Re-domiciling Foreign Companies to Hong Kong
The Hong Kong SAR Government is preparing a new re-domiciliation scheme for foreign companies, which will allow companies based overseas to change their place of incorporation to Hong Kong without facing economic substance requirements or incurring any changes in legal status or tax obligations. Hong Kong’s current re-domiciliation process involves a complex and cost-intensive process requiring court filings and liquidation arrangements.
The streamlined procedures proposed under the new scheme will enable more foreign companies to re-domicile in Hong Kong, including control companies and entities without existing business operations in the region. Re-domiciled companies would most likely gain Hong Kong tax residency and benefit from Hong Kong’s international tax treaties, including its double taxation agreements, without bearing any new tax burden for income sourced outside the jurisdiction. The initial proposal was brought before the Legislative Council on July 3, 2023, and the new regime is expected to take effect next year.
The re-domiciliation scheme provides greater incentive for companies to move to Hong Kong without cost and compliance burdens. In an official blog post, the Secretary of Financial Services and the Treasury describes the proposed scheme “a high speed motorway to facilitate companies making up their mind to move to Hong Kong” and states that the overarching purpose of the new regime is to “ensure that the [re-domiciliation] process would not affect property, rights, obligations and liabilities, as well as relevant contractual and legal processes” for any foreign company.
Key Benefits of the Scheme
The new regime allows any company to change its place of incorporation to Hong Kong under the Companies Ordinance. No Economic Substance Test will be administered, and the re-domiciled company would retain all its existing characteristics by default, aside from changing its place of incorporation to Hong Kong. The Hong Kong Inland Revenue department does not levy profits tax on income sourced outside the jurisdiction.
Companies re-domiciling under the new scheme are entitled to the same protections, benefits and obligations as any other company in Hong Kong. There are five categories of eligible companies:
- Private Companies Limited By Shares
- Public Companies Limited By Shares
- Companies limited by Guarantee without Share Capital
- Private unlimited Companies with Share Capital
- Public unlimited Companies with Share Capital
Companies interested in changing their place of incorporation to Hong Kong must file an application with Companies Registrar, and de-register from previous jurisdiction upon approval. Applications will be processed and reviewed by the Companies Registrar and the decision to approve will be based on various factors, including the applicant’s record of compliance with tax and legal obligations in the previous place of incorporation, its solvency, integrity, nature of business, and protections provided for shareholders and investors.
The company re-domiciliation scheme fits within a broader campaign of initiatives to accelerate the growth and expansion of Hong Kong’s business sector, including start-up funding programs, sector-specific support, tax incentives and market reforms. The government is currently seeking feedback and input from key stakeholders and an amendment bill for the new regime is expected to be submitted to legislative council in 2024.
While the overall direction is clear, there remain numerous details to be confirmed, and the enactment of the new regime will require extensive amendments to the Inland Revenue Ordinance. The process of determining eligibility for tax benefits and exemptions for newly re-domiciled companies is yet to be clarified. The Financial Services and Treasury Bureau blog states that the authorities will “clearly stipulate the transition of tax obligations for incoming companies in the original place of incorporation and in Hong Kong, so as to provide certainty to companies on prospective tax-related changes.”
We greatly look forward to the enactment of the new re-domiciliation regime for overseas entities moving to Hong Kong. Having helped many companies and investors establish strong foundations and flourish in Hong Kong, we are excited to see the new possibilities that a streamlined regime would unlock, by allowing more people than ever before to embrace Hong Kong’s pathways to prosperity.
Should you have any interest in relocating a company to Hong Kong in the near future, please reach out to us at any of our offices and we would be delighted to schedule a free initial consultation.