Key points of the Re-domiciliation Mechanism
Currently, most funds having business operation in Hong Kong have adopted offshore structures, primarily with its domicile in Cayman Islands. In the absence of Re-domiciliation Mechanism, foreign investment funds wishing to re-domicile to Hong Kong would need to transfer their assets to a new fund vehicle in Hong Kong in order to effectively re-domicile under existing law and the transfer process would give rise to stamp duty implications, which serves as a major deterrent preventing foreign investment funds from re-domiciling to Hong Kong.
To address the above issues, a task force led by the Financial Services and the Treasury Bureau, comprising members from the Hong Kong Monetary Authority, the Securities and Futures Commission and the Inland Revenue Department, has come up with the Bill on re-domiciliation of LPFs. The objective of the Bill is to introduce a commercially viable mechanism for foreign funds to re-locate to Hong Kong that:
- preserves the identity and continuity of the foreign investment funds upon re-domiciliation so that any contract made, resolution passed, or any other act or matter done in relation to the fund before its registration in Hong Kong will not be affected or prejudiced;
- provides certainty in tax treatment to the effect that the registration of foreign funds as LPFs do not amount to a transfer or a change in beneficial ownership of the assets of the foreign funds so that the re-domiciliation process would not give rise to any stamp duty implications; and
- provides a clear and easy Re-domiciliation Mechanism and upon domiciliation, the fund would have the same rights and obligations as any other newly established LPFs in Hong Kong.
Overview of the Re-domiciliation Mechanism
An overview of the New Re-domiciliation Mechanism is set forth below: