Hong Kong, 26 February 2018
As a member of The Financial Action Task Force (“FATF”) (www.fatf-gafi.org) Hong Kong is required to meet its obligations under the FATF’s Recommendations for combating money laundering and terrorist financing.
The Companies Ordinance (Cap. 622) (“CO”) in order to meet Hong Kong’s obligations in providing for transparency in the beneficial ownership of companies, will be amended and will come into effect on 1 March 2018 to require a company incorporated in Hong Kong to identity persons who have significant control over the company and to maintain a Significant Controllers Register (“SCR”) to be accessible by law enforcement officers upon demand.
This article provides a brief introduction towards the new requirements of SCR under the CO.
1. Who needs to comply under the new requirements?
All of the following companies formed and registered under CO or a former Companies Ordinance in Hong Kong are mandatory to keep a SCR:
- Companies limited by shares.
- Companies limited by guarantee.
- Unlimited companies
(collectively “the applicable companies”).
However, companies which have their shares listed on the Stock Exchange of Hong Kong are exempted from the new requirements.
2. Major obligations of the applicable companies under the new requirements
To comply with the new requirements relating to the SCR, the applicable companies have the following major obligations:
- keep a SCR at the company’s registered office or a place in Hong Kong;
- take reasonable steps to identify the company’s significant controllers, including the giving of notices and obtaining their required particulars;
- enter the required particulars of its significant controllers in the SCR;
- keep the required particulars in the SCR up-to-date; and
- make the SCR available for inspection and taking of copies by a law enforcement officer and a significant controller whose name has been entered in the SCR.
3. Who is a significant controller of a company?
A significant controller of an applicable company includes a registrable person (i.e. a natural person) and a registrable legal entity. Registrable legal entity is a legal entity which is a member of the company and has significant control over the company.
A person has significant control over a company if one or more of the following 5 conditions are met:
- the person holds, directly or indirectly, more than 25% of the issued shares in the company or, if the company does not have a share capital, the person holds, directly or indirectly, a right to share in more than 25% of the capital or profits of the company;
- the person holds, directly or indirectly, more than 25% of the voting rights of the company;
- the person holds, directly or indirectly, the right to appoint or remove a majority of the board of directors of the company;
- the person has the right to exercise, or actually exercises, significant influence or control over the company;
- the person has the right to exercise, or actually exercises, significant influence or control over the company;
- the person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm that is not a legal person, but whose trustees or members satisfy any of the first four conditions (in their capacity as such) in relation to the company.
4. Designated Representative
A company must designate at least one person as its representative to provide assistance relating to the company’s SCR to a law enforcement officer. A company’s designated representative must be one of the following:
- a member, director or an employee of the company who is a natural person resident in Hong Kong;
- an accounting professional (includes a certified public accountant), a legal professional (includes a solicitor) or a Trust or Company Service Provider (“TCSP”) licensee as defined in the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (a TCSP licensee means a person licensed to carry on trust or company service business in Hong Kong).
5. How a company enter and update the record in the SCR?
A company is required to enter into its SCR the particulars of its significant controllers.
Information about a registrable person (i.e. a natural person) and particulars of a registrable legal entity must be confirmed before it can be entered into the SCR. A company is required to enter the required particulars of a registrable person and particulars of a registrable legal entity into its SCR within 7 days after they have all been confirmed by the registrable person or by the registrable legal entity.
A company is also required to enter the particulars of any registrable change in respect of a registrable person and of a registrable legal entity into its SCR within 7 days after they have all been confirmed by the registrable person or by the registrable legal entity.
6. When a company may destroy the record in the SCR?
All entries in the SCR relating to a significant controller may be destroyed only after 6 years from the date the person ceased to be a significant controller of the company.
7. Offences if fail to comply under the new requirements
Offence re: failure to comply with major obligations of a company
If an applicable company fails to comply the abovementioned major obligations under the new requirements is a criminal offence. The company and every responsible person of the company are liable to a fine at level 4 (i.e. HK$25,000). Where applicable, there is a further daily fine of HK$700.
Offence re: failure to comply with the requirements stated in the notice issued by the company
A person who has received a notice relating to the SCR issued by a company must comply with the requirements stated in the notice within 1 month from the date of notice. Failure to comply with any of the requirements in the notice within 1 month from the date of notice is a criminal offence. The notice addressee and every related person (if any) are liable to a fine at level 4 (i.e. HK$25,000).
Offence re: false statement
If any person knowingly or recklessly makes a statement or provides any information that is misleading, false of deceptive in a material particular in the reply to a company’s notice, the person commits an offence and is liable:
- on conviction on indictment to a fine of HK$300,000 and imprisonment for two years; or
- on summary conviction, to a fine at level 6 (i.e. HK$100,000) and imprisonment for 6 months.
For more information, please contact:
Marzio Morgante
Dottore Commercialista, LL.M.
Managing Partner
Email: marzio@atatax.hk
Tel: (852) 3102 1995
Fax: (852) 3102 0991
Mandy Chau
Senior Manageress
Email: mandy@atatax.hk
Tel: (852) 3102 1995
Mobile: (852) 6085 9512
Fax: (852) 3102 0991
Rooms 501-2, Wilson House,
19-27 Wyndham Street,
Central, Hong Kong
