HONG KONG SAR, CHINA Law and Practice Contributed by: Jeffrey Lee, Jessica Leung and Hilary Leung, Charles Russell Speechlys
Non-residents who have permanent establishments carrying on a trade, profession or business in Hong Kong will also be subject to the transfer pricing rules. The income or losses attributable to a non-Hong Kong resident’s permanent establishment in Hong Kong will be determined as if the permanent establishment was a distinct and separate enterprise. The Inland Revenue (Amendment) (Minimum Tax for Multinational Enterprise Groups) Bill was passed by the Legislative Council on 28 May 2025 and intro - duces significant tax reforms to align with the OECD Pillar Two rules, implementing a minimum effective tax rate of 15% for large multinational enterprise groups. The legislation applies retroactively from 1 January 2025, requiring in-scope multinational entities to cal - culate and report their effective tax rates and top-up tax liabilities. Public Beneficial Ownership Registers Hong Kong does not have a public beneficial owner - ship register. However, all private limited companies incorporated in Hong Kong are required to maintain a “significant controllers register” (SCR) containing up- to-date beneficial ownership information of the com - pany, which only law enforcement officers and persons whose names are entered into the SCR as significant controller are entitled to inspect on demand. Com - panies are also required to take reasonable steps to ascertain their significant controllers. An individual or corporate entity has significant control over a company if one or more of the following condi - tions is met: • such 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, a right to share in more than 25% of the capital or profits of the company; • such person holds, directly or indirectly, more than 25% of the voting rights of the company; • such person holds, directly or indirectly, the right to appoint or remove a majority of the board of direc - tors of the company; • such person has the right to exercise, or actually exercises, significant influence or control over the company; and
• such person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm that is not a legal person, and whose trustees or members meet one or more of the above conditions. 2. Succession 2.1 Cultural Considerations in Succession Planning Succession planning for large families is usually com - plex. Typically, the primary goal is to preserve the capital of the family wealth for as long as possible, so family members are permitted to enjoy the income only if there is no emergency that calls for capital. In many cases, older generations would encourage younger generations to participate in the family busi - ness. However, they are usually reluctant to turn over full control of the family business to younger genera - tions until they become less active due to old age or sickness. It is not common for spouses of family members to take an active role in the family business or to be able to benefit from the family wealth directly, although some large families are willing to set aside a small portion of the family wealth for the spouses who have been married into the family for many years, in the event that they become widowed. Small families are more inclined to distribute the capi - tal and income of their wealth to their children and/ or grandchildren directly after they pass away, and therefore require relatively simpler succession-plan - ning strategies. 2.2 International Planning Many family members in younger generations are now tax residents of high-tax jurisdictions. As Hong Kong is a relatively low-tax jurisdiction with no foreign exchange control and no forced heirship laws, families are incentivised to place ownership and/or control of the family wealth into the hands of a family member in Hong Kong who has little or no exposure to taxes in high-tax jurisdictions, so that such family member can exercise their rights and powers over the family wealth for the benefit of all family members.
229 CHAMBERS.COM
Powered by FlippingBook