Hong Kong to legislate on inward re-domiciliation regime for foreign companies
7 November 2024 - As part of Hong Kong’s continued efforts to strengthen its position as a global business and finance hub, it will be introducing a new “inward re-domiciliation” regime which will allow foreign incorporated companies to migrate their place of incorporation to the jurisdiction whilst conserving their legal identity. It is hoped that this initiative will help increase Hong Kong’s attractiveness to overseas enterprises and investment.
Following the issuance of the Financial Services and the Treasury Bureau’s (FSTB) public consultation paper in March 2023, which detailed its proposal for inward re-domiciliation, its conclusions and legislative proposals were published in early July 2024 confirming the key features of the new regime.
Legal framework
The FSTB has clarified that once a foreign company has re-domiciled to Hong Kong, it will:
- Retain its legal identity, without the need to create a new one;
- Keep its property, rights, obligations and liabilities, in addition to relevant contractual and legal processes – none of these will be affected by the re-domiciliation of the company; and
- Have the same rights and obligations as a local company incorporated under the Hong Kong Companies Ordinance (HKCO) which means there will be an obligation to comply with the relevant jurisdictional requirements.
Key eligibility requirements
Company type: Must be the same or substantially similar to one of the four specified under the HKCO – namely:
- Private companies limited by shares;
- Public companies limited by shares;
- Private unlimited companies with a share capital; and
- Public unlimited companies with a share capital.
Originating jurisdiction: (a) The laws of the company’s originating jurisdiction (i.e., the country in which it was incorporated) must permit re-domiciliation. (b) The company must comply with any obligations set out by the originating jurisdiction for such to happen; the specific requirements depend on the location and industry but could include shareholder approval, creditor notification and/or authorization from industry regulators.
Members’ consent: The HKCO requires a company to obtain consent for re-domiciliation by a resolution passed by at least 75% of its voting members, even if the laws of the originating jurisdiction or existing constitutional documents do not stipulate such a requirement.
Length of company incorporation: At a minimum, the company must have been incorporated and have been in existence for one full financial year.
It should be noted that other criteria include proof of solvency by financial statements, compliance with HKCO requirements for re-domiciliation, and the assurance that the to be re-domiciled company will not be used for an unlawful purpose or against public interest.
The re-domiciliation process
A company that wants to re-domicile to Hong Kong will have to submit an application form (including supporting documents) and pay a fee to the Companies Registry who will then administer the process, in approximately two weeks.
If the application is successful, the company will become a re-domiciled company in Hong Kong when the Company Registry issues a certificate of re-domiciliation.
The company will then be required to provide evidence of de-registration in its originating jurisdiction within 120 days (this can be extended upon formal request).
However, to avoid being subject to two different regimes, companies should co-ordinate the re-domiciliation processes of Hong Kong and its originating jurisdiction to minimize the obligations and costs associated with being registered in two jurisdictions at the same time.
Tax implications
In terms of tax considerations, the FSTB has confirmed the following with regards to the new inward re-domiciliation regime:
Profits tax: Firstly, a company’s re-domiciliation will not affect its tax obligations in the Originating Jurisdiction nor its Hong Kong profits tax position.
Transitional tax: Amendments will be made to the Hong Kong Inland Revenue Ordinance (HKIRO) to address transitional tax matters which will include fair deduction for trading stock, specified types of expenditure and depreciation allowances.
Tax credits for exit: To avoid double taxation, after a company has re-domiciled, tax credits will be provided in respect of the tax payable on actual profits derived in Hong Kong if similar profits have been taxed in an unrealized form by the Originating Jurisdiction upon exit.
Stamp duty: Hong Kong stamp duty liabilities will not arise from the re-domiciliation process, as long as there are no changes or transfer in the beneficial ownership of the re-domiciled company’s assets.
Benefits of the new regime
There are a number of benefits to this new regime which makes it an attractive option for foreign companies to consider, including the lowering of economic substance requirements enabling overseas companies of all sizes to undertake this process.
Companies that already do business or list theirs in Hong Kong might choose to re-domicile to the jurisdiction as it presents an opportunity to reduce their regulatory compliance burden and operational costs. Certain industries, such as the insurance sector, have indicated an interest in exploring such an option given the viable and attractive alternative being represented to them.
Next steps
The government is developing the relevant legislative instrument for the proposed company re-domiciliation regime and plans to submit it to the Hong Kong Legislative Council in 2024. Companies interested in migrating their place of incorporation to Hong Kong should keep an eye out for further updates.
The Citco group of companies (Citco) can help facilitate a smooth transition for foreign companies looking to re-domicile to Hong Kong during and after the re-domiciliation process. This can involve managing the entire process from application to final registration, ensuring that all legal and administrative requirements are met efficiently, in addition to retaining company names and business registration numbers and ensuring minimal disruption to ongoing operations.
More broadly, leveraging our extensive network and market knowledge, Citco can provide valuable insights into the Hong Kong business landscape. We can help clients identify new opportunities, understand local market dynamics, and make informed decisions about their re-domiciliation strategy.
As experts in entity life cycle management, Citco pragmatically supports Family Offices, Corporate and Fund clients with maintaining robust corporate governance standards and ensuring ongoing compliance with Hong Kong’s regulatory framework.