The Companies Registry has become a nice little earner for the government with last year’s net profit totaling HK$221.4 million. This went to the government as a dividend along with the HK$42 million the Registry paid in profits tax.
The number of companies on the Hong Kong register has grown sharply in recent years. In the year 2000 there were about 500,000. By the end of March 2015 this figure had grown to 1,298695, of which 10,029 were non-Hong Kong registered companies.
The Companies Registry Trading Fund (CRTF) has provided the government with HK$2.2 billion since the year ending March 31, 1999 with most of this from the fees it extracts for the annual registration of companies, the incorporation of companies, and the cost of searching CRTF data for information on companies.
Indeed, some say it is making obscene profits from the business.
The latest CRFT report notes that one of its financial objectives is to, “achieve a reasonable return on average net fixed assets employed, which is set at 6.7 per cent for 2014-15 by the Financial Secretary.”
Leaving aside whether this is an appropriate objective for a services company, a few lines further on in the report we see that this ‘reasonable return’ target has been massively exceeded. Last year the average rate of return on net fixed assets was a whopping 54.4 per cent and in the previous year 72.5 per cent. Meanwhile the registry’s retained earnings have been sitting at HK$517 million since March 2008.
Hong Kong Companies Registry: Significant Numbers
|Year||Turnover||Operating Costs||Net Profit||Profits Tax||Rate of return (%)||Tax & profit
LESS search fee
It can cost a private company no more than HK$105 annually to maintain its disclosure obligations, regardless of how many changes in registered office, directors and new share issues are involved. This is of course welcomed by business interests.
But for somebody wanting to find out a bit of company history it will cost HK$18 per annual return summary and HK$10 per filing of changes in directors and share capital.
So someone who needs to take advantage of the disclosure obligations to checkout a dodgy company could easily end up paying more than those on whom the obligation falls. And in the process contribute vast sums to the government’s general revenue.
Until 1844 in the UK companies could only be incorporated by Royal Charter or Act of Parliament, both of which were cumbersome processes. To simplify matters, companies were allowed to incorporate by registration. But a quid pro quo was that there should adequate disclosure so that people could know who was behind the company.
This point was recently demonstrated by David Webb on his website, where he showed that while seeking to uncover a pattern of deception by a particular individual the Companies Registry paywall served as a deterrent. Indeed, it could be argued that the government is pandering to business interests by charging search fees. The CRTF says fees for one -off searches are low but an investigation requiring numerous searches can soon mount up.
Fees as a proportion of Companies Registry total turnover
|Year||Incorporation Fees %||Annual Reg %||Search Fees %|
It is clear from the tables above that the Registry could easily afford to drop the search fee and still remain hugely profitable.
However, when HowardWinnReports put this point to the Registry it responded with the comment: “The fees of the Companies Registry Trading Fund (CRTF) are set on a cost-recovery basis. The existing fees are set out in the Companies (Fees) Regulation, Chapter 622K of the Laws of Hong Kong, which was passed by the Legislative Council in July 2013. As a trading fund, CRTF has to ensure that the expenses incurred in the provision of services, including capital expenditure for the longer term, and the financial liabilities of the CRTF can be met out of its own income, which is highly dependent on global and local economic conditions. We shall review the CRTF’s fees according to established mechanism having regard to the aforementioned factors.”
The response bears the hallmark of this excessively cautious government which would rather sit on piles of cash than leave it in the public’s pocket.
The Registry’s profits for the last 17 years indicate that it is in no danger of being blown off course by an economic downturn. Indeed, there is no reason why the government should be making profits from this service and should reduce its fees to break-even level.
The Registry’s response and track appear wildly out of line with the Financial Secretary’s remarks in his recent budget: “Unless justified on policy ground, all fees and charges for government services have been set in accordance with the ‘cost-recovery’ and ‘user pays’ principles.”