Hong Kong to Introduce Company Re-domiciliation Regime

While Hong Kong currently has a re-domiciliation regime enabling overseas funds to re-domicile as open ended fund companies (“OFCs”) or limited partnership funds (“LPFs”), there has been no straightforward way for other overseas companies to re-domicile to Hong Kong. Existing methods involve winding up the original entity and creating a new one in Hong Kong or a court-sanctioned scheme of arrangement.

In March 2023, the Financial Services and the Treasury Bureau (“FSTB”) issued a consultation proposing a new re-domiciliation regime to allow non-Hong Kong incorporated companies to migrate to Hong Kong while retaining their legal identities. The FSTB published consultation conclusions on July 3, 2024, noting there was strong support for the proposal and confirming the regime's key features.

Rationale

The re-domiciliation regime may be of interest to banking and insurance groups with overseas incorporated entities who carry on a business in and are regulated in Hong Kong. Re-domiciliation would enable these overseas entities to simplify regulatory burdens, allowing them to focus on compliance with a single regulatory regime in Hong Kong rather than complying with regulations in both Hong Kong and their place of incorporation. The Hong Kong Government notes particular interest in re-domiciliation from the insurance sector.

Overseas companies outside the banking and insurance sectors operating in or listed in Hong Kong may equally wish to consider re-domiciliation to reduce their legal, tax or compliance burdens and costs. Companies with a business focus in the Asia-Pacific region can align their domicile with the location of their key business activities. Re-domiciliation to Hong Kong may become increasingly attractive as the historical tax incentives for offshore entities continue to be restricted and removed.

Legal Effect

Upon re-domiciliation, a company will retain its legal identity without creating a new entity. Amongst other things, this means that its pre-existing properties, rights, obligations, and liabilities will be unaffected and it will be treated, in general, as a locally incorporated company, required to comply with relevant Hong Kong Companies Ordinance (“Companies Ordinance”) requirements.

Eligibility

To re-domicile to Hong Kong, a company must meet 3 criteria:

Company Type

The company seeking to re-domicile must be the same or substantially similar to one of the four types of company under the Companies Ordinance (i.e. private companies limited by shares, public companies limited by shares, private unlimited companies with a share capital, and public unlimited companies with a share capital). Other types, such as companies limited by guarantee without a share capital would not be able to re-domicile to Hong Kong.

Originating Jurisdiction

The laws of the jurisdiction (“Originating Jurisdiction”) where the company seeking to re-domicile was incorporated must permit outward re-domiciliation. For instance, jurisdictions like the Cayman Islands and the BVI allow this, while Bermuda does so only to “appointed jurisdictions” of which Hong Kong is not currently one or to a jurisdiction approved by the Minister of Finance upon application by the company.

Shareholder Consent

If the existing constitutional documents or the law of the Originating Jurisdiction do not require shareholder consent, the company must obtain such consent by a resolution passed by at least 75 per cent. of the shareholders entitled to vote.

Solvency ∓ Compliance

The company seeking to re-domicile must been incorporated for at least one finan-cial year and must be solvent. A re-domiciliation should not be used for unlawful purposes or against the public interest.

Legal ∓ Regulatory Implications

The Banking Ordinance and Insurance Ordinance currently treat Hong Kong incorporated insurers and banks differently from non-Hong Kong incorporated ones. As result, both ordinances will be amended to regulate and supervise re-domiciled institutions as locally incorporated entities. Authorized insurers and banks re-domiciling to Hong Kong will be required to consult with the Insurance Authority and the Hong Kong Monetary Authority prior to re-domiciliation to ensure a smooth regulatory transition.

Re-domiciled companies must comply with the Companies Ordinance and other relevant legislative requirements applicable to Hong Kong incorporated companies.

The re-domiciliation will not create a new legal entity and won't affect existing contracts, but companies must ensure compliance with any contractual obligations triggered by the move to Hong Kong. In addition, companies listed on stock exchanges will need to assess the impact on their listing status.

HKMA Investigation Procedures

Where an HKMA investigator exercises its powers to investigate, whether as part of a routine inspection or a formal investigation, he or she must produce a copy of his appointment (i.e. his or her authority to investigate). Typically, the investigator will do so in conjunction with a notice setting out the alleged breach being investigated.

Tax Implications

Whilst specific tax advice will be necessary in each case, the FSTB has clarified that:

• Re-domiciliation won't alter a company's tax obligations in its Originating Jurisdiction or Hong Kong.

• Amendments will be made to the Inland Revenue Ordinance to address transitional tax matters.

• Tax credits will be provided to avoid double taxation on profits derived in Hong Kong after re-domiciliation if similar profits were taxed in an unreal-ised form by the Originating Jurisdiction.

• No stamp duty will apply to the re-domiciliation process itself.

Process

Applicants for re-domiciliation will be required to submit an application form, fee, and supporting documents to the Companies Registry. Supporting documents include a legal opinion from the Originating Jurisdiction and recent financial statements, which can be unaudited unless the company prepares audited statements pursuant to other requirements. A company will become re-domiciled upon being issued a certificate of re-domiciliation by the Companies Registry and must then provide evidence of de-registration from its original jurisdiction within 120 days.

Companies should co-ordinate the re-domiciliation process between Hong Kong and the Originating Jurisdiction to minimize any periods where they would be subject dual regulation periods, noting that the FSTB expects the Companies Registry to approve applications within two weeks.

The FSTB is preparing a bill to amend the Companies Ordinance to establish the new regime and is aiming to table it as soon as possible.

Conclusion

The new regime will offer a streamlined process for overseas companies to re-domicile, which should help Hong Kong maintain its status as a global business and financial hub and enable it to keep pace with jurisdictions that have already adopted similar re-domiciliation regimes.