The Hong Kong Company Re-Domiciliation Regime: Everything You Need to Know

Navigating the complexities of company re-domiciliation in Hong Kong requires a clear understanding of the legal and regulatory landscape. 

Hong Kong’s proposed re-domiciliation regime offers companies incorporated outside of Hong Kong the opportunity to relocate their place of incorporation to this globally recognised financial hub. This move allows companies to maintain their legal identity while benefiting from Hong Kong’s strategic position in Asia.

With its strategic location, competitive tax environment, and transparent regulatory framework, it’s no surprise that businesses worldwide are considering re-domiciliation to this global financial hub. 

However, ensuring compliance with the specific requirements set forth by the Hong Kong government is essential to a smooth transition. 

This article delves into the key legal criteria, compares the Hong Kong Company Re-Domiciliation Regime with other jurisdictions, and outlines practical steps for a successful re-domiciliation process.

Key Highlights

Hong Kong is set to introduce an “inward re-domiciliation” regime, enabling non-Hong Kong incorporated companies to transfer their place of incorporation to Hong Kong while maintaining their legal identity.

Eligible companies will not be subject to economic substance requirements, making the regime accessible to overseas holding companies and businesses of all sizes.

Eligibility criteria include:

• The company must be of a type that aligns with four specified types under the Hong Kong Companies Ordinance (e.g., private or public companies limited by shares).
• The laws of the original domicile must allow “outward re-domiciliation.”
• Applications will be processed by the Hong Kong Companies Registry, with an expected turnaround of approximately two weeks.

Currently, there are no plans to permit Hong Kong-incorporated companies to re-domicile out of the jurisdiction.

Although a precise timeline is not yet confirmed, legislative preparations are underway, with the Secretary for Financial Services and the Treasury emphasizing swift implementation efforts.

Background Behind The Hong Kong Company Re-Domiciliation Regime

Currently, Hong Kong offers a re-domiciliation regime for overseas funds, but there isn’t a simple process for foreign companies to re-domicile directly to Hong Kong. The current options require either winding up the company in its original jurisdiction and forming a new entity in Hong Kong or using a court-approved scheme of arrangement to convert it into a wholly-owned subsidiary of a Hong Kong company.

In March 2023, the Financial Services and the Treasury Bureau (FSTB) released a consultation paper proposing a system allowing non-Hong Kong incorporated companies to migrate their place of incorporation to Hong Kong while retaining their legal identities, known as “inward re-domiciliation.” The consultation concluded on 3 July 2024, with widespread support for the proposal and confirmation of the regime’s key features.

This initiative is part of Hong Kong’s ongoing efforts to attract foreign businesses and investment, with hopes that sectors like insurance, which have shown interest in relocating from offshore jurisdictions, will embrace the new regime, fostering job creation and economic growth in Hong Kong.

Also Read: Setting Up an Offshore Company in Hong Kong: A Comprehensive Guide for International Entrepreneurs

Proposed Legal Requirements for Company Re-domiciliation in Hong Kong

To successfully re-domicile to Hong Kong, companies will likely have meet specific legal criteria set out by the Hong Kong government. These include:

• Eligibility: The re-domiciliation regime is open to all types of companies recognised under Hong Kong’s Companies Ordinance. This includes public companies, private companies, and companies limited by guarantee.
• Legal Continuity: Upon re-domiciliation, the company retains its legal identity. This means that all rights, obligations, and liabilities continue uninterrupted, which is crucial for maintaining ongoing business operations.
• Compliance Measures: Companies must comply with specific regulatory checks, including demonstrating good standing, solvency, and protection of members and creditors. The Registrar of Companies administers the application process, ensuring that only compliant entities are approved.

Comparing Hong Kong’s Re-Domiciliation Regime with Other Jurisdictions

When considering re-domiciliation, companies often compare Hong Kong’s regime with those of other jurisdictions, such as Singapore or the Cayman Islands. Hong Kong stands out for several reasons:

• Tax Environment: Hong Kong’s tax system is straightforward and competitive, with no capital gains tax, no VAT, and a low corporate tax rate. This makes it an attractive option compared to other jurisdictions.
• Regulatory Efficiency: Hong Kong is known for its efficient and transparent regulatory framework, which simplifies the re-domiciliation process.
• Strategic Location: Positioned at the heart of Asia, Hong Kong offers unparalleled access to the Chinese market and other major economies in the region.

The following table compares key aspects of the re-domiciliation regimes in Hong Kong, Singapore, and the Cayman Islands:

Competitive Advantages

Hong Kong offers a tax-friendly environment with no capital gains tax, no withholding tax on dividends, and a straightforward profits tax system. This makes it an attractive destination for companies seeking to optimize their tax obligations. Additionally, Hong Kong’s strong legal system, rooted in English common law, provides a stable and predictable environment for businesses.

Moreover, the re-domiciliation process in Hong Kong is designed to be seamless, with companies retaining their legal identity without the need to create a new entity. This contrasts with other jurisdictions where re-domiciliation might require more complex restructuring​ 

Potential Drawbacks

However, there are potential challenges as well. For instance, the requirement to de-register in the original jurisdiction within 60 days may be tight for some companies, particularly those in jurisdictions with complex de-registration procedures. Additionally, while Hong Kong’s regime is competitive, it does not currently offer economic substance tests, which might be a consideration for companies concerned about meeting international tax standards.

Also Read: British Virgin Islands vs Cayman Islands for Hong Kong Companies: Choosing the Best Offshore Jurisdiction

Practical Steps for a Successful Company Re-Domiciliation to Hong Kong

Re-domiciling your company to Hong Kong involves a series of well-defined steps, which, if followed correctly, can ensure a smooth transition.

Step-by-Step Guide

1. Initial Assessment: Evaluate whether your company meets the eligibility criteria for re-domiciliation. This includes ensuring that your company’s structure aligns with the types of companies recognized under Hong Kong law.
2. Application Submission: Prepare and submit the necessary documents to the Registrar of Companies. This includes the company’s incorporation documents, evidence of de-registration from the original jurisdiction, and declarations of solvency and compliance.
3. Approval Process: Once the application is submitted, the Registrar will assess the company’s standing, including its compliance with both local and foreign legal requirements. Companies must demonstrate their ability to continue operating without any legal or financial issues.
4. Finalization: Upon approval, the company will be issued a certificate of re-domiciliation. Within 60 days, the company must provide proof of de-registration from the original jurisdiction to complete the process.

Common Challenges and How to Overcome Them

• De-registration in Original Jurisdiction: Ensure you understand the de-registration process in your original jurisdiction, which may involve lengthy procedures. Consider starting this process early to avoid delays.
• Compliance with Hong Kong Regulations: Work closely with legal and financial advisors to ensure all Hong Kong regulations are met post-re-domiciliation.

Tax Implications of Re-Domiciliation in Hong Kong

Understanding the tax implications is critical for any company considering re-domiciliation. Hong Kong offers a favorable tax environment, but there are specific considerations to be aware of.

• Profits Tax: Companies re-domiciled in Hong Kong are subject to profits tax only on income derived from Hong Kong. There is no tax on foreign-sourced income.
• Transitional Tax Issues: The Hong Kong government has introduced measures to address transitional tax matters, including depreciation of fixed assets and the treatment of trading stock.
• Tax Residency: Re-domiciling to Hong Kong could affect a company’s tax residency status, impacting tax obligations in other jurisdictions. It’s crucial to obtain professional advice to navigate these complexities.

Also Read: Foreigner’s Guide To Setting Up A Company In Hong Kong

Where To Next

Re-domiciling your company to Hong Kong can be a transformative move, offering access to new markets, a favorable tax environment, and a robust regulatory framework. However, the process requires careful planning and expert guidance. 

Contact InCorp Hong Kong today to learn how we can assist you in making a seamless transition to one of the world’s leading financial hubs. Our team of experts is here to support you every step of the way.