Hong Kong considers introduction of re-domiciliation regime
Earlier this year, the Hong Kong Government concluded a public consultation on implementing a company re-domiciliation system (the “Regime”). The aim is to attract more foreign businesses to Hong Kong by enabling non-Hong Kong companies to relocate their domicile to Hong Kong while retaining their original rights and obligations, assets, contracts, etc. The bill to approve the new scheme is expected to be presented to the Legislative Council in 2023/2024.
Absence of a re-domiciliation mechanism in Hong Kong
Currently, there is no legal framework for re-domiciling an overseas company in Hong Kong. Consequently, a foreign company looking to change its place of incorporation to Hong Kong must undergo a complex and burdensome process involving the winding-up of the original entity, the establishment of a new one in Hong Kong, and the transfer of all assets, rights, obligations, liabilities, contracts, etc., from the original entity to the newly formed Hong Kong company.
The proposed Regime will allow foreign-domiciled companies to relocate their place of incorporation to Hong Kong while maintaining legal continuity. This will considerably reduce costs and procedural complexities compared to the current system.
The Registrar of Companies (the “Registrar”) will be responsible for approving re-domiciliation applications. The proposed criteria for a company seeking re-domiciliation in Hong Kong are as follows:
- Compliance with local legal requirements regarding re-domiciliation
- Re-domiciliation to Hong Kong under the same or substantially the same type of company as in its original place of incorporation
- Completion of its first financial year
- Compliance with Hong Kong’s legal requirements for company incorporation
- Non-engagement in any unlawful, contrary to public interest, or national security-threatening activities
- Good-faith application without intent to defraud creditors
- If member consent is not required under the laws of its jurisdiction of incorporation, at least 75% of members must consent at a meeting with a minimum notice period of 21 days
- Ability to meet debt obligations within 12 months following the application date
- Absence of ongoing or pending liquidation, winding-up, receivership, compromise, or arrangement proceedings
The proposed Regime does not include a requirement for an economic substance test. Once the application is successful, the applicant company will be registered in the Companies’ Register, and a certificate of re-domiciliation will be issued. The applicant will then have a 60-day period to provide evidence of deregistration in its original place of incorporation to the Registrar. Failure to do so will lead to the termination of the re-domiciliation process.
The introduction of any re-domiciliation scheme in Hong Kong will remove barriers for foreign companies wishing to relocate to the region. Hong Kong’s position as an attractive investment destination will be bolstered by offering an affordable re-incorporation procedure that is on par with other common law jurisdictions.