Hong Kong will soon allow re-domiciliation of existing offshore funds through amendments to the Securities and Futures Ordinance (SFO) for open-ended fund companies (OFCs) and the Limited Partnership Fund Ordinance (LPFO) for limited partnership funds (LPFs). On 1 February 2021, members of the Legislative Council’s (Legco) Panel on Financial Affairs discussed and were supportive of the proposal that aimed to open the way for existing funds to move to Hong Kong where fund managers are licensed and their substantial activities are conducted. This places Hong Kong in line with the global trend of fund “onshorisation” taking place in many parts of the world.

In Legco’s discussion paper, the Hong Kong Government proposes that an existing fund can re-domicile and register as an OFC or LPF if it meets the same eligibility requirements for a new fund under the respective regime. The application process will be straightforward: it will require a single submission of the application documents and application fee to the Securities and Futures Commission to register a non-Hong Kong fund as an OFC; or to the Registrar of Companies in respect of an LPF.

The fund’s identity will be preserved upon re-domiciliation, which translates into numerous benefits:

• any contract made or resolution passed will remain intact;
• all rights, functions, liabilities or obligations, and property of the fund before its registration in Hong Kong, will be preserved;
• previous legal proceedings by or against the fund will not be rendered defective; and
• the re-domiciliation does not amount to a transfer of assets or a change in beneficial ownership, hence no stamp duty implications.
  
  

Hong Kong is the logical choice for fund managers given its strong community of investors and professional service providers, the proximity to Mainland China and the active initial public offering market for conducting fundraising, deal sourcing and investment management activities. The new proposal puts Hong Kong as a fund domicile in the spotlight again, following the launch of OFC and LPF regimes, as well as the recent draft legislation providing for tax concessions on carried interest.

The SFO and LPFO amendment bills are expected to be introduced for first and second readings before Legco’s summer recess this year.