund is very safe. In David Lam’s business account, the bank balance shows USD1,000,000. It is the same as if David Lam opened a traditional bank.
Peter Son receives USD2,000,000 from ABC – Peter Son from Account number: 123-456-789. ABC will transfer the fund of USD2,000,000 to the ABC client accumulated funds account at DBS Hong Kong. The fund is very safe. In Peter Son’s business account, the bank balance shows USD2,000,000. It is the same as if Peter Son opened a traditional bank.
General Asia receives USD3,000,000 from ABC – General Asia from Account number: 123-456-789. ABC will transfer the fund of USD3,000,000 to the ABC client accumulated funds account at DBS Hong Kong. The fund is very safe. In the General Asia business account, the bank balance shows USD3,000,000. It is the same as if General Asia opened at a traditional bank.
Note that all client funds are kept in the Client Accumulated Fund Account at DBS Bank in Hong Kong.
For example, if Peter Son commits fraud or just encounters review but without providing enough supporting documents to support his business. The client account for this one account, number 123-456-789, will be frozen. That means all client BUSINESS accounts kept in this ONE client bank account will be frozen immediately; however, as the funds of clients are kept in DBS “client: Accumulated Fund account,” Clients’ funds are very safe.
As ABC is not holding a bank license, ABC holds a money processing license; ABC is not required to report sources of funds of their client’s bank transactions back to relevant tax authority under CRS policies. So clients are not getting into trouble with their respective tax authorities.
The disadvantage of clients using ABC service is that for example David Lam. The bank details are not under the client’s full name.
See again how David Lam opens at ABC; the bank details will show:
For Client A
But if David Lam opens a traditional bank, David Lam’s bank details will show below:
For Client A
Hong Kong TRADITIONAL BANK ACCOUNT AT XXX Bank as your offshore HONG KONG jurisdiction operation
The bank in HK is XXX bank, which issues a unique bank account number under your company name but executed under an online platform under a partner bank holding a money processing license with co-operation works with XXX bank. The online platform is a partner bank with Traditional Bank Account. It is not like ABC above. ABC above gives you one bank account number for all clients.
Partner bank with XXX bank under traditional XXX Bank System issues unique bank account number under your company name.
The difference is that You use a partner bank online platform to execute the XXX bank system, which is under your name and your unique bank account number, instead of direct execution and access at the XXX Bank account online platform.
There, your bank account details become:
The partner bank will not implement CRS (Common Report Standards) as the bank operation is through partner firms instead of a traditional bank. As the partner firm of a traditional bank holds a “Money Processing License,” so they don’t need to follow CRS rules. Said another way, the traditional bank, through a partner bank, opens a bank account for clients. The consequence is that the bank is not required to report your financial data to your local tax country authority.
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 say:
To sum up, working with us. You enjoy the advantages of:
If you need the full protection of privacy, we can provide nominee shareholders and nominee directors. But it is you who controls the bank.
If you want to know more, why don’t hesitate to contact us for more information…
Stephen M.S Lai and co. CPA LTD. is not just a company, it is a team of dedicated individuals; expert in their fields and experienced in their job.