Hong Kong: The Super Set

Last Updated: 12 September 2016
Article by Simon Filmer

Of the various forces that have buffeted offshore financial services in recent years, regulation and emerging demand bases are probably the most significant. These forces have guided investors to particular jurisdictions with increasing regularity, altering – but not necessarily redrawing – the map. Indeed, certain locations achieved a pre-eminence within the industry, and for characteristics that are a direct response to offshore demand, that it calls into question the applicability of the term "offshore."

It started with mid-shore. This concept, which entered industry parlance in 2011 or thereabouts, refers to jurisdictions that offer the tax efficiency commonly associated with offshore and a robust legal and accounting infrastructure. Hong Kong, Singapore, Luxembourg and Dublin were readily cited examples of this phenomenon.

While the mid-shore construct is as relevant today as it was five years ago, there is arguably now an even higher echelon: the "super jurisdiction". To qualify, an international financial centre must not only be a place where investors conduct their business, but also be originators of investors themselves and also a primary jurisdiction of incorporation. Not all mid-shore players can be considered super jurisdictions. Luxembourg, for example, is an established hub for international business and a jurisdiction itself, but it is not as strong a source of business as Hong Kong and Singapore.

In addition to these two Asian giants, the likes of New York, Dubai and London come into the mix. Each has a sound business infrastructure, boasts sizeable and sophisticated human resources, sits comfortably in longstanding regional and global financial networks, and possesses considerable local wealth. In short, people – and therefore companies – want to live and work in these jurisdictions, rather than using them primarily as conduits.

Nevertheless, the role of super jurisdiction is not clear cut, not least because the locations that qualify for this status appeal for different reasons. Super jurisdictions will inevitably feature with increasing prominence in the offshore ecosystem – regulation alone will make this so, as it pushes investors towards more substance and more sophisticated jurisdictions – but this will not necessarily come at the expense of traditional international financial centres.

The 2015 installment of OIL's Offshore 2020 Report alludes to these shifting dynamics. Survey respondents were asked to score jurisdictions between one and five, based on their current importance. The British Virgin Islands (BVI) came top with 3.9, followed by Hong Kong and the Cayman Islands on 3.7, and then Singapore on 3.4. There is a sizeable gap to the next tier, comprising, Luxembourg, Jersey, the US and the UK, with between 2.6 and 2.8. The UAE comes in 10th with 2.1 (Figure 1a).

Asked the same question, in terms of their expectations five years from now, Hong Kong and Singapore occupy the top two positions, on 3.9 and 3.7, respectively. The BVI slips down to third, with 3.5, followed by Cayman Islands on 3.3. The US moves up to fifth with 2.8, just ahead of Luxembourg and the UK, with Jersey eighth. Meanwhile, the UAE jumps from 2.4, the largest numerical gain of any of the top 10 (Figure 1b).

Figure 1a

Figure 1b

These responses are consistent with previous years. The only area industry predictions have been off the market was three years ago with the suggestion that the BVI and Cayman Islands would lose their following. Data leaks from offshore service providers continue to be a contributing factor, with the so-called Panama Papers generated headlines worldwide - but the concerns have been largely driven by regulation. Tax efficiency was secured through double taxation treaties (DTTs) and only investors who could prove a certain level of business activity in the treaty-holding jurisdiction. Establishing substance – opening offices and hiring staff – was far easier in developed financial centres.

Subsequent pressure on the offshore industry, through the US Foreign Account Tax Compliance Act (FATCA) and its UK equivalent, the EU Alternative Investment Fund Managers Directive (AIFMD), Base Erosion and Profit Shifting (BEPS) and the various initiatives on common reporting standards and anti-money laundering, have exacerbated this impact. For the first time in the history of the survey, new regulations were identified by respondents as the number one business constraint and the primary impact of these regulations has been to raise the cost of doing business.

Staying in business is becoming more expensive for service providers and for the jurisdictions themselves; for example, negotiating with the US over FATCA, as well as with DTT partners and others, require substantial governmental resources, often scarce in small island states. The cost advantages enjoyed by certain locations may erode, but shifts in clientele mindset are equally important. Investors prioritise certainty of treatment even more highly than cost, which means they may gravitate to jurisdictions best positioned to meet their needs in an increasingly complex world.

However, the emergence of mid-shore locations has not – as yet – taken business away from traditional offshore centres. It is true that the latter have adapted, strengthening their systems and processes to meet the heavier compliance burden, and the likes of the BVI and Cayman Islands have such entrenched positions within the industry that it would take years to eliminate them from structures. But the key factor is that mid-shore and offshore are complementary, performing different functions within multi-layered structures.

Super jurisdictions should be seen in a similar way. They are the front end of a financial value chain that could extend through any number of other locations, depending on individual requirements. Hong Kong may serve as the mother ship – and, from a reputational perspective, the public face – for an investor's activities, but there will be demand for holding companies incorporated in the BVI and fund structures set up in Cayman Islands.

While respondents to the Offshore 2020 survey said that the US and UK are the main beneficiaries of new regulations by a significant margin, the next four places are occupied by Cayman Islands, Hong Kong, the BVI and Singapore, respectively (Figure 2). This mixture of traditional jurisdiction and super jurisdiction appears to confirm that offshore financial services are not a zero-sum game; all well-established financial centres can benefit from the industry's changing dynamics.

Although new regulations are believed to be beneficial to the UK, this may change as a result of Brexit as the UK's future as a well-established financial centre becomes the focal point of discussion. However, the abundance and complexity of the factors surrounding the vote mean that at this premature stage, it is unclear what the consequences will be on the status of the UK as a well-recognised and established global financial centre.

Figure 2

Another consideration is differentiation within the super jurisdiction segment. Dubai, for example, has local wealth and international connections, but it trails its peers in areas such as legal infrastructure, while the popularity of the US has been tied to the country's comparative resistance, to date, to external regulatory pressure. These characteristics will continue to evolve and investors will respond accordingly.

What appears more immutable is Hong Kong and Singapore's place at the top of the value chain. They have long been hubs for capital entering Asia, but increasingly they are platforms for the management of wealth created in Asia.

Survey respondents overwhelmingly ranked Greater China and Southeast Asia as the top two regions for growth over the next five years (Figure 3). They are home to the high net worth individuals whose wealth planning and asset protection needs are expected to become a focal point for the industry. Persuading people to set up in Hong Kong and Singapore and tap into this demand, as service providers or entrepreneurs, is a relatively easy sell.

Figure 3: Growth markets over the next 5 years

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions