Zetland Fiduciary Group

ニュースレター November 2014

Zetland Newsletter  November, 2014 Dear Friend of Zetland, There has relatively recently been a judgment by the Hong Kong Court of Final Appeal. The case involved Mr Poon Lok To Otto and his wife Kan Lai Kwan who decided to get divorced after over 40 years of marriage. The main question before the Court was whether assets, that were held in a discretionary Trust, were financial resources that were available to the Husband and would therefore be subject to the Courts jurisdiction when making the financial provision orders under the Matrimonial Proceedings and Property Ordinance. Put very simply, the vast majority of the Husbands holding company shares were settled into a Jersey discretionary Trust that was governed by Jersey Law in 1995. The Husband acted as Settlor, Protector and a potential Beneficiary of the Trust together with Mrs Kan and their daughter. HSBC acted as Trustee. In May 2009 they decided to get divorced after two years of separation. Under Hong Kong law, the court may make financial provision orders in a divorce by considering the financial resources available to each party in a marriage. The court looked at the test laid down by the English Court in Charman v Charman asking the question that if the Husband were to ask the Trustees to advance the whole or part of the income or capital of the Trust fund, on the balance of probabilities, would they be likely to do so. It was a unanimous decision by the judges that the test had been satisfied and that the likelihood was that HSBC would indeed act in accordance with Mr Poons wishes. The following factors were decisive: The fact that the Husband acted as Settlor, Protector and a Beneficiary. The Trust deed also authorised the Trustee to leave the day to day administration of the Holding company to the directors and managers, absolving the Trustee of any responsibility. The letters of wishes indicated that the Husband intended to and did in fact occupy a dominant position of influence over the Trust. As a Protector, he had the power to replace the Trustee. As a result, the Court decided that the entire Trust fund should be treated as a financial resource available to the Husband, despite the fact that his daughter is a Beneficiary also. The Trust was not considered a sham by either the Court or the Parties and that HSBC had fulfilled its obligations as Trustee. The Court considered another English case of Whaley v Whaley that when taking into account a financial resource, the court looks at not just control over the matter, but also at access to them. I should mention that the statutory powers in this case to look beyond proprietary interest at financial resources arises under the Matrimonial Proceedings and Property Ordinance in Hong Kong, the Courts would not have had the same power in cases of contractual disputes or creditor proceedings, in which, other than cases of a sham, the assets would be ring fenced. The result may also have been different had Mr Poon not have had so much control over the trust assets. Zetland can assist in establishing robust trust structures both in Hong Kong and elsewhere. Yours sincerely, James Lee Group Managing Director Zetland Fiduciary Group

Hong Kong Shanghai Stock Connect Launched

The trading link, which was announced by Li Keqiang in April this year, was supposed to be launched in September. With a few weeks delay the Stock Connect now allows foreign institutional and retail investors to trade Shanghai 'A' shares via the Hong Kong stock exchange while Mainland investors will be able to trade Hong Kong 'H' shares via the Shanghai Stock Exchange for the first time. The Stock Connect is a pilot program and caps the allowed trades of mainland stock purchases (northbound) at 13 billion Yuan and Hong Kong stocks (southbound) at 10.5 billion Yuan a day. In its first week of trading only 36% of its northbound quota and 6% of its southbound quota were filled up, despite a much anticipated launch date. Albeit the Stock Connect’s mildly launch week, analysts and participants have a positive outlook and welcome the trade link saying that it will take time for investors to familiarize themselves with the platform and mechanism and in the long run it should benefit both exchanges. Rutledge, chief investment strategist at Safanad, said in an interview with CNBC: "If you bought the top 10 market cap stocks in Shanghai and then took the lift up as the foreign institutions buy in, that's not a bad way to initially play this". For more information on setting up your Hong Kong investment and trading company, contact us at intray@zetland.biz.

Major reforms to the Singapore’s Companies Act

The Companies (Amendment) Bill 2014 was passed in Parliament on 8 October 2014. Since the Act was enacted in 1967, the Companies Act has undergone several reviews to ensure its corporate regulatory regime is robust and supports Singapore’s growth as a global hub for investors and businesses. The Act was last amended in 2006. This is the largest number of changes since the enactment. The objectives of changes are to reduce regulatory burden, provide greater business flexibility and improve corporate governance landscape. The significant changes to local companies are:

1. Introduction of “small company” concept for audit exemption Currently, a company is exempt from having its accounts audited if it is an exempt private company (“EPC”) with annual turnover of S$5m and below. A new small company concept is introduced for exemption for statutory audit. To be exempted, it must be a private company that meets at least 2 of 3 criteria for the immediate past two financial years:
   • Total turnover not more than S$10M
   • Total assets not more than S$10M
   • Number of employees not more than 50
   Transitional provisions are provided for companies incorporated after the effective date of the amendments and for existing companies. Existing safeguards will remain, such as requiring all companies to keep proper accounting records, and empowering shareholders with at least 5% voting rights to require a company to prepare audited accounts.
2. Revised financial reporting for dormant companies Currently, a dormant company is exempted from statutory audit requirements but is still required to prepare accounts. Under the revised dormant company financial reporting:
   • Dormant non-listed companies (other than subsidiaries of listed companies) are exempt from requirements to prepare accounts
   • Exemption from preparation of accounts subject to substantial assets threshold test (ir not more than S$500,000)
   • No change for listed companies and its subsidiaries (ie exempt from audit but must prepare accounts)
3. Use of alternate of addresses on ACRA’s records Currently, individuals report personal particulars including residential address to ACRA. This information is made public. With the change, it allows an individual to report an alternate address where one can be located. However, the address cannot be a P.O. Box and it must be the same jurisdiction as the residential address.
   
   
4. ACRA’s electronic register of directors/members Currently, every company is required to keep a register of members at its registered office. Under the Bill, ACRA will maintain the register of members in electronic form. The date of filing of share ownership and its changes will be taken as the effective date of entry of a person into the register as a member or the date of cessation of a person as a member.
   
   
5. Merger of Memorandum and Articles into Constitution Under the Bill, the existing Memorandum and Articles of the company will be merged into a constitutional document. Model constitutions will be prescribed in the regulations. A company may choose to adopt the whole model constitution, or part of the model and/or add provision into it or add objects clauses to it.
   
   
6. Updates to the striking off framework
   • The period for showing no cause to the striking off has been reduced from 3 months to 60 days.
   • The period of time given to a person aggrieved by the striking off of a company to appeal to court has been reduced from 15 years to 6 years.
   • Application may be made to the Registrar to administratively restore a struck off company initiated by the Registrar, if no appeal to the Court has been made. This application must be made within 6 years after the dissolution of the company instead of 15 years.
   
   
   
7. Registrar’s powers to debar directors and company secretaries This new debarment regime empowers the registrar to debar any director or company secretary of a company that has failed to lodge any documents at least 3 months after the prescribed deadlines. The debarred person cannot take on any new appointment as a director/company secretary though he/she can continue with existing appointments. The registrar will lift the debarment when the default has been rectified or on other prescribed grounds.
   
   

The amendments will come into effect on a date yet to be announced in the Singapore Government Gazette. It is expected however that most of these amendments will come into force early 2015. For more information, please contact Su Lee, General Manager of Zetland Singapore at suleec@zetland.biz or +65 65572071.

Shanghai FTZ Released Shortened Negative List

The Shanghai Free Trade Zone (FTZ) adopts a Negative List Approach towards foreign investment management, which specifies restrictions or bans on certain types of foreign investment. Under this approach, foreign investment projects on the Negative List are subject to pre-approval procedures, while foreign investors wishing to set up an foreign-invested enterprises (FIE) in a field not listed need only undergo record-filing procedures with the authorities. The list covers 1,069 businesses in 89 divisions under 18 industries, including agriculture, forestry, animal husbandry and fishery; mining; manufacture production and supply industries for power, gas and water; construction; and wholesale and retail industries. The FTZ has brought China’s opening-up to a new level. Besides local benefits, the zone is also meant to drive the whole country’s opening-up, which was designed to gather experience for further opening-up of the country’s economy. In order to attract more foreign investment and offer more leeway for foreign investment in the city's pilot free trade zone, on July 1st, the Shanghai Free Trade Zone government has released an update of its Negative List, the list referencing the industries in which foreign investments are forbidden. Compared with the 2013 version, the new negative list is more open and transparent, and has a closer connection with international prevailing rules. This update reduces the number of restricted industries from 190 to 139, in an effort to increase the zone attractiveness for foreign capital. Key changes affect:

• Manufacturing: numerous new sectors have been opened to foreign investments, including cotton processing, paper manufacturing and printing inks, certain chemicals and vitamins, electronic components for cars. Import and export good certification companies can now be foreign-funded.
• Transportation: railway freight and maritime transportation sectors have been opened to foreign capital, along with aircraft repairs.
• Financial Industry: investment banking, trust companies and currency brokerage companies are not restricted anymore.
• Healthcare Industry: minimum investment of RMB 20 million has been abolished. Maximum operation period, previously limited to 20 years, disappears.
• Internet: Investments in cybercafés have also been authorized, in the wake of the gaming consoles ban lift earlier this year.

As part of China's opening up strategy, overseas participants are allowed to invest as freely as their domestic peers in business fields beyond the list. A registration system has been introduced in the zone for foreign investment in areas that are not singled out in the list. It simplifies procedures and reduces processing time from 29 days to four working days in the zone. The State Council has also revised and implemented a slew of administrative measures related to FIEs in the Shanghai FTZ, as contained in the “Regulations on International Maritime Transport”, “Regulations for the Administration of the Salt Industry”, and “Catalogue of Industries for Guiding Foreign Investment.” These consist of liberalization measures for FIEs in terms of business scope, qualifications and foreign equity ratios. Based on these adjustments, wholly foreign-owned enterprises (WFOEs) established in the FTZ have been newly approved to participate in industries such as petroleum exploration, real estate brokerages, and small-capacity motorcycle manufacturing. In many cases the revisions are subtle, but they are absolutely not to be overlooked. For foreign investors in niche industries, even a small change in the wording of industry restrictions can mean the difference between being able to operate in the world’s second largest economy and being locked out of China. Indeed, criticism of the Shanghai FTZ as lacking any substantive innovation ignores the trees in search of a forest. For further information, please contact Phoebe Luo in our Shanghai Office at phoebe@zetland.biz.

Asset Protection Planning with Belize Limited Liability Companies

“Asset protection” is a set of legal techniques and a body of statutory and common law dealing with protecting assets of individuals and business entities from civil money judgments. The goal of all asset protection planning is to insulate assets from claims of creditors without concealment or tax evasion. Thus most asset protection planning techniques incorporate the separation of client control from the assets being protected. The LLC has quickly become popular because of the combination of direct management and limited liability characteristics. A Limited Liability Company or LLC is a hybrid between two familiar business structures, namely a corporation and a partnership. An LLC combines the best of both worlds by offering the advantage of both a corporation and a partnership without the disadvantages of either form. An LLC, has distinct advantages over both a corporation and a partnership in that it not only avoids multiple level taxation, it also limits the liability of its members to the extent of the contributions made by them to the Company. No member of an LLC has personal liability for the debts of the LLC except where there are personal guarantees or other special arrangements. Furthermore, LLC members, unless restricted by agreement, fully participate in the management of the LLC, while limited partners in a limited partnership may not participate in the management of the enterprise without risking the loss of their limited liability status. The Belize International Limited Liabilities Companies Act, 2011 provides a broad foundation to structure an LLC according to its own rules, rather than being dictated by statute. The operating agreement may contain any provision for the conduct of business that is not contrary to law and relates to the business of the company and the conduct of its affairs. An LLC is a legal entity with separate rights and responsibilities distinct from its members and managers. Other main attributes are that LLC’s are exempt from taxes and duties and exchange control in Belize. There is no requirement to prepare annual accounts or to appoint an auditor; however, a simple annual return in the form specified by regulations would need to be lodged with the Registrar setting out the name of the LLC and the address of the registered agent. Also LLC’s from other jurisdictions may transfer their domicile to Belize and Belize LLC’s may move to another jurisdiction. A Belize LLC would be an ideally suitable structure with strong asset protection features that provide statutory limited liability to the owners and can accommodate personal organizational requirements. Contact us at Zetland should you wish to incorporate an LLC or to explore ways to take advantage of other corporate structure and benefits Belize has to offer. For further information, please feel free to contact Anju Gidwani, Director of the Belize Office (anju@zetland.biz)

Zetland Tax Advisors News

US Offshore Voluntary Compliance Procedures

The New IRS Streamlined Filing Compliance Procedures

The Internal Revenue Service (IRS) has recently announced major changes in its offshore voluntary compliance programs, providing new options to help both taxpayers residing overseas and those residing in the United States to come into compliance with their U.S. tax obligations. They are known as the Streamlined Foreign Offshore Procedures and the Streamlined Domestic Offshore Procedures respectively. For tax filers who wish to declare and certify their non-willfulness issue, these Streamline procedures offer a light penalty in comparison to the normal penalties faced by filers who do not comply at all with FATCA reporting requirements or any relief program.

What do tax filers need to do?

Both Streamlined procedures involve filing only the most recent 3 years of tax returns instead of filing returns for every missing year. Furthermore, both Streamline procedures require FBARs for 6 years to match the FBAR statute of limitations. The Foreign streamlined program would have no penalty at all, while the Domestic streamlined program imposes a light penalty.

Is this good for you?

In short, this new IRD Streamlined Filing Compliance Procedures offer the U.S. tax filers a brand new start to prove they are compliant with the latest reporting requirements. Instead of the immense hassle of having to go back to every year in which a return is missing, it provides the filer an abbreviated filing season in which only recent returns are submitted. This program is effective in that it provides a catch-up framework, sanctioned by the IRS itself, to cooperate with the issue of reporting transparency when it comes to foreign assets held abroad. Such is the issue in which all U.S. persons must now have to deal with on a continual basis from now on. The Streamline Offshore Procedure is a much preferable course of action than just ignoring the issues, which is an increasingly dangerous thing to do now in this new FATCA world.

Action for you

If you are interested to know more details about this Streamlined Procedures or would like to have an initial assessment whether these procedures apply to you, please call us +852 3552 9084 or email us at tax@zetland.biz.

Luxembourg Tax Leaks

Similar to the Offshore leaks earlier this year, the Luxembourg Leaks, revealing advanced tax agreements the tiny state has signed with multi-national corporations to ascertain the tax treatment of the MNCs’ subsidiaries situated in Luxembourg, is causing public anger and indignation among finance ministries of the developed world, particularly in Europe. Advanced tax agreements are a not an unlawful practice and are commonly found in other jurisdictions as well. They may generally be better known as advance tax rulings. Advance tax rulings aims to increase tax transparency, improve tax administration and provide certainty of the tax treatment of specific transactions. In Hong Kong, many of the rulings are regarding the taxability of profits under Hong Kong law, where if the ruling is positive, Hong Kong tax will not be applicable to offshore profits. Developed and developing countries often try to attract investment by having competitive tax incentives. In a report in the ‘90s the OECD identified potentially harmful tax regimes providing preferential tax treatments in a report. However, most tax havens survived and even among high tax jurisdiction tax incentives and favorable tax policies are political will to attract investments and the establishment of businesses in a certain area, often targeting branches or specific activities of MNCs. The tax agreements were leaked or published timely to the G20 summit in Australia where the OECD is to present the first stage of its program to harmonize international taxation and eliminate such loopholes for Base Erosion and Profit Shifting (BEPS). One of the key action items is the prevention of harmful tax competition. The Luxembourg tax leaks are a demonstration of a country’s harmful tax competition, but Luxembourg is certainly not the only country with legal loopholes to minimize the tax liability and MNCs will be offered other incentives somewhere else maybe. Zetland Tax Advisors Limited specialises in international tax compliance and advisory services. For more information about our services, please refer to our website at www.zetlandtax.com or contact us at tax@zetland.biz. Forward to a friend!© 2014 Zetland Fiduciary Group Limited, All rights reserved.