Update: relocating a business owner's assets

Relocating a business owner's assets into a Hong Kong structure is not a single transaction – it is a sequenced migration governed by the Inland Revenue Ordinance, the Companies Ordinance (Cap. 622), and, where a trust is interposed, the Trustee Ordinance (Cap. 29). The window for efficient execution narrows once the principal has changed residence, because the management-and-control test (the standard under which the Inland Revenue Department determines where a company is resident for tax purposes) crystallises around board composition and meeting locations from the first day of the new structure's operation.

Our desk at Lockhart & Yip sees this trigger regularly. Business owners across the CIS, the Middle East and emerging Asia move their personal and corporate positions through Hong Kong on the way to a reorganised group structure. The sequencing error – moving the person before the structure is ready – is the most common and the most costly mistake we observe.

What the current position requires

The foreign-sourced income exemption (FSIE) regime, in force from 1 January 2023 and amended thereafter, imposes economic-substance conditions on foreign-sourced passive income received by Hong Kong entities that are members of a multinational group. That means a principal who relocates assets into a Hong Kong holding company cannot simply redirect dividends, interest or royalties without demonstrating that qualifying economic substance exists in Hong Kong at the time the income is received.

Substance is not just a registered office. The Inland Revenue Department looks at decision-making: where the board meets, where management resides, and whether the directors are genuine participants in strategy rather than nominee signatories. Getting this right before the first distribution is made is not optional. Correcting it afterwards can require restructuring the holding position from scratch.

For groups within scope of the Hong Kong minimum top-up tax – the Pillar Two mechanism applicable to multinational enterprise groups with consolidated revenue at or above EUR 750 million, effective for fiscal years beginning on or after 1 January 2025 – the income-inclusion and top-up rules add a further layer of analysis before the holding structure is finalised.

Who this affects and what to do now

Three categories of principal are most directly in scope. First, a business owner relocating from a jurisdiction where the group held assets through a BVI or Cayman holding entity and is now consolidating under a Hong Kong intermediate holding company. Second, a family office principal using a Hong Kong structure as the primary holding vehicle, with downstream operating companies across the Mainland and Southeast Asia. Third, an owner moving personal residence to Hong Kong or the Greater Bay Area while leaving legacy entities in a European or Middle Eastern holding centre.

In each case, the immediate action is the same: establish the sequence before the first structural step is taken. That means confirming the management-and-control position, mapping which income streams will be affected by the FSIE substance conditions, and confirming whether the Pillar Two perimeter applies. Where a discretionary trust sits above the holding structure, the Trustee Ordinance (Cap. 29) framework – which, following the reforms effective 1 December 2013, removed the rule against perpetuities for Hong Kong-law trusts and strengthened protection against foreign forced-heirship claims – adds a further design consideration that should be resolved at the same time, not after the corporate layer is in place.

The cross-border interface is acute where assets are located in the Mainland. A Hong Kong holding company receiving dividends from a PRC operating company will engage both the FSIE substance analysis and the relevant bilateral tax-arrangement provisions. The order in which the holding structure is established, and the residence of the controlling mind, affects both.

The Capital Relocation practice at Lockhart & Yip maps the migration sequence, models substance and tax-residence requirements, and prepares the implementation steps. For context on the specific considerations that arise when moving from another Asian hub, see our briefing on Singapore–Hong Kong family office relocation. Where source-of-funds documentation is required by the receiving institution, our note on source-of-funds files for BVI principals banking in Hong Kong sets out the standard file requirements.

For a structured assessment of your relocation sequence and the governing instruments across the relevant jurisdictions, write to us at info@lockhartyip.com.

Frequently asked questions

How long does relocating a business owner's assets into a Hong Kong structure usually take?

The timeline depends on the complexity of the existing structure and the number of jurisdictions involved. A straightforward interposition of a Hong Kong holding company above existing offshore entities can be implemented within a matter of weeks, once the substance and tax-residence analysis is complete. Where a discretionary trust layer, a Mainland operating company or a Pillar Two analysis is involved, the sequencing phase alone typically runs to several months. Parties should plan around the FSIE substance conditions and management-and-control requirements before the first structural step is taken, not after.

Which jurisdiction's law applies to relocating a business owner's assets into a Hong Kong structure?

No single jurisdiction's law governs the full migration. The Hong Kong holding company is subject to the Companies Ordinance (Cap. 622) and, for tax purposes, the Inland Revenue Ordinance. The FSIE regime and the Pillar Two minimum top-up tax apply where the relevant conditions are met. Where assets sit in BVI or Cayman entities, those jurisdictions' company laws remain relevant to the upstream reorganisation. Where a trust is interposed, the governing law of the trust instrument determines which trust statute applies – this is commonly the Trustee Ordinance (Cap. 29) for Hong Kong-law trusts. Mainland-situated assets engage PRC law alongside the cross-border tax arrangements.

What is the first step in relocating a business owner's assets into a Hong Kong structure?

The first step is establishing the sequence before any structural change is made. That means mapping where the management and control of each relevant entity currently sits, identifying which income streams will be subject to the FSIE substance conditions, and confirming whether the group falls within the Pillar Two perimeter. Only once that analysis is complete should the holding vehicle be incorporated and the asset transfers planned. Moving the principal's residence or signing corporate documents before this analysis is done is the most common source of structural problems that our desk is asked to resolve.

Speak with Lockhart & Yip

For a scoped view of your matter, contact info@lockhartyip.com. Discuss your matter →

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

Update: relocating a business owner's assets into a Hong Kong structure

What the current position requires

Who this affects and what to do now

Frequently asked questions

Speak with Lockhart & Yip

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