On December 20, 2024, the Hong Kong government gazetted the Companies (Amendment) (No.2) Bill 2024, designed to introduce Hong Kong’s long-anticipated inward re-domiciliation regime. This Bill was introduced to the Legislative Council on January 8, 2025, and once it becomes law, it will enable companies incorporated outside of Hong Kong to relocate their domicile to Hong Kong without altering their legal identities or business operations.
Scope of the Re-domiciliation Regime
The new re-domiciliation regime focuses solely on inward re-domiciliation, offering a pathway for non-Hong Kong incorporated companies to relocate to Hong Kong. The types of companies eligible under this regime correspond to those outlined in the Companies Ordinance (CO). Eligible entities include 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. However, companies limited by guarantee without any share capital and other types not specified in the CO are excluded from this scope.
This regime is particularly advantageous for companies looking to benefit from Hong Kong’s robust regulatory framework, financial infrastructure, and strategic position within Greater China. By allowing companies to maintain their legal identities and business operations, the regime provides a seamless transition for businesses seeking to relocate. The stability and strategic advantages conferred by Hong Kong’s position will undoubtedly attract businesses from various sectors, adding to the city’s dynamic business landscape.
Eligibility Criteria for Re-domiciliation
When compared to jurisdictions such as Singapore, Hong Kong’s proposed re-domiciliation regime is notably more flexible. It does not require an economic substance test based on assets, revenue, or number of employees. Additionally, it is not restricted solely to companies limited by shares. To re-domicile a company to Hong Kong, the applicant must adhere to certain key requirements and provide supporting documents and information.
Firstly, the company must comply with the laws of its jurisdiction of incorporation. The originating jurisdiction must permit outward re-domiciliation, and the applicant must follow relevant legal requirements. The company type in the original domicile must align substantially with a recognized company type under the CO. Secondly, the company must have been incorporated for at least one financial year before the application date. Thirdly, there must be no intent to utilize the re-domiciled company for unlawful purposes, activities against the public interest, or actions that would threaten national security in Hong Kong. These criteria ensure that only genuine businesses with a track record of lawful operations can benefit from the regime, enhancing its credibility.
Solvency and Protection of Creditors
The applicant must be solvent and able to pay its debts within 12 months from the application date. The company should not be in liquidation or undergoing winding-up proceedings. This requirement ensures that only financially stable companies can re-domicile to Hong Kong, protecting the interests of creditors and other stakeholders. Furthermore, demonstrating solvency safeguards the local financial ecosystem, preventing the influx of financially distressed companies that might strain the Hong Kong market.
Additionally, the re-domiciliation application must be made in good faith without intent to defraud existing creditors. Shareholders must consent as required by the original domicile law or by the company’s constitutional documents, or through a resolution approved by at least 75% of eligible shareholders. This ensures that the re-domiciliation process is transparent and fair to all parties involved. Companies cannot misuse the re-domiciliation to bypass obligations to creditors or to undertake dubious activities, maintaining the integrity of Hong Kong’s corporate ecosystem.
Application Process and Approval
The Registrar of Companies (the “Registrar”) will oversee and approve the re-domiciliation applications. The government suggests that approvals will typically be granted within two weeks after receiving all the required documentation. Once approved, the applicant will be registered in the Companies Register, and this information will be made available for public inspection. The Registrar will issue a certificate of re-domiciliation, marking the effective date of re-domiciliation. This quick and transparent approval process reflects Hong Kong’s efficient regulatory environment.
Following approval, the re-domiciled company must prove deregistration from its original domicile within 120 days of re-domiciliation. Failure to comply within this period may lead to the revocation of the company’s registration in Hong Kong. This step ensures that the company fully transitions to Hong Kong’s jurisdiction and complies with all regulatory requirements. The requirement to deregister safeguards against companies holding dual legal statuses, which could lead to jurisdictional conflicts and regulatory challenges.
Legal and Tax Implications of Re-domiciliation
A re-domiciled company will be treated as if it was incorporated in Hong Kong from the re-domiciliation date, inheriting the same rights and duties of any similar Hong Kong company. The process does not create a new legal entity; the original corporate identity is retained, and all property, rights, obligations, and liabilities are preserved. Any ongoing legal processes will continue uninterrupted, ensuring business continuity. This retention of legal identity makes the move to Hong Kong straightforward without disrupting ongoing operations.
Regarding tax implications, re-domiciliation does not alter the general principle that Hong Kong profits tax is levied only on profits arising from a business conducted in Hong Kong. Amendments to the Inland Revenue Ordinance will categorize a re-domiciled company as a Hong Kong incorporated for tax purposes, but the company will only incur Hong Kong tax liabilities if it starts business operations in Hong Kong. This provides clarity and stability in the tax landscape for incoming businesses. Additionally, the new rules will help clarify allowable deductions for trading stock, certain expenditures, and asset depreciation acquired before re-domiciliation.
Specific Provisions for Insurance Companies and Authorized Institutions
The re-domiciliation regime is particularly advantageous for insurance companies and authorized banking institutions initially incorporated outside of Hong Kong for regulatory considerations. Under this regime, the Insurance Ordinance and Banking Ordinance will ensure that once these entities deregister from their original domicile, they are treated and regulated as if they were incorporated in Hong Kong. This alignment with local regulations ensures seamless integration into the financial system.
Insurers and AIs aiming to re-domicile need to seek non-objection from the Insurance Authority or approval from the Hong Kong Monetary Authority (HKMA) before application. The Bill includes amendments to relevant financial legislation, including the Securities and Futures Ordinance, Payment Systems and Stored Value Facilities Ordinance, Anti-Money Laundering and Counter-Terrorist Financing Ordinance, and Financial Institutions (Resolution) Ordinance. This comprehensive legal overhaul guarantees that these entities will be compliant with Hong Kong’s stringent financial regulations, thereby enhancing investor confidence and maintaining market standards.
Concluding Remarks
On December 20, 2024, the Hong Kong government unveiled the Companies (Amendment) (No.2) Bill 2024, aiming to establish the city’s inward re-domiciliation regime. This much-anticipated bill was presented to the Legislative Council on January 8, 2025. Once enacted, the law will grant companies that were initially incorporated outside of Hong Kong the ability to move their domicile to Hong Kong. This transition can be accomplished without any changes to their legal identities or business operations, ensuring they remain the same entities despite the relocation.
This new regime is particularly significant for Hong Kong as it enhances the city’s appeal as a global business hub. Companies looking to benefit from Asia’s dynamic economic environment will find it easier to shift their base to Hong Kong. This move intends to attract more international businesses and investments by offering them a seamless process to re-domicile. The flexibility provided by this new law is expected to strengthen Hong Kong’s position in the international market.
The introduction of this bill marks a strategic effort by the Hong Kong government to bolster the city’s status as a global financial and business center. By facilitating the re-domiciliation of foreign companies, Hong Kong aims to diversify its economic landscape. The ease of transferring domicile without the need for extensive restructuring is a critical aspect that might encourage more businesses to consider Hong Kong as a prime location for their headquarters. This legislation is poised to open new avenues for economic growth and international collaboration.
