Update: a Hong Kong holding company for the CIS investments

CIS-origin groups holding operating or investment assets have faced mounting pressure on holding-company substance, treaty access and beneficial-ownership disclosure since 2023. A Hong Kong holding company – governed by the Companies Ordinance (Cap. 622) and supported by Hong Kong's territorial tax regime – addresses each of those pressure points, but only if the structure is built correctly from the outset.

The trigger is not new legislation in isolation. It is the convergence of several developments across the corridor: tightened economic-substance demands from offshore registers in the BVI and the Cayman Islands, accelerating beneficial-ownership reporting obligations in multiple CIS jurisdictions, and the continued exclusion of several CIS-domiciled entities from treaty networks that previously served them. Groups that relied on thin holding structures assembled before these shifts are now exposed.

What has changed across the corridor

Offshore holding centres widely used above CIS operating companies now apply economic-substance regimes that require genuine activity, adequate personnel and real management presence. A BVI or Cayman holding entity that passes dividends upward without meeting these conditions faces denial of treaty benefits and, in certain CIS jurisdictions, reclassification of the holding company as a domestic taxpayer.

Beneficial-ownership disclosure has moved in parallel. Several CIS states have introduced or strengthened ultimate-beneficial-owner registers, linking disclosure obligations to treaty-benefit claims. Where a holding company cannot demonstrate that its beneficial owner is resident in the correct jurisdiction for treaty purposes, withholding-tax relief on dividends and interest is refused at source.

Hong Kong addresses both concerns directly. Its territorial profits-tax system – 8.25% on the first HK$2,000,000 of assessable profits, 16.5% above – combined with the absence of withholding tax on dividends and the absence of capital gains tax, means a Hong Kong holding company has a credible commercial rationale that does not depend on tax fiction. The foreign-sourced income exemption (FSIE) regime, in force from 1 January 2023, requires economic substance for passive income – dividends, interest, royalties and disposal gains – to receive exemption. That substance requirement, correctly met, simultaneously satisfies the treaty-access analysis.

Beneficial-ownership is handled under the Companies Ordinance (Cap. 622) through the Significant Controllers Register (SCR), a mandatory register that each Hong Kong-incorporated company has maintained since 1 March 2018. For CIS-origin groups, a clean, documented ownership chain to the SCR level provides the disclosure paper trail that counterparties, banks and regulators now require.

Who is affected and what to do now

This briefing is directly relevant to three categories of principal. First, CIS-based founders or family offices holding operating assets – manufacturing, real estate, logistics or financial interests – through an offshore vehicle that no longer meets the substance test applied by that vehicle's registry. Second, groups seeking treaty access on dividend flows from Mainland China or South-East Asian operating companies, where the intermediate holding layer must now satisfy a principal purpose test (the anti-avoidance standard built into most contemporary double-taxation agreements). Third, groups that have received a challenge from a CIS revenue authority denying treaty benefits or asserting that the holding company is effectively a resident of the operating-company jurisdiction.

The immediate action is a structured review of the existing holding layer: substance present versus substance required; beneficial-ownership documentation versus what the receiving jurisdiction now demands; and treaty entitlement – whether the current intermediate jurisdiction is on the correct treaty network for the actual profit flows. Where the review identifies a gap, the remediation options run from adding substance to the existing entity, to interposing a Hong Kong holding company above or alongside the offshore vehicle, to a full migration of the holding function to Hong Kong.

Hong Kong's inward company re-domiciliation regime, which commenced in 2025, offers an additional route for eligible non-Hong Kong companies wishing to move their registered domicile to Hong Kong while preserving legal continuity – parties should verify the current eligibility criteria and commencement details before relying on this mechanism.

The sequence matters. Inserting a Hong Kong entity after a withholding-tax demand has already been raised in a CIS jurisdiction limits the available positions. Acting before that point – and documenting the economic rationale at the time the structure is put in place – preserves the treaty argument and reduces enforcement exposure across the corridor.

The cross-border interface here is specifically Hong Kong as the holding forum set against CIS operating jurisdictions, with the offshore layer (BVI or Cayman) either retained for specific purposes or replaced. Our desk regularly advises on the correct sequencing of that three-jurisdiction structure, with particular attention to the substance and treaty-access analysis that determines whether the holding layer will be respected.

The sequence above describes the standard position. Your matter turns on the specific jurisdictions engaged, the nature of the profit flows, and the current state of the disclosure file – which is where the structure holds or does not. For a structured assessment of your holding-company position across the Hong Kong and CIS corridor, write to us at info@lockhartyip.com.

For a fuller treatment of the holding-structure options available from Hong Kong, see our Holding Structures practice. Groups weighing the choice between a BVI and Cayman vehicle above the Hong Kong layer will find the comparison set out in our analysis of BVI versus Cayman holding vehicles. For the related position on a Hong Kong holding company serving European corridor investments, see our briefing on Hong Kong holding structures for Cyprus-corridor investments.

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.