Hong Kong opens doors to foreign company redomiciliation

The Hong Kong government has announced that it will make a law to enable non-Hong Kong companies to redomicile in Hong Kong. This will help strengthen the city’s position as a global business and financial hub, enhancing its reputation as an open and competitive economy. Upon redomiciliation, the company’s legal entity, contracts, properties, rights and obligations will remain in effect.

The redomiciliation mechanisms for open-ended fund companies and limited partnership funds introduced in 2021 were a welcome move. Leveraging on such momentum, the government consulted the public on an even wider regime in 2023.

Upon receipt of overwhelming support, the Financial Services and the Treasury Bureau announced, in July 2024, that the government will proceed with the legislation to allow the redomiciliation of non-Hong Kong companies.

Through the redomiciliation, foreign companies already with operations in Hong Kong will no longer have to comply with two different sets of regulations indefinitely.

This regime does not allow outward redomiciliation of Hong Kong-incorporated companies to redomicile to another jurisdiction. Like Australia and Singapore, Hong Kong will only consider an inward regime for now.

Company types

Four types of companies may redomicile to Hong Kong, namely: (1) private companies limited by shares; (2) public companies limited by shares; (3) private unlimited companies with a share capital; and (4) public unlimited companies with a share capital. The companies will not be allowed to change their company type through the re-domiciliation.

Eligibility

There will be no economic substance tests. That essentially means that even small companies can redomicile to Hong Kong. However, the applicants must comply with certain legal, financial integrity and other documentary requirements, such as:

1. As of the application date, the applicant’s first financial year end since its incorporation has passed;
2. The company type to be applied for redomiciliation is the same or substantially the same as the applicant’s type of company in its original domicile;
3. The redomiciled company will not be used for unlawful purpose or purposes contrary to public interest;
4. If neither the law of the original domicile nor the application’s constitutional documents require members’ consent, an applicant should obtain such consent by a resolution duly passed by at least 75% of eligible members;
5. The applicant is able to pay its debts as they fall due during the 12 months after the application date;
6. The applicant is to provide its financial statements as of a date no more than 12 months prior to the application date (and such financial statements are to be audited only if the auditing is legally required in its original domicile);
7. The application is made in good faith and not intended to defraud existing creditors of the applicant;
8. The applicant is not in liquidation. No receiver or manager is in possession of any of its properties. No compromise or arrangement between it and another person is be administered; and
9. A legal opinion of a legal practitioner who practices the law of the original domicile is required to confirm that the proposed redomiciliation is allowed under the law of the original domicile. A legal opinion is also to cover the applicant’s due registration in the original domicile, company type, members’ consent and solvency.

Amendments will be proposed to the Insurance Ordinance (chapter 41 of the Laws of Hong Kong), the Banking Ordinance (chapter 155 of the Laws of Hong Kong), and relevant subsidiary legislation to ensure that insurers and authorised institutions which redomicile to Hong Kong will be regulated and supervised as if they were locally incorporated.

Foreign insurers and financial institutions seeking to redomicile will be required to approach their respective regulators in Hong Kong before making the redomiciliation application, such that assessment of their capacity in fulfilling the Hong Kong regulatory requirements can be conducted in advance.

Effects of redomiciliation

A redomiciled company in Hong Kong will be granted the same rights as any locally incorporated company of the same kind under the Companies Ordinance (chapter 622 of the Laws of Hong Kong) and shall comply with all the relevant Companies Ordinance requirements. It will preserve its legal identity, properties, rights, obligations and liabilities. Contracts and legal proceedings existing prior to redomiciliation will remain unaffected, as the process does not create a new legal entity. The contracts and legal processes applicable to it before the redomiciliation process will not be affected because no new legal entity is created through such process.

Upon issuance of the certificate of redomiciliation, the company will have 120 days (or such longer period if extension is granted upon application) to provide evidence of its deregistration from its original domicile to the Companies Registry of Hong Kong.

Tax arrangements

Any company will be subject to Hong Kong profits tax on its profits arising in or derived from any trade, profession or business conducted in Hong Kong, regardless of its domicile. Therefore, clarification of the tax residency of a redomiciled company is not necessary.

To avoid double taxation unilateral tax credits will be provided for redomiciled companies, in respect of tax payable on profits derived in Hong Kong after redomiciliation, where similar profits have already been taxed in an unrealised form by the company’s original domicile upon its exit.

Additionally, to ensure certainty in tax assessments after redomiciliation, arrangements will be implemented to address transitional tax issues such as fair deduction for trading stock, specified types of expenditures, and depreciation allowances.

Next step

The government is developing the relevant legislative instrument for the proposed company redomiciliation regime and plans to submit it to the Hong Kong Legislative Council in 2024.

Rossana Chu is a partner at YYC Legal