17 January 2025 Hong Kong publishes draft legislation for inward company re-domiciliation - A draft bill has been published that would implement an inward company re-domiciliation regime in Hong Kong.
- A re-domiciled company will be regarded as a Hong Kong-incorporated company, hence facilitating access to tax treaties and application of the proposed Pillar Two rules.
- The re-domiciliation itself should not trigger Hong Kong profits tax or stamp duty. Unilateral tax credits will be available to mitigate double taxation.
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On 20 December 2024, Hong Kong published the draft bill1 to introduce a company re-domiciliation regime that enables non-Hong Kong-incorporated companies to re-domicile to Hong Kong. The regime will become effective upon the enactment of the bill. Under the proposed re-domiciliation regime, a qualifying company may re-domicile to Hong Kong without the need for court intervention, winding-up or reincorporation processes. A re-domiciled company may preserve its legal identity and maintain its business continuity and must observe statutory requirements as incorporated in Hong Kong. The draft bill also proposed Hong Kong tax treatments for re-domiciled companies: - A re-domiciled company will be regarded as incorporated in Hong Kong for Hong Kong tax purposes. However, under the Hong Kong territorial tax system, it should not be subject to Hong Kong profits tax until it commences business in Hong Kong.
- Unilateral tax credits will be available for taxes paid on unrealized profits in the original place of incorporation or domicile, subject to meeting certain conditions and requirements.
- Transitional tax arrangements will be introduced to clarify the treatment of various tax attributes. This, however, will not apply to companies that have carried on business in Hong Kong before their re-domiciliation.
- No Hong Kong stamp duty will be triggered by the re-domiciliation process; however subsequent share transfer of the re-domiciled company would be liable to the stamp duty.
The Hong Kong tax authorities also explained that a re-domiciled company could be regarded as a company incorporated in Hong Kong, and therefore a Hong Kong resident for most of Hong Kong's Comprehensive Avoidance of Double Taxation Agreements or Arrangements. Similarly, the re-domiciled company will be regarded as a Hong Kong tax resident for purposes of the proposed Pillar Two Global anti-Base Erosion (GloBE) Rules (i.e., the Income Inclusion Rule (IIR), Undertaxed Profits Rule (UTPR)) and domestic minimum top-up tax in Hong Kong (HKMTT). * * * * * * * * * * | Endnote1 See The Government of the Hong Kong Special Administrative Region Gazette. | * * * * * * * * * * | Contact Information | For additional information concerning this Alert, please contact: Ernst & Young Tax Services Limited, Hong Kong Ernst & Young LLP (United States), Hong Kong Tax Desk, New York Ernst & Young LLP (United States), Asia Pacific Business Group, New York Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago | Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor |
Document ID: 2025-0267 |