As published on scmp.com, Friday 31 March, 2023.
Hong Kong will introduce a new regulatory regime that makes it simple and easy for overseas companies to redomicile in the city, according to a consultation paper issued by the government on Friday.
The proposed regime will allow overseas companies to change their place of incorporation to Hong Kong without the need to wind up or get court approval first, which is complicated and expensive, according to Secretary for Financial Services and the Treasury, Christopher Hui Ching-yu.
“Industries have previously [related] to us that some non-Hong Kong incorporated companies, especially enterprises with certain business operations in Hong Kong and those hoping to ride on Hong Kong’s advantages to expand their business, are interested in redomiciling to Hong Kong,” Hui said in his blog.
“Our current proposal to introduce a company redomiciliation regime can meet the market needs by providing a high-speed motorway to facilitate companies making up their minds to move to Hong Kong.”
The new redomiciliation regime is the latest move by the Hong Kong government to promote the city as an international financial centre. Hong Kong removed all Covid-19 restrictions and fully reopened its borders earlier this year, and is now making all efforts to promote businesses after three years of interruptions caused by the coronavirus pandemic.
The consultation paper on “Introducing a Company Redomiciliation Regime” will collect views for two months.
The proposed regime follows the introduction in 2021 of a set of regulations for funds set up overseas to domicile in Hong Kong, in the format of open-ended fund companies or limited partnership funds.
“Building on the positive experience of the fund redomiciliation mechanism, we think now is the right moment for us to go for a company redomiciliation regime which has wide applicability,” Hui said.
The Company Registry and the Securities and Futures Commission have received more than 60 inquiries about fund redomiciliation to Hong Kong, and four applications have been approved as of February this year.
According to the consultation paper, Hong Kong will welcome applications to move to incorporate in Hong Kong from companies coming from different places and of different types and sizes. The Registrar of Companies will be responsible for approving their applications based on their integrity, creditor protection, solvency and other factors, so as to ensure that companies redomiciling in Hong Kong are of good standing.
“The spirit of a redomiciliation regime is to ensure that the process would not affect the property, rights, obligations and liabilities, as well as the relevant contractual and legal processes of the companies,” Hui said. “The continuity of business operations of the redomiciling companies will therefore be guaranteed, and the rights and responsibilities of the transaction partners of the company will not be affected either.”
The proposed regime will also clearly stipulate the transition of the tax obligations of the incoming companies in the original place of incorporation and in Hong Kong, so as to provide certainty to the companies on prospective tax-related changes.
The proposed new rules will attract overseas companies to apply for domicile in Hong Kong because of a change in international taxation regulations recently, said Florence Yip, senior adviser for government affairs at PwC.
“The government has proposed the new regulatory regime at the right time,” Yip said. “[The recent change in international taxation regulations] has meant it is very difficult for businesses to set up shell companies in tax havens to avoid tax. This has encouraged them to consider moving back to incorporate in Hong Kong.
“It is expected there will be many overseas companies moving back to set up in Hong Kong after the government simplifies its procedures.”
A 2019 international taxation agreement requires that companies that set up in tax havens such as Cayman Islands and British Virgin Islands must show they have real business operations, or having “commercial substance”. These firms will need to report their operations and location of management and control in detail. Another international taxation arrangement known as Common Reporting System also allows the tax authorities of these tax havens to share information of these companies with the tax authorities in Hong Kong or other jurisdictions.
“Attracting outside enterprises, investment and talent to come to Hong Kong is a key policy objective of the current term of government,” Hui said.