Asian Firms Face Growing Offshore Compliance Risks

Imagine a scenario in which a Hong Kong-based hedge fund manager establishes and appoints an offshore management company to provide investment management services for its fund. On one hand, the fund's structure ensures a clear operational base. But at another level, key governance procedures are often neglected. These tasks include maintaining a certain number of offshore directors, opening and maintaining a bank account, holding regular board meetings in the offshore jurisdiction, and keeping a balance of non-onshore directors.

Such neglect could come at a steep price and expose the fund manager to tax liabilities in the manager's onshore jurisdiction. This is especially true in today's environment, in which regulators and tax authorities everywhere are taking a closer look at the substance of offshore management companies in relation to corporate governance.