Update: relocating a holding company from the CIS to Hong Kong

The pressure on CIS (Commonwealth of Independent States) holding structures has been building for several years. It has not eased. Cross-border enforcement risk, shifting tax-treaty positions across the CIS corridor, and tightening substance requirements in traditional offshore centres have combined to push more principals toward a Hong Kong holding base. The question is no longer whether to move. It is how to sequence the move without triggering the very exposures it is designed to address.

Relocating a holding company from the CIS to Hong Kong involves resolving the management-and-control test under Hong Kong's territorial tax regime, satisfying economic-substance requirements in the departing jurisdiction, and sequencing the corporate migration steps in an order that preserves treaty access and avoids an unplanned residency break. The Inland Revenue Ordinance (Hong Kong's principal tax statute) treats a company as resident where its central management and control is exercised, not where it is incorporated. That fact governs the entire sequencing logic.

This briefing covers what is prompting the current wave of relocations, who it affects along the Hong Kong–CIS corridor, and what the immediate action points are.

What is driving relocations now – and what has changed

Several developments have converged. Treaty networks across the CIS have been under review, with a number of bilateral arrangements reduced or suspended. Substance requirements imposed by offshore holding centres – principally the BVI and the Cayman Islands – have tightened, meaning a company that holds assets above a certain threshold and claims treaty benefits must demonstrate genuine economic activity in its jurisdiction of incorporation. For many CIS holding structures built on a thin-substance offshore layer, that requirement is difficult to satisfy.

Hong Kong's position is different in a specific and useful way. The city's territorial tax system taxes only Hong Kong-sourced profits. A holding company that derives passive income – dividends, interest, gains on disposal – from assets outside Hong Kong will ordinarily find that income outside the charge. The foreign-sourced income exemption (FSIE) regime, which applies from 1 January 2023, introduces economic-substance conditions for certain categories of passive income received by connected entities. Those conditions are demanding but they are workable for a principal who genuinely moves management and control to Hong Kong. The key point: the substance test is attached to the income category, not the company's incorporation.

At the same time, Hong Kong's common-law court system, its neutral forum status, and the enforcement architecture available through the Court of First Instance give creditors and counterparties a level of legal certainty that is difficult to replicate elsewhere in the region. For a CIS group with counterparty risk on both sides of the corridor, that matters.

In our capital-relocation practice, we are seeing this pattern recur: a CIS-based principal with an offshore holding layer, operating companies on the Mainland or in Southeast Asia, and an increasingly uncomfortable gap between where management decisions are actually made and where the holding entity is formally registered. That gap is an enforcement risk in both directions.

Who is affected along the Hong Kong–CIS corridor

The immediate audience is any group that currently holds cross-border assets through a CIS-registered entity or a thin-substance offshore vehicle with CIS beneficial ownership, and that is considering or has been advised to consider a Hong Kong holding base.

The management-and-control test is the critical filter. If a board of directors meets formally in one jurisdiction but decisions are made by a principal sitting in another, most common-law systems – including Hong Kong – will look through the formality to the substance. A migration that moves the registered office but leaves the decision-making process unchanged will not shift tax residence. It may, in fact, create dual residence in both the departing and the arriving jurisdiction simultaneously. That outcome is the one practitioners most often see when the sequencing is handled without cross-border counsel.

The groups most immediately affected are those where: the beneficial owner has already changed personal residence or is planning to; the CIS holding entity is the counterparty to an active financing arrangement or guarantees a Mainland operating company's obligations; or the offshore layer is under review by the relevant tax authority for insufficient substance. Each of these situations changes the sequencing requirements and the order in which corporate steps should be taken.

For related guidance on the family-office and personal-residence dimension of relocations through Hong Kong, see our guide on UK–Hong Kong family-office relocation. Where source-of-funds questions arise on the move – as they regularly do when capital is transferred through Hong Kong at the point of restructuring – the considerations set out in our briefing on the source-of-funds file for Cayman-island principals apply equally to CIS principals arriving in Hong Kong.

The immediate action points

Three steps warrant attention now.

First, map where central management and control currently sits. This is not a question about registered offices or nominee directors. It is a question about who attends which meetings, where those meetings take place, who signs which documents, and where strategic decisions are documented. The answer to that question determines whether a Hong Kong migration produces a genuine shift in tax residence or merely a change in paperwork.

Second, assess the treaty position in the departing jurisdiction before triggering any corporate step. Some CIS jurisdictions impose exit taxes or treat the migration of a holding entity as a deemed disposal. Others require regulatory approval before a company can change its seat. The order of steps – dissolution versus continuation, re-domiciliation versus new incorporation with an asset transfer – turns on these local rules, and the wrong sequence can crystallise a taxable event before the Hong Kong holding entity is operational.

Third, review the FSIE position at the Hong Kong end. A holding company that receives dividends from a connected entity outside Hong Kong, or that derives gains on disposal of shares in a connected entity, will need to satisfy the economic-substance conditions under the FSIE regime to benefit from the exemption. Those conditions require genuine people, genuine decision-making, and genuine costs in Hong Kong. Establishing that substance takes time, and it needs to be in place before the income flows, not after.

For a structured assessment of your relocation position across the CIS and Hong Kong corridors, write to us at info@lockhartyip.com.

Our broader capital relocation practice covers the sequencing, substance, and tax-residence requirements for groups moving their holding base to Hong Kong from across Asia, the CIS, and Europe.

Related practices

• Capital Relocation – sequencing and substance for cross-border holding migrations to Hong Kong
• Tax Positions – FSIE, territorial tax analysis, and treaty positioning for incoming structures

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• Capital Relocation
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• Source Funds File Cayman Islands Principal Hong Kong

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