To ensure the transparency of corporate beneficial ownership, Hong Kong companies are obliged to prepare and maintain the Significant Controllers Register (SCR) of the companies.
This article will walk through a step-by-step guide to what Hong Kong incorporated companies need to do in response to new requirements for keeping the SCR.
1. An overview of Significant Controllers Register that you should know
1.1. New requirements relating to SCR Regime
In accordance with Cap. 622 the Companies (Amendment) Ordinance 2018, since 1 March 2018 all Hong Kong incorporated companies (other than companies with their shared listed on the Hong Kong Stock Exchange) must satisfy new requirements with regard to the Significant Controllers Register (SCR) regime, which include:
- To determine persons who have significant control over the company; and
- To maintain a significant controller register that is available for inspection by law enforcement officers upon demand.
The main purpose of this new obligation is to strengthen the transparency of company ownership and control. Simply put, SCR allows the authorities to identify and contact the person or the corporate who is in charge of making the latest decision of the company.
Normally, most Hong Kong local companies considered the director to be the one most suitable to hold the SCR. Feel free to check out more information about the director in Hong Kong through our small guide.
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1.2. Who is covered by the SCR Regime?
A registered non-Hong Kong company is not subject to maintaining an SCR.
New requirements of Hong Kong Significant Controllers Register regime are applicable to all local companies, except for a listed company, established and registered under the Companies Ordinance, or a former Companies Ordinance, namely:
- Companies limited by shares
- Companies limited by guarantee
- Unlimited companies
1.3. What are the contents of SCR?
The SCR of Hong Kong incorporated companies should include the following details:
- The required particulars of each SC of the company.
- The date of becoming a significant controller
- The nature of control over the company
- In case of a registrable person, correspondence address and identity card number/ the number and issuing country of the passport are required
- In case of a registrable legal entity, legal form, registration number, place of incorporation and address of the registered are required
- The particulars of any registrable change in any of the SCs;
- Name and Contact details of a designated representative;
- Other additional matters as noted under the new Schedule 5C of the Companies Ordinance – i.e., if a company has no SC, it must state in the SCR that “the company knows, or has reasonable cause to believe, that it has no significant controller”.
1.4. Actions for HK incorporated companies to keep SCR
As per new requirements of SCR regime, it is highly recommended that Hong Kong incorporated companies should take appropriate actions as the following:
- Determine whether there is any significant controller. If yes, take reasonable steps in identifying the company’s significant controllers.
- Deliver the notice to the one who will become the significant controller and collect the required information.
- Enter the required particulars of the company’s significant controllers in the SCR.
- Keep updating the company’s SCR.
- Enable the SCR availability for inspection by a law enforcement officer.
In what follows, we will delve into a comprehensive guide to how to identify the company’s SCs and further notices that HK companies should know to keep an SCR.
2. How to identify the company’s significant controllers
This is the most fundamental step for Hong Kong incorporated companies to keep a significant controller register. To pinpoint it, you should be well aware of what a significant controller is.
A company’s significant controller includes a registrable legal entity that is the company’s member with significant control over the company and a registrable person who is a natural person/specified entity with significant control over the company.
The person who is considered to have significant control over the company must satisfy ONE or MORE criteria as the following:
- To hold directly or indirectly over 25% of the issued shares in the company (or over 25% of the capital or profits of the company if there is no share capital);
- To hold directly or indirectly over 25% of the voting rights of the company;
- To hold directly or indirectly the right to appoint or remove a majority of the board of directors;
- To have the right to exercise, or actually exercises, significant influence or control over the company;
- To have 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 meet one of four criteria as described above.
In the process of identifying its SCs, a company must follow “reasonable steps”. So, what are these steps?
- To review the company’s register of members, articles of association, capital statement, and other documents readily available.
- To consider the company’s interest that individuals, legal entities, and trusts or firms are holding.
- To consider proof of joint arrangements or rights held through various means that might ultimately be controlled by the same person.
- Other actions that may have to be taken subject to circumstances of individual companies.
3. Other notices to SCR
Below are some further notices that a Hong Kong company should know to maintain a significant controller register:
Where to keep an SCR – It is noteworthy that an SCR must be kept at the registered office of the company, or in another location within the Hong Kong territory. Either hard copy or electronic form is acceptable.
Designated Representative – Its function is to provide support with regard to the company’s SCR to a law enforcement officer. A company is mandatory to have a minimum of 1 designated representative. To become a representative designated, ONE of the following requirements must be met:
- Be the company’s shareholder/director/employee who is a Hong Kong natural person resident.
- Be an accounting/legal professional, or those to conduct business as TCSP (Trust or Company Service Provider) licensee registered in Hong Kong.
Law enforcement officer – A company is required to make its SCR available for inspection by a law enforcement officer at any reasonable time. To be specific, below are 9 statutory bodies whose offices can access the SCR:
- Companies Registry
- Customs and Excise Department
- Hong Kong Monetary Authority
- Hong Kong Police Force
- Immigration Department
- Inland Revenue Department
- Insurance Authority
- Independent Commission Against Corruption
- Securities and Futures Commission
Non-compliance with the SCR regime – Any failure in compliance with the regime requirements is deemed a criminal offense. Responsible individual/company can be fined at level 4 (i.e. $25,000), or even get a further daily penalty of $700 under specific circumstances.
Duration to comply – Addressees who have received a notice with regard to the SCR issued by a company are required to meet the requirements described in the notice within one month from the date of the notice.
Note that it is a must for a company to enter the required particulars of a registrable person into its SCR within 7 days after the registrable person’s confirmation. The same case of duration is applied for entering the required particulars of a registrable legal entity after that particular comes to the notice of the company.
If there is any change of Significant Controllers or change of particulars of the SC in a company, the company must send notice to the SC within 7 days unless it was already informed of the change.
All entries regarding the SC in the SCR can be destroyed after 6 years from the date the person ceased to be a significant controller of the company.
The New TCSP Licensing Regime
Besides SCR, businesses in Hong Kong also need to consider the TCSP, which stands for Trust and Company Service Providers. TCSP will be needed when choosing a designated representative for the company. To stay compliant with the new regime, a representative should be a native Hong Kong citizen or the one who has the TCSP for proof that the company does not involve in illegal activities such as money laundering and economic crisis (AMLO).
However, before offering trust or company services in Hong Kong, TCSPs will have to apply for licenses from the Registrar of Companies and pass a “fit-and-proper” exam due to the new update in the licensing regime. In accordance with Schedule 2 of AMLO, TCSPs must also adhere to statutory diligence and record-keeping obligations.
The Registrar now has the authority to give, refuse to grant, renew, suspend, or revoke a license, as well as to impose or change any restrictions relating to a license. A TCSP license typically has a three-year expiration date. Prior consent from the Registrar is needed by the TCSP licensees before someone may become the ultimate owner, a partner, or a director of the licensee.
After March 1, 2018, it is illegal to operate a trust or corporate service business in Hong Kong without a license. If found guilty, the offender faces up to a $100,000 fine and up to six months in jail (subject to the transitional arrangements outlined below).
Therefore, if you desire to use the TCSP for incorporation in Hong Kong, make sure to check for its license.
Should you have more questions regarding Hong Kong Significant Controllers Register, do not hesitate to drop us a chat message or email via firstname.lastname@example.org