What impact will the Hong Kong government’s plan to introduce a company relocation registration system have on companies entering Hong Kong?

How will the company relocation registration system proposed by the Hong Kong government affect new companies coming to Hong Kong?

As Hong Kong enters the path of economic recovery, it actively plans to return to the international stage and implements a “grab enterprises, grab talent” strategy.

Following the establishment of the “Key Enterprises Promotion and Investment Attraction Office”, the next big move is to introduce the company re-registration system, attracting non-Hong Kong companies to re-register in Hong Kong for development. This will further enhance Hong Kong’s competitive advantage as a hub for multinational corporations and headquarters economy.

Company re-registration is when a company cancels its original registration status in one jurisdiction and re-registers in another.

So, why is Hong Kong introducing the company re-registration system?

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What are the specific proposals for the company re-registration system introduced this time?

01

****What is corporate re-registration?****

Corporate re-registration is when a company cancels its original registration status and re-registers in another jurisdiction. If the company is a listed company, re-registration may affect its listing status due to different listing regulations in different jurisdictions, and attention should be paid to local company regulations, investment environment, and tax regulations.

The main reasons for corporate re-registration are that the new registration location has better development prospects, and tax incentives, talent recruitment, etc. are beneficial to the company. In addition, companies must also consider legal factors. General commercial activities will be subject to the laws of the company’s registration location in the contract. If there are significant legal differences between the laws of the registration location and the country or region of the counterparty, it may affect its business operations.

In the past, many Hong Kong companies chose the Cayman Islands or Bermuda as their overseas registration locations because these two places are offshore jurisdictions that are accepted by the Hong Kong Stock Exchange for listing in Hong Kong. In addition, HSBC Holdings once intended to re-register in Hong Kong due to the UK’s imposition of bank taxes, but ultimately failed to do so for various reasons.

Since March, the Financial Services and the Treasury Bureau of the Hong Kong Special Administrative Region Government has consulted with chambers of commerce, professional organizations, and relevant statutory advisory bodies on the proposal to introduce a company migration system and listened to their professional opinions.

The SAR Government believes that now is an appropriate time to establish a widely applicable company migration system which allows non-local companies interested in settling in Hong Kong to relocate their place of incorporation to Hong Kong without having to go through complex and expensive liquidation procedures or court-approved arrangements.

02

****Why introduce a company migration system****

1. Attract more companies to settle in Hong Kong

For companies interested in moving their place of incorporation to Hong Kong, the migration system not only allows them to retain their legal entity status, but also reduces costs.

Without the migration system, whether the company dissolves its existing company and establishes a new company in Hong Kong or completes various legal procedures according to the statutory threshold to convert the company into a wholly-owned subsidiary established in Hong Kong, it would have to bear significant costs. The migration system helps to significantly reduce the cost of doing business in Hong Kong and can attract more companies to settle in Hong Kong.

2. Promote the development of Hong Kong’s economy and demand for talents

Relocating the place of incorporation of a company established as a legal entity to Hong Kong facilitates the growth of professional services such as auditing, accounting, and legal services in Hong Kong, and also facilitates the entry of non-Hong Kong companies into Hong Kong’s leading capital market.

For non-local registered companies that already have economic activities in Hong Kong, relocating their place of incorporation to Hong Kong not only enables them to follow Hong Kong’s high standards of corporate governance but also aligns the geographical coverage of their business activities with their place of incorporation, enhancing Hong Kong’s position as a commercial hub.

03

****Specific Suggestions for the Migration Registration System of the Company****

1. Introduction of the Internal Migration Registration System

The Hong Kong government proposes to amend the Companies Ordinance (Chapter 622) and introduce the internal migration registration system. The proposed system will apply to a total of five types of companies or similar types that were originally established as legal entities in the place where the company was established, including: private limited companies, public limited companies, non-share capital guarantee companies, private unlimited companies with share capital, and public unlimited companies with share capital.

2. Retention of the Company’s Legal Entity

Hong Kong will enact relevant provisions to ensure that the company retains its identity after completing the migration registration process and does not create a new legal entity during the migration process. Companies migrating to Hong Kong and other similar companies established in Hong Kong have the same rights and obligations and must comply with relevant provisions of the Companies Ordinance.

3. Establishment of the Jurisdiction of the Migration Registration

In order to cover different types and structures of companies (such as holding companies) as much as possible, Hong Kong will establish the jurisdiction of the migration registration arrangement, which can ensure that there is no unintentional economic substance testing requirement imposed on the company applying for migration registration, and can also ensure that registered companies in Hong Kong and companies migrating to Hong Kong enjoy equal treatment.

4. Proposed Principles of Operation for Migration Registration

The operating principles of the proposed migration registration system in Hong Kong are that the migration registration process will not affect the company’s property, rights, obligations, legal responsibility, relevant contracts, and legal procedures, nor will it affect the company’s tax liability in the original jurisdiction, in order to prevent the migration registration process from being used for tax evasion purposes. Hong Kong will make corresponding amendments to the Taxation Ordinance, stipulating the tax liabilities of migrated companies and authorizing the Inland Revenue Department to handle transitional tax matters and include these items in the post-migration assessment.

04

Special Zone’s Incentives for Attracting Enterprises Policy

2023

The policy manifesto for the development of family office business in Hong Kong was published, creating a competitive and favorable environment for the business of global family offices and asset owners to flourish in Hong Kong.

Chief Executive Carrie Lam Cheng Yuet-ngor stated that tailor-made plans will be provided for key enterprises, including work subsidies, tax benefits, land provision, and support for their employees’ daily needs such as education and medical care.

2022

The policy address proposed the establishment of offices to attract key enterprises, with the aim of actively attracting investment and enhancing Hong Kong’s competitiveness, and accelerating industrial development.

The policy address proposed to remove HKD 30 billion from the Future Fund to establish a “Co-investment Fund” to attract and invest in enterprises that have settled in Hong Kong.

The policy address proposed to establish a “Investment Promotion & Talent Acquisition Team” in various offices and overseas economic and trade offices to actively contact target enterprises and talents and actively lobby for them to develop in Hong Kong.

05

Overseas Countries and Regions’ Re-registration Systems

1. Singapore

Approval from the original jurisdiction is required, and the company must be restructured into a shareholding limited company in accordance with Singapore company law. The re-registration rules do not apply to companies in all countries, but only to countries listed on the Singapore government’s list.

2. Brunei

It announced the discontinuation of international business companies and trust companies at the end of 2016. Existing companies must be dissolved or re-registered before December 24, 2017.

3. Cayman Islands

Registered companies are divided into three categories: general companies, exempted companies, and non-local companies. Only non-local companies need to submit detailed annual reports, which makes the procedures more complicated. Therefore, most Hong Kong companies choose to register as exempted companies. In terms of taxation, exempted companies can apply for a 20-year tax exemption certificate, hence the nickname “tax haven”.

4. Bermuda

Companies in special industries such as insurance, banking and other companies that require special licenses have requirements for registered capital.

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