Update: a joint venture between a foreign investor and the CIS partner

Structuring a joint venture between a foreign investor and a CIS (Commonwealth of Independent States – the grouping of post-Soviet states that includes Kazakhstan, Uzbekistan, Azerbaijan, and Georgia, among others) partner through a Hong Kong vehicle remains one of the more structurally demanding transactions our desk handles. The centre of gravity is alignment: the holding vehicle, the governing law, and the clearance sequence must be resolved before capital commits, not after.

What the structural trigger looks like in practice

Foreign investors approaching CIS counterparties through Hong Kong typically arrive at the same structural pressure point. The CIS partner holds operating assets under a domestic legal regime. The foreign investor holds capital and, often, technology or distribution rights under a separate system. Neither party's home jurisdiction offers a neutral, internationally enforceable framework that both sides will accept.

Hong Kong resolves this. As a common-law hub with no capital-gains tax, no withholding tax on dividends or interest, and a well-tested commercial-court tradition, Hong Kong sits above the opco layer on a substantial share of Greater China and outbound Asian transactions – and, increasingly, on CIS-corridor deals where a credible offshore or neutral forum is required.

The structural trigger is not a single regulatory change. It is a recurring commercial pattern: a deal reaches term-sheet stage, the parties select a holding structure informally, and then counsel discovers that the vehicle, the governing law of the joint-venture agreement, and the dispute-resolution mechanism point in three different directions. That misalignment is the risk.

Who is affected across the corridor

This briefing is relevant to any group or principal facing the following configuration: a foreign investor – whether European, Asian, or Middle Eastern – seeking to deploy capital into a CIS operating business, and a CIS partner willing to accept a neutral holding layer but unfamiliar with the Hong Kong legal environment.

In our cross-border practice, the affected parties typically fall into three categories. First, private-equity sponsors and strategic acquirers using Hong Kong as a platform for outbound investment into Central Asia or the South Caucasus. Second, CIS founders who have accepted, or are being asked to accept, a Hong Kong or Cayman Islands co-investor. Third, family offices and principals relocating treasury or holding functions and seeking to anchor new joint-venture positions from the Hong Kong side.

The cross-border interface is specific. On the Hong Kong side, the Companies Ordinance (Cap. 622) governs the holding vehicle; the joint-venture agreement will typically be governed by Hong Kong law and provide for arbitration seated in Hong Kong under the HKIAC Administered Arbitration Rules (the 2024 Rules, effective 1 June 2024, now apply). On the CIS side, the operating entity is subject to the domestic corporate and foreign-investment laws of the relevant state – which vary materially between Kazakhstan, Uzbekistan, Georgia, and the other members of the grouping.

The immediate action

The sequencing error we see most often is deferring the governing-law and dispute-resolution decision until after heads of terms are signed. By that point, the CIS partner has often committed to a domestic corporate structure that limits the options for the holding layer. Unwinding it costs time and goodwill.

The immediate action is a three-point alignment check before term-sheet signature. First, confirm that the holding vehicle – whether a Hong Kong company, a BVI company with a Hong Kong management address, or a Cayman Islands vehicle – is acceptable to the CIS regulatory regime governing the operating entity. Some CIS jurisdictions impose foreign-ownership restrictions or require domestic-entity participation at the opco level; these conditions must be verified against the specific jurisdiction. Second, align the governing law of the joint-venture agreement with the seat of arbitration. A Hong Kong-law agreement and a Hong Kong-seated arbitration under the HKIAC Administered Arbitration Rules is the most enforceable combination for this corridor. Third, identify the clearance sequence: foreign-investment approval requirements in the CIS jurisdiction, any competition or sector-specific clearance, and the registration steps on the Hong Kong side under the Companies Ordinance.

The Significant Controllers Register, required of Hong Kong-incorporated companies since 1 March 2018, must reflect the foreign investor's position accurately from the date of incorporation. This is not an administrative afterthought; it is a compliance obligation with ongoing disclosure consequences.

For the enforcement angle, the joint-venture agreement should anticipate the scenario in which the relationship breaks down. An HKIAC-seated arbitration produces an award enforceable in any New York Convention state. Most CIS jurisdictions are New York Convention signatories; parties should verify the current position for the specific state before acting. Where assets sit across the Mainland–Hong Kong boundary, the Mainland–HK arbitral-award mutual enforcement arrangements provide a separate and well-tested route.

The sequence above describes the standard position. Your transaction turns on the specific CIS jurisdiction engaged, the sector, and the ownership structure – which is where the route is won or lost.

For a preliminary read on your joint-venture position and the structuring route across Hong Kong and the relevant CIS jurisdiction, write to us at info@lockhartyip.com.

For a broader view of how our M&A and transactions practice approaches cross-border deal structuring, see our M&A & Transactions practice page. Related cross-border structuring topics are addressed in our briefing on acquiring a Singapore target through a Hong Kong vehicle and our guide on joint ventures with a Cayman Islands partner.

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