Hong Kong considers introduction of re-domiciliation regime

Earlier this year, the Hong Kong Government completed a public consultation on the introduction of a company re-domiciliation regime (the “Regime”).  Its goal is to attract more foreign businesses to Hong Kong by allowing non-Hong Kong companies to move their domicile to Hong Kong while maintaining their original rights and obligations, assets, contracts etc. The bill to approve the new scheme is expected to be submitted to the Legislative Council in 2023/2024.

Lack of a re-domiciliation mechanism in Hong Kong

Currently, there is no legal framework to re-domicile an overseas company in Hong Kong. A foreign company intending to change its place of incorporation to Hong Kong must therefore undergo a complex and cumbersome process consisting of the winding-up of the original entity, the establishment of a new one in Hong Kong and the transfer of all the assets, rights, obligations, liabilities, contracts etc. from the original entity to the newly set-up Hong Kong company.

Proposed Regime

The proposed Regime will allow companies domiciled abroad to move their place of incorporation to Hong Kong while maintaining their legal continuity. This will significantly reduce the cost and procedural complexity as compared to the current regime.

The Registrar of Companies (the “Registrar”) will be in charge of approving applications for re-domiciliation.  The proposed criteria to be met by a company seeking re-domiciliation in Hong Kong are that:

1. it has complied with its local legal requirements regarding the re-domiciliation;
2. it will be re-domiciled in Hong Kong under the same or substantially the same type of company as in its place of incorporation;
3. its first financial year has been completed;
4. it complies with Hong Kong’s legal requirements for the incorporation of companies;
5. it will not be used for any purpose which is unlawful, contrary to public interest or a danger to national security;
6. it makes the application in good faith and not with the intent of defrauding its creditors;
7. if its members are not required to consent to the re-domiciliation under the laws of its jurisdiction of incorporation, at least 75% of its members have given their consent at a member’s meeting for which at least 21 days’ notice was given;
8. it is able to pay its debts as they fall due during the 12 months following the application date; and
9. it is not subject to any proceeding for liquidation, winding-up or receivership or any ongoing or pending compromise or arrangement.

No economic substance test is proposed.

Upon a successful application, the applicant company will be registered in the Companies’ Register and be issued a certificate of re-domiciliation.  The applicant then has 60 days to provide the Registrar with evidence of de-registration in its original place of incorporation.  If it fails to do so, the re-domiciliation process will be terminated.

Impact

While the Regime that will be finally adopted may differ in certain aspects from the current proposal, the introduction of any re-domiciliation scheme in Hong Kong will lower the hurdles for foreign companies wishing to re-domicile to Hong Kong.  Hong Kong’s competitive position as an investment destination will be improved by offering an inexpensive re-incorporation procedure on a par with that of other common law jurisdictions.

Erik Leyssens | Camilla Venanzi