It represents the elimination of intercompany balances among parent, Shenzhen Futu and our subsidiaries.
It represents the elimination of the investment in Shenzhen Futu and our subsidiaries by the Parent.
Intercompany Revenues between Shenzhen Futu and Other Subsidiaries
The VIE provides software development services and technical consulting services to the subsidiaries of the Group. For the years ended December 31, 2019, 2020 and 2021, technical service fees of the VIE were HK$63,742 thousand, HK$94,500 thousand and HK$187,774 thousand, respectively. The intercompany service charge is eliminated at the consolidation level.
Intercompany Revenues between Shenzhen Futu and WFOE
Pursuant to the exclusive technology consulting and services agreement entered into in October 2014, between the WFOE and the VIE, which was subsequently amended and restated in May 2015 and further in September 2018, the WFOE had the exclusive right to provide the VIE with consulting and services related to, among other things, technology research and development, as well as maintenance of software and hardware. The VIE agreed to pay WFOE a service fee in an amount equal to its annual net income. The WFOE may adjust the amount of service fee based on factors such as the complexity, time spent and the commercial value of the services.
On September 30, 2021, a termination agreement was entered into among the WFOE, the VIE and its shareholders, pursuant to which the parties agreed to terminate the prior contractual arrangements and replaced them with a new set of agreements. Pursuant to the exclusive business cooperation agreement entered into on September 30, 2021 by and among the WFOE, the VIE and its shareholders, the VIE engages the WFOE as the exclusive service provider of technical support, consulting services and other services to the VIE. The VIE agrees to pay a service fee at an amount equivalent to 100% of the consolidated gross profits of the VIE for any fiscal year after offsetting the accumulated losses of the VIE and its subsidiaries in the previous fiscal years (if any) and after deducting working capital, expenditure, taxes and other statutory contributions required in any fiscal year.
For the years ended December 31, 2019, 2020 and 2021, the WFOE did not charge any service fee from the VIE.
For the years ended December 31, 2019, 2020 and 2021, cash paid by subsidiaries to Shenzhen Futu for technical service fees were HK$37,631 thousand, HK$33,669 thousand and HK$189,827 thousand, respectively.
For the year ended December 31, 2019, a subsidiary paid operating expense of HK$32,740 thousand on behalf of Shenzhen Futu, and Shenzhen Futu repaid the advance from the subsidiary subsequently.
Permissions Required from the PRC Authorities for Our Operations
We conduct our operations primarily through our subsidiaries in Hong Kong, Singapore, the U.S., Australia and the PRC, and the VIEs and their subsidiaries in China. Our operations in China are governed by PRC laws and regulations. In addition to the Business License issued by the relevant department of the State Administration for Market Regulation for each of our PRC subsidiaries, the VIEs and their subsidiaries, the relevant PRC subsidiaries and the VIEs are required to obtain, and have obtained the following requisite material permissions for their applicable main operations: Valued-added Telecommunication Business Operation License, or the ICP License, Radio and Television Program Production, Operation License and an Internet Culture Operation License and Publication Operation License.
As the regulatory regime for the online financial service provider and related industries in China and other jurisdictions in which we operate continues to evolve, new laws, regulations and regulatory requirements are promulgated and implemented from time to time, and the interpretation and application of existing laws, regulations and regulatory requirements are subject to changes. We may be required to obtain approvals, licenses, permits and certifications that we do not currently have for our existing business or new scope of business that we may expand into in the future. See “Risk Factors — Risks Related to Our Business and Industry — We do not hold any license or permit for providing securities brokerage business in Mainland China. Although we do not believe we engage in securities brokerage business in Mainland China, there remain uncertainties as to the interpretation and implementation of relevant PRC laws and regulations or if any new PRC laws and regulations will be enacted to impose licensing requirements on us with respect to our activities in Mainland China and/or our provision of services to our PRC-based clients. If some of our activities in Mainland China were deemed by relevant regulators as provision of securities business such as securities brokerage services, investment consulting services, futures business and/or any other regulated services and business activities in Mainland China, our business, financial condition, results of operations and prospects may be materially and adversely affected in Exhibit 99.1 to the Supplemental 6-K for more details.
Furthermore, in connection with our issuance of securities to foreign investors, as of the date of this prospectus supplement, we, our PRC subsidiaries and the VIEs are not required to obtain any approval or permission from the CSRC, CAC or any other PRC governmental authorities, nor have we, our PRC