The Hong Kong Government announced that it proposed an “inward re-domiciliation” regime for companies incorporated outside Hong Kong to re-domicile in Hong Kong, following a similar re-domiciliation move for funds in 2021. It is hoped that the “inward re-domiciliation” regime will strengthen Hong Kong’s attractiveness as a global business and financial hub by increasing the city’s attractiveness to overseas enterprises and investments.
On re-domiciliation, the company’s legal entity, contracts, properties, rights and obligations will be preserved. Moreover, re-domiciled companies will have the same rights and be subject to the same obligations under Hong Kong Company Ordinance as other Hong Kong incorporated companies.
“Outward re-domiciliation” regime for Hong Kong incorporated companies to re-domicile outside Hong Kong to another jurisdiction is not introduced at this stage.
Company Type
Four types of companies may re-domicile to Hong Kong. The company in its original place of incorporation must be the same or substantially the same form to one of the following:
- Private company limited by shares;
- Public company limited by shares;
- Private unlimited company with a share capital; and
- Public unlimited company with a share capital.
* The company will not be allowed to change its company type through re-domiciliation.
Eligibility
Company applying for re-domiciliation will not be subject to economic substance test, meaning that a wide range of companies including the very small size or holding companies can re-domicile to Hong Kong. However, the applicant should observe the following requirements, for example:
- the laws of the company’s place of incorporation permit re-domiciliation, and the company has complied with all the obligations of such place of incorporation such as shareholders’ approval, creditors’ notification and/or authorization from industry regulators;
- the company must have been incorporated for at least one financial year;
- the application for re-domiciliation must be made in good faith and not intended to defraud its creditors;
- the company needs to be solvent which is able to pay its debts as they fall due within 12 months after the application date, and not in liquidation;
- the company is to provide its financial statements as of a date of no more than 12 months prior to the application date (only requires to be audited if auditing is required in its original domicile);
- the re-domiciled company will not be used for unlawful purposes, or engage in activities that are against public interests;
- if neither the law of the original jurisdiction nor the applicant’s constitutional documents require member’s consent, an applicant should obtain such consent by a resolution duly passed by at least 75% of eligible members;
- legal opinion of a legal practitioner qualified in the place of incorporation confirming that the proposed re-domiciliation is allowed under the law of the original domicile. The legal opinion should also state the applicant’s due registration in the original domicile, company type, members’ consent and solvency.
Effects of Re-domiciliation
A re-domiciled company in Hong Kong will be granted the same rights as any locally incorporated company of the same kind and shall comply with all the relevant requirements of the Companies Ordinance. It will preserve its legal existence, properties, rights, obligations and liabilities. Contracts and legal proceedings existing prior to re-domiciliation will remain unaffected as this does not create a new entity.
On the issuance of the Certificate of Re-domiciliation, the re-domiciled company shall provide within 120 days evidence of its deregistration from its original domicile to the Companies Registry in Hong Kong.
Tax Arrangements
The tax obligations of the company in its original place of domicile will not be affected by the re-domiciliation process. The liability to Hong Kong’s profit tax of the re-domiciled company will remain unchanged, because irrespective of the place of incorporation or tax residency, profits tax is charged on profits arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong.
To eliminate double taxation, it is proposed to provide re-domiciled company with unilateral tax credits for tax payable on actual tax derived in Hong Kong after re-domiciliation, if similar profits have been taxed in an unrealized form in the original jurisdiction at the time of its exit.
Amendments will be made to the Hong Kong Inland Revenue Ordinance to address transitional tax matters which will include fair deduction for trading stock, specified types of expenditure and depreciation.
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.
Next Step
The HKSAR government is developing the legislative instrument for the proposed company re-domiciliation regime and plans to submit it to the Hong Kong Legislative Council in the near future. Certain industries such as insurance companies and financial institutions have indicated an interest in re-domiciling in Hong Kong in accessing to the vibrant Hong Kong economy. Amendments will also be proposed to the relevant legislations to ensure that the insurance companies and financial institutions which re-domicile to Hong Kong will be regulated and supervised as if they were locally incorporated.