Part 2: Hong Kong Tax Implications
By ONC Lawyers | May 2025
Tax Implications: In-Depth Analysis
The tax treatment of re-domiciled companies is governed by a new schedule to the IRO. The goal is to achieve tax neutrality while ensuring compliance with Hong Kong’s territorial taxation system. This section outlines the key provisions in detail.
Tax Aspect | Rule Summary |
Corporate tax residency | - Re-domiciled companies treated as HK-incorporated under IRO - May enjoy HK tax treaty benefits |
Profits tax determination | Based on source of profits and local trade/business presence |
Deductibility of pre-HK expenses | Allowed if related to HK trade and not previously deducted elsewhere |
Trading stock | Lower of cost incurred in acquiring the trading stock and net realizable value of the trading stock on the re-domiciliation date |
Expenditure incurred on: - registration of IP rights - building refurbishment | The lower of the below: - the actual amount of specified capital expenditure incurred minus the accumulated amortisation and impairment losses up to the re-domiciliation date; or - the market value as at the re-domiciliation |
Expenditure in relation to R&D expenses | The expenditure is deemed to have been incurred in the year of assessment when the R&D activity becomes (or becomes also) an R&D activity related to a business carried on in Hong Kong. |
Machinery and plant | The lower of the below: - the actual cost incurred minus the notional annual allowance; or -the market value as at the re-domiciliation |
Tax credits | Unilateral credit available for similar foreign tax paid on re-domiciliation-related gains |
Stamp duty | No duty on re-domiciliation process; applies to post-domicile share transfers |
ONC Lawyers anticipates that many jurisdictions may continue to view the re-domiciled entity as a separate taxpayer for foreign tax purposes, which may complicate access to treaty benefits. Legal opinions may be required in some cases.
Common misconceptions and Our comments
Below are some of the common misconceptions about the Hong Kong tax implications in relation to the re-domiciliation regime:-
Hong Kong Profits Tax would only be imposed after the date of re-domiciliation. In reality, the Hong Kong Inland Revenue Department (“the IRD”) is entitled to chase back the tax for the last six years of assessment if it finds out that there had been Hong Kong sourced profits, even before the date of re-domiciliation. Even for investment holding entities, foreign-sourced income exemption (“ FSIE “) Regime can also apply to impose Hong Kong Profits Tax on dividend income and capital gains starting from 1 January 2023.
• Taxpayers are advised to evaluate Hong Kong tax implications of the entities being re-domiciled before execution of the plan. It is important to highlight that audited financial statements / certified management accounts before re-domiciliation have to be provided during the application.
• Hong Kong Tax Residency Certificate (TRC) is a guaranteed success. Since June 2023, the IRD has been adopting simplified approach for TRC of Hong Kong incorporated companies. As such, obtaining the TRC is the major reasons for re-domiciliation for a lot of taxpayers. Despite the above, it is important to highlight that the approach of the IRD to re-domiciled entities is uncertain, especially before the provision of Proof of de-registration from the original domicile.
• Despite the simplified approach currently adopted by the IRD, taxpayers are always recommended to maintain economic substance in Hong Kong to be normally or controlled in Hong Kong in order to conform with the latest international consensus on double taxation agreement benefits. Based on our experience, foreign tax authorities (in particular PRC State of Taxation Administration) are increasingly eager to check whether the Hong Kong entity maintains sufficient economic substance in Hong Kong
• No tax adjustment is required as at the date of re-domiciliation. While the IRD would generally provide smooth tax transition on re-domiciliation to facilitate this new policy, it is important to highlight that the fair market value of asset as at the date of re-domiciliation will form the tax base in tax calculation if the fair market value is lower than the historical cost. As a result, the capital allowances available may be less than expected.
Contact Henry Kwong (Senior Tax Advisor at ONC Lawyers)
📞 WhatsApp: https://wa.me/85252445352
📧 Email: henry.kwong@onc.hk
💬 WeChat ID: henrykwongtax
🌐 Company Website: www.onc.hk
🌐 Tax Website: https://henrykwongtax.com/
📱Visit us at:
Facebook: https://www.facebook.com/henrykwongtaxinternational/
LinkedIn: https://www.linkedin.com/in/henry-kwong-tax/
YouTube: https://www.youtube.com/@henrykwongtax7797
