Hong Kong Clarifies Tax Changes for Inward Company Re-Domiciliation Regime

The Hong Kong Revenue Department has clarified the main legislative changes to the tax law resulting from the proposed inward company re-domiciliation regime that will be introduced to allow companies domiciled elsewhere to transfer their domicile to Hong Kong.

Under the re-domiciliation regime, non-Hong Kong incorporated companies that register as re-domiciled companies under the Companies Ordinance are able to preserve their legal identity and maintain their business continuity. The Companies (Amendment) (No. 2) Bill 2024 was gazetted on 20 December 2024 to amend the Companies Ordinance and other related ordinances including the Inland Revenue Ordinance (IRO) in order to implement the regime.

Hong Kong does not impose tax on the basis of residence or domicile. As such, if a non-Hong Kong incorporated company has carried on a trade, profession or business in Hong Kong before it re-domiciles to Hong Kong, any profits from such trade, profession or business before its re-domiciliation will continue to be taxable in Hong Kong. If, however, a non-Hong Kong incorporated company has never carried on any trade, profession or business in Hong Kong before re-domiciling to Hong Kong, no profits tax will be charged on the company for the period before it commences business in Hong Kong.

The legislative amendments to the IRO are only applicable to a re-domiciled company that has carried on a trade, profession or business outside Hong Kong before re-domiciliation and commences to carry on the same or another trade, profession or business in Hong Kong after re-domiciliation. The main aspects covered by the legislative amendments to the IRO are as follows:

• a re-domiciled company will be regarded as a company incorporated in Hong Kong and in turn a resident of Hong Kong for tax treaty purposes;
• transitional tax provisions that cover the following:
  • conditions for deduction of expenses/expenditures: generally, expenses or expenditure incurred in the production of the assessable profits of a re-domiciled company before re-domiciliation will be deductible to the extent that they have not been deducted outside Hong Kong. There are also specific conditions for the deduction of specified types of expenses or expenditures on trading stock, intellectual property, renovation or refurbishment of buildings or structures, among others;
  • depreciation allowances for plant and machinery: a re-domiciled company can claim depreciation allowances for plant and machinery in relation to a trade, profession or business carried on outside Hong Kong before re-domiciliation if it uses the plant and machinery for any Hong Kong business on or after re-domiciliation; and
  • provisions for re-domiciled insurance businesses; and
• a re-domiciled company will be allowed a unilateral tax credit for taxes paid in its place of incorporation in respect of unrealized income or profit (specified income) resulting from the re-domiciliation, and after re-domiciliation, up to the limit of Hong Kong profits tax payable on the relevant income; any excess amount will be deductible from assessable profits.

Source: IBFD Tax Research Platform News