Introduction of an Inward Company Re-domiciliation Regime in Hong Kong

In 2023, with the aim to consolidate Hong Kong’s position as an international financial and business hub, the Financial Services and the Treasury Bureau (the “FSTB”) consulted the public on its proposal to introduce a company re-domiciliation regime in Hong Kong[1] (the “Re-domiciliation Regime”). One year after the public consultation, the FSTB has recently released the Consultation Conclusion and Legislative Proposals (the “Legislative Proposals”)[2] setting out the framework and details of the Re-domiciliation Regime, with the Secretary for the FSTB noting that there will be “all-out efforts for early implementation”.

Current Regulatory Environment for Re-domiciliation of Businesses

Re-domiciliation, in fact, is not a wholly foreign concept to the Hong Kong market. In 2021, the Hong Kong Government launched re-domiciliation mechanisms for foreign funds to be re-domiciled and registered in Hong Kong as open-ended fund companies and limited partnership funds via submitting an application to the relevant regulators.  

Despite the growing market interest and demand for corporate re-domiciliation, foreign companies currently still have to go through complicated processes to re-domicile its business in Hong Kong. One option is to wind up the foreign corporation in its original domicile and establish a new entity in Hong Kong, whereas the other approach is to convert the foreign corporation into a wholly-owned subsidiary of a Hong Kong-incorporated company by entering into a court-sanctioned scheme of arrangement. Such approaches entail significant legal and time cost, extensive and complicated procedures and sometimes, disruption in the company’s operation.
 

Benefits of the Re-domiciliation Regime

With this streamlined Re-domiciliation Regime, foreign companies can migrate their businesses efficiently while maintaining their legal identity. As expressly explained in the Legislative Proposals, the companies’ property, rights, obligations, liabilities and relevant contractual and legal processes will not be affected by the re-domiciliation process. Specifically, for non-Hong Kong companies which are already registered under Part 16 of the Companies Ordinance (the “CO”), the Re-domiciliation Regime will allow retention of their company name and business registration number after re-domiciliation.
 

Scope and Coverage

The Re-domiciliation Regime is an inward regime and does not include outward re-domiciliation of Hong Kong-incorporated companies to other jurisdictions. Under the Re-domiciliation Regime, only companies being of a company type that is the same or substantially the same as the four specified types of companies under the CO (the “Permissible Types of Companies”), namely, (a) private companies limited by shares, (b) public companies limited by shares, (c) private unlimited companies with a share capital, and (d) public unlimited companies with a share capital are allowed to transfer their domicile to Hong Kong.

As the re-domiciled companies will preserve their legal identities, they will not be allowed to change company types in the re-domiciliation application. Upon completion of re-domiciliation, they will be governed by the CO and will observe the same requirements and obligations, and enjoy the same rights as other Hong Kong-incorporated companies under the CO.
 

Eligibility Criteria and Required Proof

With an aim to safeguard the integrity of the Hong Kong business environment, the Legislative Proposals set out the requirements and conditions to be fulfilled by foreign companies applying for re-domiciliation to Hong Kong. The table below summarises the eligibility criteria as well as the application documents required for the re-domiciliation application:
 

Application Process

A re-domiciliation application has to be submitted to the HKCR. The HKCR will generally process and approve the application within 2 weeks upon receipt of all required documents.

A certificate of re-domiciliation will be issued by the HKCR if the application is successful, upon which the company will become a re-domiciled company in Hong Kong. Subsequently, such company will have to deregister from its original domicile and provide evidence of the same to the HKCR within 120 days. Where necessary, time extension for deregistration will also be allowed.
 

Tax Arrangement

The company’s tax obligations in its original domicile or its profits tax position in Hong Kong will not be affected by the re-domiciliation process, given the general rule for tax residency mandates all companies, regardless of its domicile or residency, to be charged with profits tax under the Inland Revenue Ordinance (the “IRO”) on profits arising in or derived from a business carried on in Hong Kong.
 

Consequential Legislative Amendments

The following existing legislation and relevant subsidiary legislation will be amended in light of the Re-domiciliation Regime:

• The CO: To expand the scope of application from locally-incorporated companies to also covering re-domiciled companies.
• The Business Registration Ordinance: To allow non-Hong Kong companies registered under Part 16 of the CO to retain their company name in use and business registration number after re-domiciliation.
• The IRO: To address transitional tax matters for re-domiciled companies such as fair deduction for trading stock, specified types of expenditures, depreciation allowances, etc.
• The Insurance Ordinance and the Banking Ordinance: To ensure insurers and authorised institutions which re-domicile to Hong Kong and complete their deregistration from their original domicile will be regulated and supervised by the Hong Kong regulators as if they were locally-incorporated insurers and authorised institutions.  
• The Safeguarding National Security Ordinance: To expand the Chief Executive in Council’s power to strike off re-domiciled companies from the Companies Register in the case they are believed to endanger national security in Hong Kong.
   

Going forward

For companies considering re-domiciling their businesses to Hong Kong, the initial consideration should be whether their original domicile permits outward re-domiciliation. The below summarises the legal positions on outward re-domiciliation for certain foreign jurisdictions:  

• Bermuda: Allowed for “appointed jurisdictions” or any foreign jurisdiction approved by the Minister of Finance upon application by a company. Hong Kong is currently not listed as an “appointed jurisdiction”.
• Cayman Islands, British Virgin Islands, Isle of Man: Allowed.
• The United Kingdom: Not allowed. Public consultations have previously been published on the possibility of an outward and inward re-domiciliation regime.
• The United States of America: Allowed in certain states such as Delaware.

An amendment bill to amend the CO for the Re-domiciliation Regime is currently being prepared by the FSTB and we will continue to monitor the development of the Re-domiciliation Regime in Hong Kong. We look forward to the Re-domiciliation Regime simplifying the route for non-Hong Kong companies to transfer their domicile, bringing Hong Kong in par with jurisdictions which have already adopted a similar re-domiciliation mechanism, and enhancing the competitiveness of Hong Kong through attracting foreign enterprises and investment.
 

If you have any questions or require legal services and/or advice in relation to any information set out in this newsletter, please get in touch with Joyce Chan or your usual Clyde & Co contact.
 

[1] Financial Services and the Treasury Bureau. (March 2023). Public Consultation on Proposed Company Re-domiciliation Regime in Hong Kong. Retrieved from https://www.fstb.gov.hk/fsb/en/publication/consult/doc/Public%20consultation%20paper%20(e)_for%20issue.pdf

[2] Financial Services and the Treasury Bureau. (3 July 2024). Proposed Company Re-domiciliation in Hong Kong – Consultation Conclusion and Legislative Proposals. Retrieved from https://www.fstb.gov.hk/fsb/en/publication/consult/doc/ConsultationConclusionOnCompanyRe-domiciliationRegime_e.pdf