A Guide to Power of Attorney
Simply said, a power of attorney allows for the transfer of power from one individual to another, but it is more complicated than that. There are several types available in Hong Kong and they can be used for multiple purposes; personal or business, such as company incorporation.
Read further to learn what a power of attorney is, when it is used, which types are available, what the main benefits are and how it is governed.
What is a power of attorney?
A power of attorney is a legal document where a person (principal) grants power to another individual (agent) to act on behalf of the principal.
The appointed agent may conduct business or conclude other legal activities on behalf of the principal.
When registering a power of attorney, the principal must have mental capacity to do so which is defined as having the ability to make one’s own decisions.
When to use a power of attorney?
A power of attorney in Hong Kong can be used for multiple purposes, such as business or financial issues, but also for health care. It can be of interest both for private individuals as well as company directors.
In general, it is used when an individual or company owner cannot handle the necessary matters themselves or if they cannot be present for the activities in person.
Some common purposes for concluding a power of attorney in Hong Kong include:
- Banking: to open a bank account or handle other banking issues with neobanks or virtual banks;
- Taxation: to handle tax matters on behalf of the principal;
- Company incorporation: for foreign investors looking to open a company in Hong Kong, but cannot be present in person. The registered agent (being a service provider) can provide the relevant assistance and can handle the registration process for them.
- Asset management: to make investments, collect debts and manage a property and other asset management purposes.
- Health care
- Trademark registration
It should be noted that a power of attorney does not grant unlimited powers. For example, the agent is not able to change a Will or break the fiduciary duty (the equivalent of acting in the best interest and as instructed by the principal).
Some types of activities for setting up or managing a company can be delegated to a third party through power of attorney. These include: registering with the Hong Kong Companies Registry, applying for relevant business permits or licenses, enter into negotiations, conclude or modify agreements (in general or specific types), applying for a corporate bank account, sign and execute deeds, and more.
A power of attorney can be used to appoint an agent, generally called tax representative, to handle the tax matters.
Specifically, a tax representative, under a power of attorney, can act on behalf of the principal (including a company or an individual) to handle tax matters with the Inland Revenue Department (“IRD”) such as preparing and filing tax returns, lodging objections/appeals against the IRD’s tax assessments, replying to the IRD’s tax enquires, handling the IRD’s tax audits/investigations, and the like.
Currently, a tax representative can also sign the profits tax return on behalf of the principal, provided that certain required documentations are in place. Please note however that for individual tax return, it is normally required to be signed by the taxpayer (i.e. the principal) himself .
Types available in Hong Kong
There is more than one type of power of attorney available, differing in how much power they grant to the agent.
- General: allows the agent to engage in any type of activity. It grants authority for a specific period and becomes invalid upon the expiry, principal’s revocation, principal’s death or if the principal loses mental capacity. If a company concludes a general power of attorney with an individual, that individual generally can act as the company agent and lawfully represent it.
- Special or limited: as the name states, this type will be used for a defined purpose only or for a related set of acts. Examples are selling property on behalf of the principal or opening a company. A special or limited power of attorney can also be valid for a specified length of time. It gets revoked upon expiry, revocation, death or loss of mental capacity.
- Enduring: can be used for several purposes, including health care. Several attorneys can be appointed, but the principal must specify if they are to act jointly or individually. What sets this type of power of attorney apart, is that it remains valid even after the principal has lost mental capacity. However, to be valid in that case, it must be registered with the High Court in Hong Kong.
The benefits of using a power of attorney in HK
As seen above, a power of attorney can be used for business and financial purposes to handle matters remotely by a professional. Additionally, it allows individuals to ensure their assets and personal affairs are properly handles when losing mental capacity.
The main benefits are:
- Practicality: it can be used whenever it is necessary to let the agent act on your behalf, according to specific instructions or with a large amount of freedom, for short- or long-term purposes.
- Flexibility: there are multiple purposes for a power of attorney. For a general power of attorney, there is in fact a high level of freedom. Therefore, one should appoint a professional and trusted agent.
- Protection: a power of attorney is a secure legal instrument when drafted according to law and when the appointed agent is a trusted individual. Usually, the agent is a lawyer or other professional services provider, rather than family or friends.
Laws governing the power of attorney in HK
The power of attorney in Hong Kong is governed by “Chapter 31: the Powers of Attorney Ordinance” of the Hong Kong Law. It highlights how it may be drafted and then enacted for its applicable situations. The Ordinance also offers a legal definition for mental capability of the principal.
The power of attorney is a straightforward document, which must be duly signed by both the principal and the agent. When signed and sealed by the agent, two individuals must be present as witnesses.
The Ordinance specifies certain situations in which the agent cannot be held liable in case the power is revoked, such as being unaware the document and powers had been revoked while engaged in handling issues stipulated in the power of attorney.
Should one already have a power of attorney in place, issued in a foreign jurisdiction, certain formalities for notarisation and legalization must be done.
For example, a power of attorney issued in mainland China needs to be authenticated in the mainland by the Chinese Foreign Ministry. Other countries may have other procedures, but in most cases they need to be authenticated by the Foreign Ministry of that jurisdiction.
As a power of attorney grants power to someone to act on your behalf, individuals should never be pressured into signing it without reading and understanding the document. One must be clear on which powers they are entrusting to the agent.
Furthermore, a power of attorney is not a Will. The main difference is that a power of attorney acts while the principal is still alive and a Will is used for distribution of assets after death. There are a few situations when either of them can be used in addition to one another, such as medical treatment for a terminal disease or resuscitation issues.
It is highly advisable to appoint a legal professional as power of attorney, as they can act efficiently and objectively according to the document. Besides, they will know the latest regulations regarding business matters and more.
HKWJ Tax Law can help
At HKWJ Tax Law and Partners, we can support to draft it and act as your appointed agent for either business or personal purposes. We are accustomed to using power of attorney in order to act on our clients’ behalf, for example regarding tax purposes or company incorporation.
Should you have a power of attorney outside of Hong Kong but would like to use it in Hong Kong, our professionals can give you more information about how to legalise it in Hong Kong.
The HKWJ Group is a one-stop holistic service provider and advisor to help your business grow. Within the Group, HKWJ Tax Law assists with financial administration, such as payroll, bookkeeping and accounting, as well as tax and legal matters. At Triple Eight Ltd, we provide a wide range of professional and corporate services, such as company secretarial services and company incorporation.