The Hong Kong government plans to implement a new company re-domiciliation regime in 2024, following a similar re-domiciliation mechanism for funds in 2021. This regime will allow foreign companies of different types and scales to change their place of incorporation to Hong Kong, providing a streamlined process for businesses.
Currently, Hong Kong does not allow re-domiciliation, which is permitted in countries such as Canada, New Zealand, and Singapore. If a foreign enterprise wants to move its identity and business to Hong Kong, a new company must be set up. This is a complicated and costly process that may result in additional taxes, as well as disruption to a company's operations.
Proposed company re-domiciliation regime
The proposed regime would cover all five types of companies that could be formed in Hong Kong under the Companies Ordinance, or their comparable types in the company’s original place of incorporation.
Upon completion of the re-domiciliation, the re-domiciled company would retain its legal identity (i.e., no new legal entity is created), and the company’s property, rights, obligations, and liabilities would not be affected.
The re-domiciled company would have the same rights and obligations as any other companies of its kind incorporated in Hong Kong.
No economic substance test for foreign companies to be eligible for the re-domiciliation mechanism is proposed.
The proposed regime (including processing and approval of applications) would be administered by the Registrar of Companies. The new regime imposes no economic substance test of thresholds of asset, revenue, or employee numbers on the applicant.
To determine whether companies re-domiciling to Hong Kong are of good standing, the following factors would be considered:
Compliance with the legal requirements on transfer of incorporation in the original place of incorporation
Integrity: the applicant will not be used for an unlawful purpose, contrary to public interest of endangering national security.
Member and creditor protection: the re-domiciliation application is made in good faith and not intended to defraud existing creditors.
Solvency: the applicant can pay its debts as they fall due in the 12 months after the application date; and is not in liquidation or being wound up and no proceeding for liquidation or winding up against the applicant is ongoing or pending.
Upon successful application, the company would be registered in the Companies Register and issued a certificate of re-domiciliation. The re-domiciled company would then be required to notify the Registrar of Companies and provide evidence of de-registration in its original place of incorporation within 60 days to complete the process.
The re-domiciled company will have the same rights and obligations as other Hong Kong incorporated companies of its type and will need to comply with the relevant Companies Ordinance provisions. Its corporation information will be available for public inspection.
If the company needs to be licensed to conduct certain businesses in Hong Kong, it will need to apply for the relevant licence(s) separately.
Applicant companies registered with the Companies Registry of Hong Kong as non-Hong Kong companies will no longer be registered as such when they are granted their certificate of re-domiciliation.
A foreign company must provide the Registrar of Companies evidence of its de-registration in its original place of incorporation within 60 days of its re-domiciliation to Hong Kong. Failure to do so will result in the revocation of the application and the termination of the re-domiciliation.
The deregistration process in the original jurisdiction may be beyond the applicants' control and may take more than 60 days. Analysts expect that the new regime will, instead of terminating the re-domiciliation right after the
required de-registration period, provide flexibility for the Registrar of Companies to extend the de-registration period if necessary.
The proposed regime would not affect the re-domiciled company's chargeability to Hong Kong profits tax because a person would be chargeable to tax for its onshore sourced income derived from a business in Hong Kong regardless of its domicile or place of incorporation. On the other hand, the re-domiciliation also should not affect the companies’ tax obligation to the originating jurisdiction.
The consultation paper states that the government will introduce consequential amendments to the Inland Revenue Ordinance to provide certainty to the re-domiciled companies on their tax obligations and deal with certain transitional tax matters, such as tax deduction for trading stock, bad debts, impairment losses on financial assets, and depreciation of fixed assets.
According to the definitions of resident in most of the tax treaties concluded by Hong Kong, a company incorporated in Hong Kong would be regarded as a Hong Kong tax resident. Therefore, it appears that the re-domiciliation regime may allow the re-domiciled companies being regarded as Hong Kong tax residents for tax treaty purpose.
Many enterprises with business operations in Hong Kong, hoping to leverage on Hong Kong's geographic and economic advantage to expand their business, have expressed interest in the past to re-domicile to Hong Kong.
As a response to such demands, a company re-domiciliation regime with a straight-forward application process is a welcome initiative. This action will promote Hong Kong as a preferred base for multinationals.
Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.
Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.
Can Woodburn help you?
We are offering a free 30mins call where we discuss the obstacles you are encountering on your China business journey and how we can help accelerate your success.