Lai See | Do Hong Kong companies really need to be registered offshore?

We see that Hong Kong will be hosting several prime ministers from the Caribbean over the next few months. They include Dr Orlando Smith, premier of the British Virgin Islands, who will be addressing the British Chamber of Commerce in September, and Dr Denzil Douglas, the prime minister of Saint Kitts and Nevis who is to speak at a conference entitled Investment Immigration Summit in November. They will of course be marketing the appeal of their respective territories as offshore domains for registering companies.

The practice of registering companies offshore took off in Hong Kong following the decision by Jardine Matheson to register in Bermuda in 1984. The killings in Tiananmen Square in 1989 provided a further catalyst. But we would suggest that the rationale for registering in the world's various offshore jurisdictions has long outlived its usefulness for Hong Kong companies.

In the run-up to 1997 people were concerned about sovereign risk and that after the handover the mainland would have a free hand to nationalise companies registered in Hong Kong. That fear clearly has proved groundless. With people emigrating ahead of the handover there was a similar concern over the safety of assets. There is now net immigration, so there is no real need for an offshore company. When Hong Kong had estate duty there was a material benefit to be had from putting certain properties into an offshore company. This duty has now been abolished. So there is now no need for Hong Kong companies to do this, but people appear to do it as a matter of course, regardless of the additional costs involved. Litigation, should something go wrong, becomes twice as expensive.

We suppose mainland companies remain interested in offshore companies since it facilitates round-tripping whereby funds can return to China classified as "foreign" investment and thereby gain preferential tax treatment. But you get the feeling that for Hong Kong people it's a habit rather than a necessity.

As has long been foretold here, Keith Yeung Kar-hung SC has been appointed director of public prosecutions, replacing Kevin Zervos who has resigned from the position. We anticipate that Zervos will take up an appointment as a High Court Judge. However, since it can create a bad impression to be director of public prosecutions one day, and a judge the next, we don't expect that to be announced until shortly after he leaves on September 9. We need to preserve a semblance of judicial independence.