Update: relocation and the management-and-control

The management-and-control test is the hinge on which corporate tax residence turns. Move a business without moving the decision-making, and the old residence does not follow the new address. The risk is not theoretical: revenue authorities across Asia and the principal offshore corridors have sharpened their scrutiny of holding entities and their executive presence.

Corporate tax residence for a company relocating through or to Hong Kong is determined primarily by where central management and control is actually exercised – not where the entity is incorporated or where its registered office sits. The Inland Revenue Ordinance applies this test to incoming structures, and peer jurisdictions apply equivalent tests outbound. A principal or group counsel planning a relocation must sequence the substance steps before, not after, the first board meeting at the new address.

This briefing addresses the cross-border dimension of that test, identifies who is most immediately affected, and sets out the action it calls for now.

What is driving the pressure on management and control?

The management-and-control test is not new. What has changed is the environment in which it operates.

Two developments are running in parallel. First, the foreign-sourced income exemption (FSIE) regime – Hong Kong's economic-substance-linked regime for passive income received by connected entities – has been in force since 1 January 2023. It links the availability of the exemption to genuine economic activity in Hong Kong. A company that claims Hong Kong tax residence but cannot demonstrate that its central management and control is exercised here will struggle to satisfy the regime's conditions.

Second, the global minimum tax – Hong Kong's minimum top-up tax and the income inclusion rule under Pillar Two – applies to in-scope multinational enterprise groups for fiscal years beginning on or after 1 January 2025. In-scope means consolidated revenue of at least EUR 750 million. For those groups, the location of top-level decision-making is now a Pillar Two variable as much as a domestic-tax one. Where a holding entity sits, and where its directors demonstrably meet and act, feeds directly into the effective-tax-rate calculation across the group.

The corridor that concentrates the highest volume of live questions runs between Mainland China and Hong Kong, with secondary flows from Singapore, the United Arab Emirates and European holding jurisdictions. In our cross-border practice, we regularly see structures where the declared seat of management has not moved with the individual who made the decisions. That gap is the source of the exposure.

Who is affected and what must happen next?

Any group or principal engaged in a relocation – whether of the holding company, the family office vehicle, or the operating-level entity – is affected if the sequence of steps has not been documented against the management-and-control standard.

The immediate categories are: holding entities incorporated offshore (BVI or Cayman Islands structures are common in this corridor) where the beneficial owner has moved to Hong Kong or another jurisdiction; Hong Kong-incorporated companies where directors resident elsewhere continue to exercise control in practice; and operating companies in the Greater Bay Area with a nominal Hong Kong subsidiary that the Mainland parent manages without local decision-making.

The practical test is specific. Revenue authorities ask where the highest-level decisions of the company – strategic direction, approval of major contracts, senior appointments – are actually made. Board minutes, director travel records, the location of banking mandates and the physical presence of management all form part of the file. A registered address in Hong Kong, or a local company secretary, does not by itself satisfy the test.

For principals who have already relocated personally but have not yet restructured the governance of their entities, the window between the moment of personal relocation and the first full financial year at the new address is the critical period. Decisions made in that window either build or undermine the substance position for the years that follow. For a structured assessment of your relocation sequence and the management-and-control position across the relevant jurisdictions, write to us at info@lockhartyip.com.

For further context on the capital relocation process and what it involves for international groups and family principals, see our capital relocation practice overview. The banking-account step – which is closely connected to the substance question – is addressed separately in our briefing on opening a Hong Kong bank account during a relocation. Source-of-funds considerations for the Singapore-to-Hong Kong principal are addressed in our note available at source of funds: the Singapore principal and the Hong Kong bank.

Frequently asked questions

How does the cross-border element affect relocation and the management-and-control test?

The cross-border dimension is central, not incidental. When a principal or holding entity moves between two jurisdictions – say, from a Mainland-connected structure into a Hong Kong holding company – both the origin and the destination revenue authority will apply their own version of the management-and-control test. The same board action, or the same director's physical presence, can trigger residence in one jurisdiction while ending it in another. Sequencing the governance steps across both legal systems, and documenting the handover of control, is what determines the outcome of a challenge. Parties should verify the current position in the relevant jurisdictions before acting.

How long does relocation and the management-and-control test usually take?

There is no single statutory period. The management-and-control test is assessed on the facts of each financial year. In practice, building a defensible substance position in a new jurisdiction requires at minimum one full financial year in which the new governance arrangements are in place, documented and contemporaneously recorded. Where a group is transitioning from a prior holding jurisdiction, parallel substance periods may overlap. Our desk sees matters where the operative question spans two to three financial years before the position is fully settled in the new jurisdiction.

Which jurisdiction's law applies to relocation and the management-and-control test?

Each jurisdiction applies its own domestic tax law to determine residence. Hong Kong applies the Inland Revenue Ordinance; other jurisdictions apply their own equivalent instruments. There is no single supranational rule. Where a double-taxation arrangement exists between Hong Kong and the other jurisdiction, the tie-breaker provision in that arrangement will determine which jurisdiction has primary residence rights when both apply their domestic tests simultaneously. The interaction between the domestic test, the arrangement tie-breaker, and the FSIE substance conditions must be read together. Advice on international and foreign law is what we provide; Hong Kong-law matters are handled together with locally licensed firms.

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

Update: relocation and the management-and-control test

What is driving the pressure on management and control?

Who is affected and what must happen next?

Frequently asked questions

Speak with Lockhart & Yip

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