In brief

Following a similar re-domiciliation mechanism for funds in 2021, Hong Kong will be introducing its inward re-domiciliation regime, which will allow companies incorporated outside of Hong Kong to change their place of incorporation to Hong Kong. Unlike the similar regime in Singapore, no economic substance test will be expected in the legislative updates in early 2024. Legislative changes will also be made to provide appropriate safeguards to allow re-domiciliation to be carried out in a tax-neutral manner, thereby providing a greater degree of certainty to re-domiciled companies on their tax liabilities in Hong Kong.

What you need to know

• Expect legislative amendments for inward re-domiciliation in early 2024, i.e., a regime for foreign companies to re-domicile to Hong Kong but not vice versa. Edge over Singapore: no economic substance test in the Hong Kong regime.
• The proposed regime streamlines the re-domiciliation process for businesses with an APAC focus without court intervention, winding-up or re-incorporation processes.
• The proposed regime will cover five categories of companies that could be formed in Hong Kong under the Companies Ordinance or their comparable types in the company’s original place of incorporation.
• The re-domiciled company will retain maximum business continuity — as the same legal identity, having the same rights, obligations, liabilities, other property rights (e.g., IP rights, existing contractual relationships) and corporate history.
• The Registrar of Companies will administer the proposed regime and approve company re-domiciliation applications based on factors such as company type, fulfilment of compliance requirements in the original place of incorporation, integrity, member and creditor protection, solvency, etc.
• Following successful re-domiciliation and de-registration from its original place of incorporation, the re-domiciled company should observe statutory requirements of its kind as incorporated in Hong Kong and, if required, obtain licenses to conduct relevant business in Hong Kong.

The re-domiciliation should not affect the Hong Kong profits tax liabilities of a re-domiciled company. A company (regardless of its domicile) that carries on a business, trade or profession in Hong Kong is liable to pay Hong Kong profits tax on profits arising in or derived from Hong Kong from such business, trade or profession. The re-domiciliation process should not result in any change in the beneficial ownership of the assets of the re-domiciled company. For this reason, the re-domiciliation process should also not trigger any stamp duty implications. Legislative changes are expected to clarify these issues, as well as to address transitional tax issues relating to matters that have occurred before the re-domiciliation but that can affect the position post re-domiciliation, including deductions for trading stock, bad debts, impairment losses on financial assets, and depreciation.

The Financial Services and Treasury Bureau expects to make necessary consequential amendments to the Inland Revenue Ordinance to provide greater certainty and guidance to re-domiciled companies. Other transitional tax matters such as fair deduction for trading stock, bad debts, impairment losses on financial assets, depreciation etc., will also be addressed in due course.