Secretary for Financial Services & the Treasury Christopher Hui

Today, the Financial Services & the Treasury Bureau (FSTB) published the public consultation conclusion and latest legislative proposals for the company re-domiciliation regime. I would like to take this opportunity to share the thinking behind the proposals as well as the highlights therein.

A focused policy to draw in enterprises

It is a key policy objective of the current-term Government to enhance competitiveness through attracting enterprises and investment. The FSTB will put in place an inward re-domiciliation regime to turn the Hong Kong market into a cornucopia of enterprises that draws in foreign companies. These companies may bring demand for professional services, investment and job opportunities, which will transform into a new driving force for development of the local markets.

The policy intent of the proposed company re-domiciliation regime is to provide a simple and straightforward route for non-Hong Kong companies to transfer their domicile on the premise that the integrity of Hong Kong’s business environment will be safeguarded. Last year, we carried out a public consultation and consulted the Legislative Council (LegCo) Panel on Financial Affairs. We are glad to note that the proposal is unanimously supported by the general public and the market.

Enhanced procedures for business facilitation

Our latest legislative proposals cover four types of companies that can be formed under the Companies Ordinance (CO), namely private companies limited by shares; public companies limited by shares; private unlimited companies with a share capital; and public unlimited companies with a share capital, with a view to focusing on attracting company types with high value-adding potential and economic benefits.  Moreover, we have actively responded to the valuable views collected during the consultation, incorporating them to enhance the below re-domiciliation eligibility criteria and procedures to facilitate companies’ applications for re-domiciliation and business continuity:

• Relaxing requirement on financial statements: The original requirement for submission of the latest audited financial statements as at a date no more than three months prior to the application date will be relaxed to submission of financial statements as at a date no more than 12 months prior to the application date. Whether the financial statements should be audited would be determined according to the requirements of the original domicile.
• Extending deregistration period: For the original requirement that a re-domiciled company should deregister from its original domicile within 60 days upon the issue of the certificate of re-domiciliation, the deregistration period will be extended to 120 days, and we will allow companies to apply for further extension of the period to increase flexibility if necessary.
• Retaining company name and business registration number (BRO): If a re-domiciled company is a non-Hong Kong company with a place of business in Hong Kong and registered under the CO prior to its re-domiciliation, it may retain its company name and BRO after re-domiciliation to enable continued operation of business.
• Simplifying requirement on company members’ consent: For the protection of company members, consent from members should be obtained for re-domiciliation. We will simplify the relevant criteria to the effect that a company should comply with the requirements of the law of its original domicile or its constitutional documents.  In the case that there is no such requirement, the company should obtain members’ consent by a resolution passed by at least 75% of the eligible members. Both a resolution passed at a meeting and a resolution passed in written form will be accepted.
• Ensuring proper regulation of financial institutions: We will put in place mechanisms to require relevant insurance and banking institutions to approach their respective financial regulators in Hong Kong and be subject to the necessary assessments prior to making the re-domiciliation application so as to ensure proper transition.

Clear tax obligations and elimination of burden

To address base erosion and profit-shifting risks arising from the digitalisation of the economy, currently more than 140 jurisdictions indicated acceptance of the international reform proposals drawn up by the Organisation for Economic Co-operation and Development (BEPS 2.0). The BEPS 2.0 proposals ensure that in-scope large multinational enterprise groups pay a global minimum tax of at least 15% on income derived by their constituent entities in every jurisdiction where they operate, thus reducing the latitude for jurisdictions to introduce tax exemption or extremely low preferential tax rate as a means to enhance their tax competitiveness in future.  In addition, the economic substance requirement imposed on some companies incorporated or registered in the no-tax or only nominal-tax jurisdictions in recent years increases the compliance cost borne by these offshore companies, in turn undermining the incentives for these companies to maintain their offshore registrations. The introduction of a company re-domiciliation regime in Hong Kong will enable these companies, especially those with a business focus in the Asia-Pacific region, to transfer their domicile to Hong Kong in response to the increasing compliance burden.

During the re-domiciliation process, a company may be taxed by its original domicile for its unrealised profits (commonly known as “exit tax”). If, after re-domiciliation, the company’s actual similar profits are also taxed in Hong Kong, we will provide the company with unilateral tax credits for elimination of double taxation. Also, we will stipulate necessary transitional tax matters in the Inland Revenue Ordinance to provide certainty on the companies’ profits tax obligations after re-domiciliation, thus facilitating their tax planning.

All-out efforts for early implementation

The introduction of a company re-domiciliation regime is of great significance in Hong Kong’s corporate governance policy. It interfaces with multiple policy areas, requiring a comprehensive review of the applicability of different laws and regulations of Hong Kong to re-domiciled companies, so as to enable companies re-domiciled to Hong Kong to operate in an orderly manner as well as benefit from Hong Kong’s strengths in our corporate governance regime, rule of law, taxation system and professional services. We are pressing ahead with the drafting of the legislation with a view to submitting the bill to LegCo as early as practicable. In the meantime, we look forward to your continued support for this exercise.

Secretary for Financial Services & the Treasury Christopher Hui wrote this article and posted it on his blog on July 3.