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The Hong Kong government is expected to introduce a new redomiciliation regime for foreign companies in Hong Kong in early 2024. Following similar legislation which was implemented in Hong Kong in 2021 for open ended funds companies (OFC), Hong Kong is set to extend its redomiciliation regime for general companies, which certainly increases Hong Kong’s incorporation attraction.
Author: Stefan Schmierer, Managing Partner
Redomiciliation: moving your company from one jurisdiction to another
The concept of “redomiciliation” entails the move of changing the incorporation place of a legal entity from one jurisdiction to another, comparable to moving houses from one place to another, for a natural person.
In the past, the process entailed winding down the business in one jurisdiction (the original jurisdiction), while setting up a new business in another place (the new jurisdiction). However, this was a quite complex exercise, since it would mean that the existing legal entity would need to be closed down and a new entity would need to be set up from scratch.
From a legal point of view, the old entity would need to terminate all its existing contracts (contracts with business partners, employment contracts, etc.), and would need to transfer all its assets (cash, Intellectual property, subsidiary companies and other investments, and any other assets) to the newly set up entity. From a business point of view, it would mean that the continuance of the existing business would need to be broken and an entirely new business would need to be started in the new jurisdiction with the new business.
To avoid these obstacles and to guarantee business continuity, jurisdictions introduced the regime of redomiciliation in the last one or two decades, by which the place of incorporation of an entity can be changed to another jurisdiction, without the need to wind down and open up a new business, meaning the existing legal entity remains unchanged except for its place of incorporation. All contracts can remain unchanged, the company can continue holding its assets and doing business as normal.
Redomiciliation to find more favorable investment conditions
The main reason why shareholders and investors may want to redomicile and change the place of incorporation, is that other jurisdictions may offer more favorable investment conditions. For instance, it was quite common to incorporate entities in offshore jurisdictions such as the BVI (British Virgin Islands), Cayman Islands, Seychelles, etc. for various reasons. As recent as 2019, these offshore jurisdictions introduced an economic substance requirement for their incorporated companies to avoid international tax evasion, leading to higher costs of doing business in these places. Thus, investors could consider switching the place of incorporation away from an offshore jurisdiction to Hong Kong, if Hong Kong offers a more attractive business environment.
Apply with The Registrar of Companies to redomicile to Hong Kong
The new Hong Kong redomiciliation regime will apply to all types of companies that can be found under Hong Kong laws, i.e. companies limited by shares and by guarantee, as well as private and public unlimited companies with a share capital, as long as the entity existed in its original jurisdiction for at least one year at the date of application for redomiciliation.
Further, the applying company needs to agree to the redomiciliation via a decision of its majority of shareholders, and the application needs to be made in good faith and not be intended to defraud existing creditors of the applying company. The applying company further needs to be solvent and be able to pay its debts for the next 12 months after the date of application.
These details will all have to submitted to The Registrar of Companies in Hong Kong, who will process the application.
Lastly, the applying company needs to deregister from its existing place of incorporation within 60 days. This might be the biggest hurdle, since it will depend on the original jurisdiction, how fast their local authorities will grant a deregistration based on redomiciliation to Hong Kong. It is also noteworthy that not all jurisdictions currently allow company redomiciliation in their local laws. Knowing this, it is important for an applicant to not only check whether their company is able to move to Hong Kong, but also to check whether the original jurisdiction is able and willing to let the company go.
It bears mentioning that the redomiciliation will not trigger stamp duty in Hong Kong, since the exercise does not include the sale and purchase of shares.
Adjustments likely needed to comply as a Hong Kong company regarding tax, AoA etc.
Once the redomiciliation to Hong Kong is completed, the entity is in all aspects a local Hong Kong entity and needs to comply with local Hong Kong laws. This might trigger amendments to its Articles of Association, change the tax reporting or existing contracts, due to different legal environments between the two jurisdictions.
Increasing Hong Kong’s attraction through a straightforward process
With the new redomiciliation regime, Hong Kong is trying to make itself more interesting for international investors that want to shift or open business in Hong Kong. The process of redomiciliation is rather simple and straight forward and applies to companies of all sizes. This is different to the redomiciliation regime in Singapore, which requires applying companies to undergo an economic substance test, which means that only companies of a certain size of assets are allowed to move to Singapore. Hong Kong in contrast will welcome all sizes of business.
How our Company Secretarial services can help
The process of redomiciliation to Hong Kong, although relatively straightforward from an inbound point of view, can come with its challenges. Engaging the services of an experienced law firm with company secretarial services will help guide companies in leaving their outbound jurisdiction as well as in adjusting their company processes to suit the Hong Kong environment.
With the new extended regime following similar logic as the original one for OFC’s, our team is well positioned to apply our skills under the new regime and handle its intricacies. As a partner who values understanding your business objectives, we always strike a balance between extensive attention to details and compliance, and getting the job done in the timeframe and budget most beneficial to you.
The business environment in Hong Kong provides many benefits to companies and its employees. Under the new redomiciliation regime and the tightened requirements abroad, it is now more attractive than ever to make the call to redomicile. We are standing by to answer it.
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
For specific advice about your situation, please contact:
Managing Partner
+852 2388 3899