Hong Kong Offshore Banking

Hong Kong has one of the largest representation of international banks in the world: 71 of the world's 100 largest banks have a presence there. Hong Kong is the world's 9th largest international banking centre in terms of the volume of external transactions, and the second largest in Asia after Japan.

Open a Hong Kong Bank Account

In December, 2007, there were 142 licensed banks, 29 restricted licence banks and 29 deposit-taking companies in business. These 200 authorised institutions operate a comprehensive network of local branches. In addition, there are 79 local representative offices of overseas banks in Hong Kong.

The banking system in Hong Kong is characterized by its 3-tier system, which is formed by 3 types of banking institutions, namely licensed banks, restricted licensed banks and deposit-taking companies, which are authorised to take deposits from the general public. The 3rd tier of deposit-taking institutions operate under different restrictions. Only licensed banks and restricted licensed banks can be called banks.

The Banking Ordinance is the basis of the legal framework governing the banking sector. The Ordinance sets forth minimum capital requirements for authorized institutions. Locally incorporated banks must have paid-in capital equal to USD388 million and net assets of USD518 million dollars for authorization to operate a licensed bank. Applicants for a restricted-license bank must have paid-in capital equal to USD12.8 million.

Since 1997, the HKMA has been issuing a series of circulars to set out its regulatory approach on e-banking services and to provide authorised institutions with recommendations on the risk management for these activities.

Among the issues discussed, the arrangements adopted by institutions to ensure adequate information security for their services are one of the key focuses of the HKMA. While absolute information security does not exist, institutions are expected to implement information security arrangements that are "fit for purpose", i.e. commensurate with the risks associated with the types and amounts of transactions allowed, the electronic delivery channels adopted and the risk management systems of individual institutions.

In line with existing authorisation policies for conventional banks, a locally incorporated virtual bank cannot be newly established other than through the conversion of an existing locally incorporated authorised institution. Furthermore, local virtual banks should be at least 50% owned by a well-established bank or other supervised financial institutions. For applicants incorporated overseas, they must come from countries with an established regulatory framework for electronic banking.

Open a Hong Kong Bank Account

Hong Kong banks evidently offer many opportunities to non-resident investors. However, some care is needed when approaching a 'private banker' or a bank offering customised relationship management (there are lots of expressions all amounting to the same thing). What matters is the structure of the bank. This is not to say that one kind of bank is necessarily more reliable than another, just to understand why the bank is offering personal attention, and what it hopes to gain from it.

Some banks are little more than front ends for investment funds. They may be safe enough, but are they objective? Perhaps it is best to look for a bank that is trying to make money out of private banking as an activity in itself, rather than just using it as a scoop for customers for its financial products. If you just want a bank that will give you a good rate of interest without deduction of withholding tax, then the choice is simpler.

Private banking doesn't just mean investment: banks like to lend money, and especially to richer people. This raises the question of how a private banker is going to get rewarded. Depositing money with a bank is reward enough, of course, whether into the bank or into one of its financial products, but private banking when it has an advisory nature and is not accompanied by lending or borrowing may be fee-based. Provided the sum involved is large enough to justify the fee costs, an advisory private banking relationship is probably a good way to go. The bank will get the benefit from time to time of being able to offer bridging finance, or of holding large amounts in transit etc. It can hope for more substantial involvement with you in future. But the immediate relationship is between financial adviser and client.

In November 2006, bank Julius Baer, Switzerland’s largest dedicated wealth manager, officially opened its Hong Kong office from where it hopes to tap into strong growth in the regional private wealth market. This followed the registration of Woori Global Markets Asia a wholly owned subsidiary of Woori Bank, the third largest bank in South Korea, on September 29, 2006.

Hong Kong's Deposit Protection Scheme launched on September 25th, 2006, with a coverage limit of $100,000 per depositor per bank.

Enacted on May 5, 2004, the Deposit Protection Scheme Ordinance governs the setting up and operation of the scheme. After two years of intensive preparation, the scheme launched on the 25th of that month.

All licensed banks, unless otherwise exempted by the board, are required to participate as members.

The main features of the scheme are that:

  • Depositors are not required to apply for protection or compensation, eligible deposits held with scheme members will automatically come under the protection of the scheme;
  • Both Hong Kong dollar and foreign currency deposits are protected;
  • The scheme protects eligible deposits held in scheme members, it does not protect term deposits with a maturity longer than five years, structured deposits, secured deposits, bearer instruments, off-shore deposits and non-deposit products such as bonds, stocks, warrants, mutual funds, unit trusts and insurance policies;
  • A Deposit Protection Scheme Fund with a target fund size of 0.3% of the total amount of relevant deposits (translating into a fund size of approximately HKD1.3 billion) will be built through the collection of contributions from scheme members; and
  • Differential contributions will be assessed based on the supervisory ratings of individual scheme members.
  • Members are also required to notify their customers if a financial product described as a deposit is not protected by the scheme.
In November 2007, Hong Kong's Secretary for Financial Services and the Treasury, Prof KC Chan announced that the Deposit Protection Scheme had been operating smoothly since its inception, and needed no adjustment.

He told legislators that the scheme fund reached $374 million in March, and is expected to reach the targeted HKD1.3 billion as scheduled in three years. He stated that it has enhanced public confidence in placing deposits with small and medium-sized banks.

Prof Chan revealed that although competition in the local banking industry is intense, the board has received no comment on, or complaint about, banks passing the cost of the scheme on to depositors.

The fiscal framework in Hong Kong is very favourable towards investment, whether by residents or non-residents with many types of investment return being free of tax. Some of the main provisions affecting the taxation of investment are listed below - for a more thorough analysis see Direct Corporate Taxation and Personal Taxation.

  • In Hong Kong there are no capital gains taxes, no withholding taxes, no sales taxes, no VAT, and no annual net worth taxes.
  • Dividend income received by a Hong Kong parent company from either a resident or foreign subsidiary is not deemed income in the holding company's hands and is thus not subject to an assessment to profits tax.
  • Profits remitted to a Hong Kong parent which represent the profitable disposal of its shareholding in a resident or non resident subsidiary are not assessed to tax in the territory.
  • The profitable disposal by a Hong Kong entity of foreign real estate or of a company holding real estate is not assessed to tax in the territory.
  • Rental income from foreign real estate is not assessable income in Hong Kong for profit tax purposes.
  • Interest income received by a resident or non resident business entity on deposits lodged with a financial institution are exempt from profits tax.
  • The following sources of trading income are exempted from profits tax
    • Interest received or capital gains made on the purchase, retention or sale of a Government bond issued under the Loans (Government Bonds) Ordinance;
    • Exchange fund debt instruments;
    • Hong Kong dollar denominated multi–agency debt instruments;
    • Specified investment schemes which comply with the requirements of a government supervisory authority are exempt from tax. Specified investment schemes include investments in unit trusts and mutual funds.
  • Individuals in Hong Kong are taxed at up to 15% on employment income, but investment income or capital gains are not taxed.

NB Stamp duty is payable on some types of transaction in Hong Kong, including most share transactions. Estate duty is payable on property situated in Hong Kong at the time of death, at rates up to a maximum of 15%.

from lowtax.net

Open a Hong Kong Bank Account

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