PROPOSED COMPANY RE-DOMICILIATION REGIME IN HONG KONG

January 2025

Riding on the success of the Open-Ended Fund Company and Limited Partnership Fund re-domiciliation regime since November 2021 and in keeping with international trends, the Hong Kong Government is set to introduce a company re-domiciliation regime which allows foreign companies to re-domicile in Hong Kong with their continuing legal identities intact.

Status Quo

Hong Kong currently has no company re-domiciliation regime. In order to re-incorporate in Hong Kong, a foreign company must first set up a new and legally distinct Hong Kong company. It then has to either wind up the original company, which involves significant legal costs and disrupts operations, or undergo a court-sanctioned scheme of arrangement to turn it into a subsidiary, which involves complex procedures and may not fully allow exit from the original jurisdiction, leaving the company subject to regulations in both jurisdictions.

Proposed Regime

The proposed re-domiciliation regime is therefore much welcomed for it offers a much simpler and more efficient solution that enables a foreign company to change its place of incorporation while maintaining its legal identity without the need to create a new entity. Notably, the proposed regime allows inward re-domiciliation only, not outward re-domiciliation for Hong Kong companies. Additionally, the regime will be broadly applicable, with no specific conditions such as asset thresholds, annual revenue, employee counts, or economic substance tests.

Major eligibility criteria include:-

(1) Type of Company: The foreign company must be the same or substantially similar to (1) private companies limited by shares; (2) public companies limited by shares; (3) private unlimited companies with a share capital; or (4) public unlimited companies with a share capital under the Companies Ordinance (Cap. 622);

(2) Law of Original Domicile: The originating jurisdiction must permit outward re-domiciliation, and the company must have been incorporated for at least 1 financial year before submission of application;

(3) Member and Creditor Protection: consent from members is required and that the application is made in good faith not to defraud existing creditors;

(4) Solvency: The company must be able to pay its debt within 12 months from the application date and not in liquidation.

Once re-domiciled, the company will have the same rights and obligations as other Hong Kong companies and must comply with the Companies Ordinance. Legal identity of the original company is preserved as no new legal entity is created throughout the process, thus preserving all property, rights, obligations, liabilities, and relevant contracts of same company. Re-domiciliation does not change tax obligations in the original jurisdiction, and no Hong Kong stamp duty is incurred since it is not considered an asset transfer. The company will be treated as "incorporated in the HKSAR" for Hong Kong tax purposes.

The Companies (Amendment) No. 2 Bill 2024 (the Amendment Bill) was gazette on 20 December 2024 whereas the first reading and commencement of second reading debate took place on 8 January 2025, with resumption of second reading debate, committee stage and third reading on the pipeline. It is hoped that the implementation of the regime will strengthen Hong Kong’s position as a global business and financial hub and open a new door of opportunity.