Moving your investment funds to Hong Kong – Hong Kong’s fund re-domiciliation proposal

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This article is written by Guosun Lee, Jingjing Jiang, Florence Lau and Andrew Watson.

2020 has been a very exciting year for Hong Kong's asset and wealth management industry, with the introduction of the limited partnership fund (LPF) regime, the enhancements to the open-ended fund company (OFC) regime and the proposed carried interest tax concession regime[1]. We have certainly seen traction in terms of usage of Hong Kong* domiciled funds, as evidenced by the number of LPFs[2] established since the enactment of the Limited Partnership Fund Ordinance (Cap. 637 of the Laws of Hong Kong) (LPFO). To keep up with the momentum, the Government of the Hong Kong SAR recently promised under its latest budget report[3] to provide subsidies to cover 70% of the expenses paid to local professional service providers (e.g. lawyers, tax advisors, fund administrators) for setting up OFCs or re-domiciling overseas corporate funds to Hong Kong as OFCs in the coming three years, subject to a cap of HK$1 million per OFC.

To complete the picture and to further encourage the "onshorisation" of funds to Hong Kong and in response to market sentiments, the Financial Services and the Treasury Bureau (FSTB) of the Hong Kong government issued a proposal[4] for establishing a regime to allow offshore funds to migrate to Hong Kong (Proposal). The Proposal provides the framework and procedures involved in redomiciling an offshore fund to Hong Kong. The FSTB targets to introduce the bill to effect the Proposal into the Legislative Council for first and second reading in the second quarter of 2021.

This client alert outlines the re-domiciliation process under the Proposal and a high level comparison against the re-domiciliation regime in offshore and onshore counterparts, followed by our analysis.

1. Overview of the Proposal

  • Eligibility – A fund established outside Hong Kong in the form of a limited partnership or a corporate is eligible to be registered as an LPF or an OFC in Hong Kong respectively, provided it meets the same set of eligibility requirements for a Hong Kong domiciled OFC or an LPF. For a summary of the eligibility requirements, please refer to our earlier publications on OFC and LPF regimes.
  • Continuity – Upon re-domiciliation, the migrated fund remains as the same legal entity. Re-domiciliation to Hong Kong does not intend to prejudice or affect the identity of the fund as previously incorporated or registered.
  • Contracts remain effective Contracts made and resolutions passed prior to re-domiciliation will not be affected, and the rights, functions, liabilities, obligations and property of the fund will not be affected.
  • Legal obligations remain – Any previous legal proceedings by or against the fund will not be rendered defective.
  • Application to be made by specified persons – A non-Hong Kong corporate fund may register as an OFC by submitting an application to the Securities and Futures Commission (SFC), who would process the application and notify the Registrar of Companies (ROC) upon completion. An overseas limited partnership may register as an LPF by having a Hong Kong law firm or a Hong Kong qualified solicitor to file the application to the ROC.
  • Application pack – An application for re-domiciliation should specify or include the followings:
    • Original name and place of establishment of the offshore fund;
    • A copy of certificate of establishment and constitutive document of the offshore fund;
    • Confirmation that the proposed re-domiciliation and de-registration of the offshore fund are not prohibited by its constitutive documents, contracts and laws of its place of establishment; and
    • (in respect of offshore corporate funds only) a certificate issued by the fund's directors to confirm the solvency of the fund and each sub-funds, the absence of any petition of winding-up, liquidation, receivership or arrangement or compromise arrangement; and that notice of the proposed re-domiciliation has been served to creditors.

  • Deregistration timing – The SFC or ROC (as applicable) will register the offshore fund as an OFC or LPF and issue a certificate of registration as proof of registration upon reviewing and being satisfied with the application documents. The offshore fund would then have to de-register in its original place of establishment within 60 days of issuance of the certificate of registration, failure of which would lead to its registration being cancelled.
  • Tax – The same profits tax and stamp duty arrangements will apply to migrated funds as newly formed OFCs or LPFs. The Proposal explicitly confirms that the re-domiciliation as an OFC or an LPF does not amount to a transfer of assets of the fund or a change in the beneficial ownership of the assets of the fund. As such, the migration process would not give rise to any stamp duty implications. The re-domiciled funds' eligibility to the unified tax exemption regime remains the same.
  • 2. Eligibility requirements for the migrating offshore fund under the Proposal

    The core requirement under the Proposal is that the migrating offshore fund must meet the same set of eligibility requirements of an OFC or an LPF. This means that the offshore funds will need to meet the following eligibility requirements:

    • Name of the fund – Both the OFC and LPF regimes have prescriptive naming conventions. For instance, an OFC must end its name with "open-ended fund company" or "OFC", while an LPF must end its name with "LPF" or "limited partnership fund". Offshore funds may need to change their names so as to comply with the Hong Kong regime, and they have to take steps to notify their contractual counterparties, banks, brokers of their change of names.
    • OFC directors – An OFC is required to have a minimum of two natural person directors, of which one must be independent of the custodian. There is no such requirement in traditional offshore jurisdictions such as the Cayman Islands, where corporate directors are also generally allowed. The OFC regime also prescribes the qualifications for OFC directors (who must be of good repute, appropriately qualified, experienced and proper), as compared with other offshore jurisdictions where there is no statutory qualifications other than a general requirement for directors to be "fit and proper".
    • Licensed key operators – It is mandatory for an OFC to appoint an investment manager who is licensed by or registered with the SFC for Type 9 (asset management) regulated activities. Whilst the LPF regime does not impose a mandatory requirement on the appointment of a licensed manager, to the extent the LPF would invest in "securities" under the SFO (including private equity and venture capital investments), the investment manager or the general partner (if the general partner itself is the investment manager) is also required to be licensed. For fund sponsors who are already actively managing funds in Hong Kong, the statutory requirement for a licensed manager in the OFC regime will unlikely affect the appetite for a corporate fund re-domiciliation. However, this may be a consideration for fund managers which do not currently have substantive presence in Hong Kong.
    • Custodian – The OFC regime also requires the appointment of a custodian for the OFC, which has to be an intermediary licensed or registered for Type 1 (dealing in securities) regulated activities, a Hong Kong or overseas bank (or a trust company which is a subsidiary of a Hong Kong or overseas bank), or a trustee of a registered scheme under the Mandatory Provident Fund Schemes Ordinance. The custodian would also need to meet certain requirements, including being compliant with all of SFC's regulations, codes and related guidance applicable to OFC custodians. On the other hand, the LPF does not require the general partner to appoint a third party custodian as long as it can demonstrate proper custody of the LPF assets. The relaxation of the eligibility requirements for private OFC custodians in September 2020 would further incentivise the adoption of OFCs, and we are expecting eligible custodians to review and update their house form custodian agreements to cater for OFCs in the interim to onboard themselves as OFC custodians.
    • AML/KYC obligations – The LPF requires a responsible person to be appointed to carry out AML/KYC obligations on behalf of the fund. A similar regime is also being proposed for the OFC (as of now, the AML/KYC obligations of OFC are handled by the Type 9 investment manager).

    Offshore fund sponsors should note the above eligibility requirements when deciding whether or not to re-domicile their existing funds to Hong Kong.

    The Proposal is currently silent on a number of important conflicts of law issues. For instance, offshore funds should be provided with guidance as to how the contracts previously entered into by them can be "transferred" to Hong Kong. Contracts may need to be amended and restated so as to update the governing law, dispute resolution and other relevant provisions. The "transition period" which allows re-domiciled LPFs or OFCs to de-register in their home jurisdictions also raises the issue as to whether the re-domiciled fund in question becomes a resident in two tax jurisdictions during the transition period. We expect the bill to be introduced to the Legislative Council to provide more colours to the re-domiciliation regime. It would also be beneficial for sponsors to engage in an early discussion with their tax advisors to fully understand the tax consequences of the re-domiciliation to Hong Kong.

    3. Insights from offshore counterparts

    Re-domiciliation is allowed in other mainstream offshore and onshore fund jurisdictions, and some have introduced measures to ensure a seamless and streamlined re-domiciliation process for market players. At the moment, some of the most notable jurisdictions which allow funds to re-domicile are Jersey, the British Virgin Islands (BVI) Luxembourg, Ireland and Singapore. Below is a high level comparison between Hong Kong and some offshore jurisdictions:

    • Eligibility – The eligibility requirement for Jersey and BVI limited partnerships appears to be simpler than the Proposal. To re-domicile an offshore fund as a Jersey or BVI limited partnership, the migrating fund must be a limited partnership. Jersey imposes an additional requirement where the migrating limited partnership cannot have a separate legal personality. There appears to be no requirement on the naming convention of the funds, and generally the key operators could remain intact in these two jurisdictions. The eligibility requirement for Singapore variable capital companies (VCC) has a similar level of detail to the Proposal regarding OFCs. For example, the VCC manager must be a holder of a capital markets services licence or qualify for an exemption and every VCC must have at least one director who is ordinarily resident in Singapore. It is also mandatory for a VCC to appoint a qualified custodian to supervise custody of the VCC assets. A VCC must also have "VCC" as part of and at the end of its name.
    • Application process – Similar to Hong Kong, in order to re-domicile a limited partnership to Jersey or BVI, the applicant must submit an application to the Jersey Financial Services Commission or the registrar in the BVI. Interestingly, Jersey has in place an appeal system in the event the re-domiciliation application is being rejected, and the applicant may request for the reasons for the rejection decision. For re-domiciliation to Singapore as a VCC, the applicant must submit an application to the Registrar of VCCs. Singapore also has in place an appeal system in the event the re-domiciliation application is rejected. The Proposal is silent as to whether Hong Kong will have an appeal mechanism.
    • Constitutive documents – As with the Proposal, Jersey and BVI regulations do not contain any specific requirement that the fund's constitutive documents must be amended or that investors' consent must be obtained. However, changes will likely need to be made to the fund constitutive documents to change the governing law to the jurisdiction where the fund is migrating to and the parties may also need or wish to use such opportunity to update the dispute resolution mechanism. There may also need to be ancillary amendments to reflect the local rules and regulations. In Singapore, there are certain mandatory content requirements for a VCC's constitution, which will prompt a revamp of the offshore corporate fund's constitutive documents.
    • Deregistration timeline – Unlike the Proposal, the Jersey and BVI regulations do not specifically require the migrating fund to de-register in its original place of establishment within a certain time frame or provide evidence thereof, though in practice the migrating fund would still de-register in the jurisdiction it is migrating from. In Singapore, however, a migrating fund must provide evidence of de-registration in its place of incorporation within 60 days after the issue of the notice of transfer of registration to Singapore, which is similar to the Hong Kong Proposal.

    4. Conclusion

    The Proposal as of now appears to be relatively light-touch on the requirements for migration of offshore funds. However, as discussed above, there are some issues that should be ironed out in order to present a more attractive re-domiciliation solution that is quicker and simpler for offshore funds, and to encourage more offshore funds to go "onshore".

    For a more detailed discussion about how the Proposal might impact your business or for any assistance required in planning for a re-domiciliation of your offshore funds to Hong Kong, please do not hesitate to contact us.

    *Any reference to "Hong Kong" or "Hong Kong SAR" shall be construed as a reference to "Hong Kong Special Administrative Region of the People's Republic of China".


    [1] For details on the carried interest tax concession proposal, please refer to our earlier publication, available at:

    [2] As of 28 February 2021, there has been a total of 114 LPFs successfully established under the LPFO.  KWM assisted its clients in establishing 37 LPFs, including the first LPF in Hong Kong, representing over 30% of the total LPFs established in Hong Kong.



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