Finally, Ownership Transparency in Hong Kong and Singapore!

Persons of Significant Control (PSC) is becoming a standard phrase in the corporate world compliance to fight tax avoidance and money laundering. This initiative is driven by Global Forum on Transparency and Exchange of Information for Tax Purposes (GF) and Financial Action Task Force (FATF). The objective of the initiative is to improve the implementation of international standards on transparency of beneficial ownership information, including its availability and international exchange.

United Kingdom (UK) was one of the first countries which made extensive legislative provisions requiring all UK incorporated companies and partnerships to identify people exercising control on them. Detailed and unambiguous provisions marked the definition and the procedure to identify and classify PSC, who has to be a natural person. In addition, each entity is mandated to maintain a register capturing specific information on the PSC and this register is filed with the Company House on an annual basis. Not only this, the contents of the register are made public with few exceptions. The requirement w.r.t. PSC became effective from April 6, 2016.

Somewhat on similar lines, Hong Kong and Singapore are proposing to introduce and maintain a register capturing the details of the PSC. The new requirement in both the countries is likely to be finalized and implemented in the third or fourth quarter of the current year.

One of the main features of the proposal for PSC register in Hong Kong is that companies, except listed companies, incorporated in Hong Kong would obtain and hold up-to-date beneficial ownership information of the companies.. The definition of beneficial ownership is based on the similar lines as in FATF guidance i.e. where an individual owns or controls more than 25% of the legal entity through direct or indirect shareholding. It is also proposed to register the legal entity immediately above the HK company in case of successive layers of holding companies in a chain of ownership. This particular requirement differs from the UK provision where only the information on beneficial owner is recorded in the register. The information shall be made available for public inspection upon request.

There are also provisions for penalty against the company, its responsible persons and beneficial owners for not maintaining the register or for not making it available for public inspection. However, no final decision has been taken on restricting the voting rights in case the beneficial owner fails to respond to the notices sent by a company though such is the position in UK law.

However, the PSC register requirement will not apply to partnerships unlike in UK and as proposed in Singapore. Since many HK companies have no employee and or director in HK, it is proposed that the company shall nominate a third party who is a HK resident and who shall be responsible to provide information in this regard.

Singapore’s proposals are also on the similar lines except on few parameters. The register of PSC will not be in public domain, but there may be a central registry for this information. There is an exception for both listed companies and Singapore financial institutions. The exception of Singapore financial institutions is a major carve-out unlike in UK and HK. Further, the PSC can be an individual or a legal entity unlike in UK and HK.

These are significant developments for these two off-shore financial centres. The impact of such transparency on the competitiveness of these jurisdictions vis-à-vis other off-shore centres (which have not yet committed to impose similar obligations to companies incorporated there) is something to be closely watched.