The Hong Kong Financial Services & the Treasury Bureau (FSTB) confirmed, in a response to media enquiries on 12 August, that remuneration distributed by ‘proprietary trading businesses’ does not qualify for tax concessions proposed under the Inland Revenue (Amendment) (Preferential Tax Regimes for Funds, Family-owned Investment Holding Vehicles and Carried Interest) Bill 2026.

The Bill, which was tabled in the Legislative Council (LegCo) in June, is designed to enhance the preferential tax regimes for privately offered funds, family-owned investment holding vehicles managed by eligible single-family offices, and carried interest, with a view to attracting more funds and family offices to establish a presence in Hong Kong.

One of the key measures in the Bill is an expansion of the scope of the preferential tax regime for carried interest from currently covered private equity investments, to other profits of eligible funds that may also yield eligible carried interest qualifying for the profits tax and salaries tax concessions.

In its statement, the FSTB noted that the preferential regime applies only to eligible carried interest distributed by funds as defined under the Inland Revenue Ordinance (IRO). Under the IRO, a fund must generally satisfy the requirement that participating persons do not have day-to-day control over property management.

The FSTB clarified that a business trading or holding assets using proprietary capital to generate profits for its own account – commonly known as a “proprietary trading business” – would fail to meet this definition. Remuneration from such businesses is therefore excluded from the proposed tax concessions.

Eligible carried interest refers to returns, that are linked to the investment performance of a fund, earned by fund management companies or their qualifying employees from the provision of investment management services in Hong Kong for the fund.

The FSTB stated that eligible carried interest must be determined by the fund’s operating or investment management agreement. The returns received by fund managers or qualifying employees must be non-discretionary and based on investment performance.

Eligible investment management services include seeking capital for the fund, researching and advising on potential investments, acquiring, managing or disposing of property or investments for the fund, and assisting investee entities in raising capital.

The Bill also proposes refining distribution requirements to accommodate different practical arrangements for carried interest.

The Bill is currently under scrutiny by the LegCo’s Bills Committee, with the clause-by-clause examination completed. The government aims to resume second reading debate on the Bill in the second half of this year. Subject to passage by the LegCo, the relevant measures will take effect from the year of assessment 2025/26.

In implementing the enhancement measures, the Inland Revenue Department will issue administrative guidance where necessary to provide further clarifications on matters relating to the implementation details. The FSTB said the government had no plans to further expand the scope of the preferential measures.

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The Hong Kong Companies Registry registered 122,481 local and re-domiciled companies during the first half of 2026. At the end of June, the total number of local companies and re-domiciled companies registered under the Companies Ordinance reached 1,609,720, an all-time high.

In the first half of 2026, a further 903 non-Hong Kong (offshore) companies established a place of business in Hong Kong and were registered under the Companies Ordinance. The total number of registered non-Hong Kong companies reached 16,014 by the end of June, which was also an all-time high.

The Companies Registry reported that it had received 70 applications under the new Company Re-domiciliation Regime, which came into operation in May 2025. By the end of June this year, a total of 42 companies had successfully re-domiciled to Hong Kong, including two insurance companies and one listed company. The original places of incorporation of these companies include the British Virgin Islands, Luxembourg, the Cayman Islands and Bermuda.

There were 406 new registrations of Limited Partnership Funds (LPFs) in the first half of 2026 and the total number of LPFs registered at the end of June was 1,729. For Open-ended Fund Companies (OFCs), there were 79 new registrations in the first half of 2026 and the total number of OFCs at the end of June was 752.

In respect of licensing, the Companies Registry granted 333 new Trust or Company Service Provider (TCSP) licences during the first half of 2026, bringing the total number of licensees to 7,412 at the end of June. It also granted 66 new Money Lenders licences during the first half of 2026, bringing the total number of licensed money lenders was 1,962 at the end of June.

The Companies Registry also noted that 1,727,449 documents were delivered to the Registry for registration in the first half of 2026 and a total of 2,586,117 searches of document image records were made using its electronic search services.

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When significant sums of money or valuable assets are changing hands, trust alone is not always enough.

Whether you’re purchasing property, conducting international trade, or acquiring shares in a company, an escrow arrangement can provide the security and confidence needed to complete a transaction smoothly.

What is Escrow?

Escrow is a trusted arrangement whereby funds or assets are held by an independent third party until agreed contractual obligations have been fulfilled.

As an escrow agent, Sovereign holds transaction funds in dedicated custodian escrow accounts in Hong Kong and releases them only when the conditions set out in the escrow agreement have been satisfied.

Our escrow solutions support both straightforward domestic transactions and complex cross-border arrangements involving multiple jurisdictions, currencies, and legal frameworks.

What are the benefits of Escrow Agreements?

• Protection – Funds are held by a neutral and trusted third party, safeguarding the interests of all parties.
• Reduced risk – Minimises counterparty and transaction risk by ensuring funds are only released when agreed conditions are met.
• Assurance – the escrow agent provides independent assurance of escrow objectives.
• Speed – Sovereign has escrow accounts available for immediate use (subject to onboarding procedures), so transactions can proceed without unnecessary delays.
• Efficiency – an escrow account helps facilitate efficient and secure transactions and payments for all parties involved in an acquisition.
• Confidentiality – As the escrow account holder, Sovereign provides an additional layer of privacy for transaction participants.

Case Study I: Property Purchase

1. Scenario: a buyer acquiring real estate in Hong Kong
2. Challenge: buyer sought assurance that funds would only be released upon title transfer.
3. Sovereign’s role as Escrow Agent:
   • Purchase funds held in escrow.
   • Ensured release only upon all completion conditions being met.
   • Coordinated with legal advisers to both parties.
4. Outcome: secure, dispute-free property completion.

Case Study II: Trade Transaction

1. Scenario: an international buyer and supplier were entering a transaction.
2. Challenge: lack of trust between parties on payment versus delivery.
3. Sovereign’s role as Escrow Agent:
   • Payment funds held in escrow during shipment.
   • Funds released only upon proof of delivery
4. Outcome: both parties protected against non-performance.

Case Study III: Share Purchase

1. Scenario: acquisition of shares in a private company
2. Challenge: conditions precedent were required to be fulfilled before payment.
3. Sovereign’s role as Escrow Agent:
   • Held purchase funds in escrow.
   • Verified completion of conditions, such as documents and filings.
   • Released funds once all conditions precedent had been met.
4. Outcome: smooth acquisition of shares with reduced transaction risk.

 What are common misconceptions about Escrow Services?

One common misconception is that escrow services are only relevant to large mergers and acquisitions, or highly complex corporate transactions.

In reality, escrow arrangements can be valuable in a wide range of situations, including share sales, investment transactions, property acquisitions, commercial contracts, joint ventures, and any other circumstances where transacting parties require an independent third party to hold funds or assets pending completion.

Another misconception is that escrow arrangements create unnecessary complexity. In practice, a properly structured escrow arrangement can simplify a transaction by establishing clear rules, reducing uncertainty and providing an objective framework for the release of funds or assets.

Why choose Sovereign HK as your Escrow Agent?

• Licensed and trusted – Sovereign HK is licensed as a trust company under section 78(1) of the Hong Kong Trustee Ordinance (Cap. 29), permitting us to act as an escrow agent.
• Independent and secure – funds are fully protected until all conditions are fulfilled.
• Strong in-house legal capability – our in-house legal counsel prepares tailored escrow agreements to ensure that terms are aligned with the commercial transaction proposed.

 Secure your next transaction with an Escrow Agreement

Escrow services can be used in almost any situation where funds or assets are being transferred between buyers and sellers. For further information or to partner with Sovereign HK for trusted escrow solutions, contact us at HK@SovereignGroup.com.

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Hong Kong Inland Revenue Department (IRD) enquiry letters are typically sent to owners of Hong Kong offshore limited companies following the submission of a Profits Tax Return to notify them that the IRD has chosen to formally investigate their tax affairs.

Although some enquiries are carried out randomly, the majority are selected based on a risk assessment of the business to obtain information and supporting documents to understand how a business operates and where its profits are generated.

While receiving an enquiry letter can be a concern for taxpayers, knowing how to effectively manage these inquiries can help ensure compliance and maintain the integrity of your business.

Hong Kong Offshore Profit Claims

Hong Kong’s corporate tax system is based on a territorial source principle: only those profits that arise in or are derived from Hong Kong are liable to Profits Tax in Hong Kong. This means that profits sourced outside Hong Kong qualify for 100% exemption in respect of Hong Kong Profits Tax.

This exemption is not automatically applied to a company’s profits. Instead, the company has to make an ‘offshore profits claim’ within three months from the date of issue of its Profits Tax return. Late applications can still be made within two years of the end of the relevant year of assessment, but the IRD may impose a penalty for late submission.

Source of profits is always a question of fact depending on the nature of the transaction. Companies should therefore maintain a complete chain of evidence with supporting documentation to substantiate a claim.

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Sovereign’s Asia Conference 2026 brought together colleagues, regional partners and industry contacts for a productive programme spanning Hong Kong and Shenzhen, which combined internal knowledge sharing with external on-the-ground engagement in one of China’s most dynamic business regions.

The conference opened in Hong Kong with a series of internal Sovereign sessions focused on Group updates, regional priorities and cross-border opportunities. Discussions covered developments across Hong Kong, Singapore, the Middle East, Cyprus, Malta, Guernsey and wider international markets to allow offices to exchange insights and devise strategies to support clients with increasingly international needs.

A key highlight of the programme was a seminar on ‘Driving Global Business Expansion, which featured perspectives from several Sovereign jurisdictions and service lines and provided a broad overview of structuring, expansion and planning considerations across Asia, the Middle East and Europe.

Once the Hong Kong programme was completed, the team then travelled to Shenzhen for a series of visits and meetings across Futian, the central business district (CBD), and Qianhai, the tech, finance and urban innovation district that serves as the primary gateway for cross-border collaboration with Hong Kong.

The Shenzhen programme included engagements with the GoGBA Business Support Centre run by the Hong Kong Trade Development Council (HTKDC), the Longhua District’s Industry Going Global Alliance platform, the Top China Brand Global Expansion Expo Alliance collaboration, the landmark Qianhai Exhibition Hall, the Qianhai Shenzhen–Hong Kong Youth Innovation & Entrepreneur Hub cross-border incubator, and the Shenzhen office of international law firm DeHeng Law Offices.

These visits provided first-hand insight into the platforms, policy initiatives and professional networks supporting Chinese companies as they seek to expand internationally. From government-backed business support and brand globalisation platforms to innovation hubs and legal advisory networks, the programme offered a timely view of how Shenzhen and the Greater Bay Area continue to strengthen their role in cross-border trade, investment and entrepreneurship.

The trip also reinforced the importance of face-to-face engagement. Meeting with government representatives, industry leaders, start-ups and professional advisers enabled the Sovereign team to deepen relationships, better understand local priorities and identify where the Group’s international network and advisory capabilities can add value for businesses looking beyond their home markets.

This year’s Sovereign Asia Conference was not only an opportunity to share expertise internally, it was also a valuable platform to connect regional knowledge with international opportunity. As businesses across Asia continue to pursue growth across borders, Sovereign remains well placed to support clients with practical, coordinated and informed solutions.

Commenting on the event, Alan Fong, Managing Director Asia, added: “This year’s Asia Conference further reinforced Sovereign’s position as a truly international business, underpinned by strong regional insight. By bringing together colleagues from across our regional offices to Hong Kong and Shenzhen, we were able to deepen collaboration and gain valuable, first-hand perspectives on cross-border growth. These engagements have strengthened our ability to deliver coordinated, practical solutions to clients navigating international expansion, allowing their businesses to grow beyond their domestic markets.”

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The governments of the Hong Kong Special Administrative Region (HKSAR) and the Republic of Cyprus announced the signing of a comprehensive double taxation agreement (DTA) on 12 June aimed at eliminating double taxation on income and combating tax evasion and tax avoidance.

In-scope taxes include Hong Kong profits tax, salaries tax and property tax and Cyprus income tax, corporate income tax, capital gains tax and special defence contribution.

Business profits are generally taxable only in the country of residence, unless the company operates through a permanent establishment (PE) in the other jurisdiction. Where a PE exists, profits must be attributed based on the arm’s length principle, reflecting functions, assets and risks. This aligns with international OECD standards and provides a consistent framework for transfer pricing.

Under the DTA, any tax paid by Hong Kong residents in Cyprus will be allowed as a credit against the tax payable in Hong Kong in respect of the same income, subject to the provisions of the Inland Revenue Ordinance (Cap. 112) (IRO). Similarly, Cyprus residents can offset Hong Kong taxes against their Cyprus tax obligations.

The agreement provides that dividends and interest income will not be taxable at source. For cross-border passive income, dividends will generally be taxable only in the recipient’s jurisdiction, while interest will be taxed only where the beneficial owner resides. Cyprus withholding tax rates for Hong Kong residents on royalties will be reduced from 10% to 3%.

For real estate investments and holding structures, gains from immovable property or from shares derived mainly from real estate will be taxed where the property is located. Other gains will generally be taxed in the investor’s country of residence

For individuals, the treaty clarifies that employment income will generally taxed in the country where the employment is exercised but a 183-day rule allows exemption in short-term assignments under certain conditions. This provides flexibility for expatriates and cross-border professionals.

The DTA includes provisions intended to counter tax base erosion and profit shifting. It also includes a Principal Purpose Test (PPT) to counter treaty abuse, prevent the artificial avoidance of permanent establishment status, neutralise the effects of hybrid mismatch arrangements and improve dispute resolution mechanisms.

The agreement will enter into force after the completion of domestic ratification procedures by both states. It will then be effective for Hong Kong from 1 April of the year following its entry into force and in Cyprus from 1 January of the year following its entry into force.

“Cyprus is a participant in the Belt and Road Initiative and an important trading partner of Hong Kong in Europe. This CDTA sets out the allocation of taxing rights between Hong Kong and Cyprus, which will enable investors to better assess their potential tax liabilities from cross-boundary economic activities and avoid double taxation. This will help promote bilateral trade and investment,” said Hong Kong Secretary for Financial Services & the Treasury Christopher Hui.

“This is the 58th CDTA that Hong Kong has concluded and also the third one this year, signifying the HKSAR Government’s ongoing achievements in expanding the CDTA network. We will continue to actively seek to sign CDTAs with more tax jurisdictions to enhance the attractiveness of Hong Kong as a business and investment hub.

Mingson Chi, Client Accounting manager at Sovereign Trust (Hong Kong), said. “Cyprus offers access to EU markets, while Hong Kong serves as a springboard into Mainland China and Asia. This agreement effectively creates a tax-efficient bridge between the two regions.

“The favourable treatment of dividends and interest makes this treaty highly attractive for holding companies, treasury centres and private equity and investment funds. With royalties capped at 3%, businesses can also explore IP licensing structures with significantly reduced withholding tax exposure.”

For further information or to find out how this new DTA may impact your business or cross-border investments, please contact Mingson by phone on +852 2542 1177 or by email below.

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To strengthen its position as a global business and financial hub, Hong Kong introduced an inward company re-domiciliation regime in May 2025 to provide a simple, cost-effective and court-free pathway for foreign companies to re-domicile in Hong Kong while maintaining their legal identity and ensuring business continuity.

Previously, companies wishing to re-domicile in Hong Kong had to undergo the complicated judicial procedures associated with either winding up in the original domicile and incorporating a new body corporate in Hong Kong or entering a court-sanctioned scheme of arrangement to convert into a wholly owned subsidiary of a Hong Kong incorporated company.

The new regime received a positive market response. A unit of PetroChina Investment (Hong Kong) became the first foreign company to receive a certificate of re-domiciliation from the Companies Registry last October, with a further five companies redomiciling to Hong Kong before the end of the year. This year, a total of 28 companies had redomiciled to Hong Kong up the end of April, including the first public company.

Upon re-domiciliation in Hong Kong, a company retains its legal identity and all existing property, rights, obligations, liabilities, and contractual and legal processes. It enjoys the same rights as other companies of its kind incorporated in Hong Kong and will have to comply with the relevant requirements as other locally incorporated companies under the Companies Ordinance (Cap. 622).

The regime only allows for inward re-domiciliation. Outward re-domiciliation is not available.

Eligibility for Redomicilation

Under the Companies (Amendment) (No.2) Ordinance 2025, the type of company under the law of its original domicile must be the same or substantially the same as the proposed type in the Hong Kong re-domiciliation application.

The re-domiciliation regime applies to four types of companies that can be formed in Hong Kong or their comparable overseas incorporation types:

• Private companies limited by shares.
• Public companies limited by shares.
• Private unlimited companies with a share capital.
• Public unlimited companies with a share capital.

The laws of the original domicile of the company must permit outward redomiciliation, the company’s members must consent to the re-domiciliation, and the application must be made in good faith and must not be intended to defraud existing creditors. In addition, the company must:

• Have been incorporated for at least one financial year.
• Be able to pay all debts that will fall due within 12 months.
• Not be in liquidation or in the process of being wound up, and no such proceedings against the company should be ongoing or pending.
• Not be used for unlawful purposes or purposes contrary to the public interest.

Application for re-domiciliation

The company is required to submit an application form together with the following supporting documents to the Hong Kong Registrar of Companies:

• Re-domiciliation Form (NNC6).
• Notice to Business Registration Office (IRBR5).
• A legal opinion from a qualified legal adviser in the company’s original domicile issued within 35 days of the application date.
• A copy of the proposed articles of association to be adopted by the company.
• Certified copies of the company’s certificate of incorporation and constitutional documents.
• A members’ resolution duly passed by at least 75% of the eligible members of the company.
• Accounts of the company dated no more than 12 months prior to the application date.
• A certificate confirming the company’s fulfillment of the eligibility criteria issued by the board of directors of the company within 35 days of the application date.

The company will need to pay a prescribed fee of HKD6,050 (digital form) or HKD6,725 (hard copy form) together with its application.

Approval procedures

If documents and particulars required for the re-domiciliation application are in order, the applicant should generally be registered as a re-domiciled company within two weeks. The naming restrictions and requirements under the Hong Kong Companies Ordinance are applicable to a re-domiciled company.

Upon approval, a certificate of re-domiciliation will be issued to the company. From that date, the re-domiciled company will be regarded as a company incorporated in Hong Kong and will be required to have a registered office in Hong Kong and appoint a company secretary.

Upon the registration of a non-Hong Kong corporation as a re-domiciled company, the re-domiciliation form and the proposed articles of the company will be made available for public inspection in the Companies Register together with the certificate of re-domiciliation.

Hong Kong profits tax will apply only to profits arising in or derived from Hong Kong from a trade, profession, or business carried on in Hong Kong.

The Inland Revenue Ordinance (Cap. 112) has been amended to address transitional tax matters, including the fair deduction for trading stock, specified types of expenditure and depreciation allowances. If the company’s actual similar profits are also taxed in Hong Kong after re-domiciliation, the Hong Kong government will offer unilateral tax credits to eliminate any double taxation.

Post-approval procedures

The re-domiciled company must deliver to the Registrar of Companies within 15 days a return in the specified form (Form NSC21) to report the statement of capital of the company as at the re-domiciliation date.

A re-domiciled company is required to de-register from its original domicile within 120 days of the issuance of the certificate of re-domiciliation in Hong Kong. Documents evidencing the deregistration must be submitted to Hong Kong Registrar of Companies and failure to comply could result in revocation of the re-domiciliation registration.

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Financial Secretary Paul Chan delivered Hong Kong’s 2026-27 Budget on 25 February. Themed as ‘Driving High‑quality, Inclusive Growth with Innovation and Finance’, the Budget is focused on sustaining growth momentum, advancing long‑term capability building and positioning Hong Kong to capture new opportunities.

Hong Kong’s economy grew by 3.5% in 2025, marking the third consecutive year of expansion, supported by strong external trade and a recovery in domestic demand. It is forecast to grow by 2.5%-3.5% in the year ahead, while the headline inflation rate is expected to remain below 2%.

Chan said a buoyant economy and capital market had driven higher tax revenues, while a reinforced fiscal consolidation programme had helped public finances improve sooner than expected. To preserve the SAR’s simple and low-rate tax regime, the government will introduce and extend a series of modest tax relief measures for households in 2026, along with a package of preferential tax policies for targeted businesses and industries.

To raise revenue, the government is to raise stamp duty rates from 4.25% to 6.5% on high-value residential property transactions valued above HKD100 million (USD12.8 million). It will also continue to implement the OECD Pillar Two Global Minimum Tax, which has been in force since financial years (FYs) starting on or after 1 January 2025.

Under the rules, multinational enterprise (MNE) groups with consolidated annual revenue of at least €750 million are required to pay top-up taxes if their effective tax rate falls below the minimum 15%. According to Chan, implementation of these rules is expected to bring in an additional HKD15 billion (USD1.9 billion) in tax revenue per year starting from FY 2027-28.

To align Hong Kong’s economic future with its development goals, the focus of investment in the Budget was in the innovation, artificial intelligence and international financial sectors, with initiatives including:

• Asset and Wealth Management – to increase the number of single-family offices in Hong Kong, which currently exceeds 3,300, and attract funds to set up in Hong Kong, the HK government will introduce an amendment bill in the first half of this year to enhance the tax regime and expand the scope of ‘fund’ to cover specific funds-of-one, as well as classifying digital assets, precious metals, specified commodities as qualifying investments eligible for tax concessions; it will also legislate to enable privatisation of Real Estate Investment Trusts (REITs) and to amend the law next year to provide stamp duty waiver for transferring non-residential properties into REITs seeking to list.
• Corporate Treasury Centres (CTCs) – the HK government to relax criteria for stamp duty relief for intra-group transfer of assets, applicable to instruments signed from Budget day. Further measures to strengthen Hong Kong as a base for CTCs to be announced in the middle of this year, including additional tax incentives, greater flexibility for CTCs and associated companies, and the introduction of a pre-approval mechanism.
• Company Re-domiciliation Regime – with the approval of 22 re-domiciliation applications since commencement of the regime in 2025 and a further 20 applications being processed, the government will step up publicity to attract more enterprises to establish in Hong Kong.
• Development of Digital Assets – CMU OmniClear, which operates Hong Kong’s central securities depository (CSD) for fixed-income, to establish digital asset platform in the year to support issuance and settlement of digital bonds. The government will introduce a bill this year to establish licensing regimes for, among others, digital asset dealing and custodian service providers.
• Intellectual Property Trading – the HK government to introduce legislation this year for tax deduction arrangements for capital expenditure in purchasing intellectual property; to invest HKD28 million in the Hong Kong Technology & Innovation Support Centre for patent evaluation and implement a two-year Pilot Patent Valuation Support Scheme; to invest HKD52 million for Intellectual Property Academy on two-year pilot.
• Trade Centre – the HK government to introduce amendment to tax law this year for preferential policy packages, including preferential arrangements on land grants, financial subsidies and tax incentives. Preferential tax rates at half rate or 5%; to set up Advisory Committee on Tax Policy; to set up cross-sectoral professional services platform to support Mainland enterprises expanding overseas using Hong Kong as a base; and to invest HKD100 million to attract international, large-scale exhibitions with new elements.
• Mutual Market Access – the HK government to expedite the launch of Chinese Government Bond futures in Hong Kong, inclusion of REITs in mutual access, and inclusion of RMB trading counter under Southbound Stock Connect.
• Driving AI+ Development – the HK government to establish Committee on AI+ and Industry Development Strategy to transform industries; the Hong Kong AI Research & Development Institute to operate in second half of year to support R&D and transformation of outcomes.
• Small and Medium-sized Enterprises (SMEs) – the HK government to inject a further HKD200 million into the Dedicated Fund on Branding, Upgrading and Domestic Sales (BUD Fund) to assist Hong Kong-based companies capitalise on opportunities in the Chinese Mainland and ASEAN countries, and raise the funding ceiling of ‘Easy BUD’ to HKD150,000 per application; to increase the total loan guarantee commitment to enterprises through the SME Financing Guarantee Scheme by HKD20 billion and extend the application period for the 80% Guarantee Product to the end of March 2028 and the application period for the principal moratorium arrangement to mid-November this year.
• Aviation, Shipping and Logistics – the HK government to launch a Future Innovative Logistics Acceleration Scheme this year to enhance interconnectivity of logistics data; to introduce legislation this year to enhance tax-concession measures for maritime services industry, provide half-rate tax concession to eligible commodities traders, revamp existing ship registration arrangements, extend current arrangements under Air Transhipment Cargo Exemption Scheme.
• Supporting Emerging Industries – the HK government to set up HKD10 billion I&T Industry-Oriented Fund to begin operation this year to channel market capital into strategic and emerging industries, including life and health technology, AI and robotics, and future industries; to review and enhance tax arrangements for R&D expenditures; to push for R&D and applications in embodied AI, quantum technology and new materials; to direct Office for Attracting Strategic Enterprises (OASES) to attract aerospace enterprises and Stock Exchange of Hong Kong (HKEX) to review listing requirements for aerospace enterprises; Hong Kong Investment Corporation (HKIC) and enterprises to establish Hong Kong RISC-V Alliance, forging collaboration among industries, academia and the investment sector in microelectronics.
• Gold Trading – the HK government to explore tax concessions for eligible institutions conducting gold trading and settlement in Hong Kong.
• New Industrialisation – the HK government to launch a New Industrialisation Elite Enterprises Nurturing Scheme this year to support high-growth enterprises; to allocate HKD220 million to establish the first national manufacturing innovation centre outside the Mainland at Yuen Long InnoPark, which will be led by the Hong Kong Microelectronics Research and Development Institute and focus on semiconductor R&D.
• Northern Metropolis for I&T – the HK government to set aside HKD10 billion each for the Hetao Hong Kong Park, the San Tin Technopole and the Hung Shui Kiu Industrial Park to accelerate the megaproject through the government’s partnership with developers and tech enterprises.

The government has launched a public consultation on the implementation of the OECD’s new Crypto-Asset Reporting Framework (CARF) and related amendments to the Common Reporting Standard (CRS 2.0) for the reporting and automatic exchange of information in respect of crypto-assets. It plans to complete the necessary legislative amendments in 2026 to implement the CARF rules to be effective on 1 January 2027 and the CRS 2.0 rules on 1 January 2028.

The government is committed to expanding Hong Kong’s network of Double Taxation Agreements, which currently comprises 55 agreements, including those signed last year with Jordan, Maldives, Norway and Rwanda.

In view of the evolving global tax environment, the Financial Secretary is to establish and chair an Advisory Committee on Tax Policy to gather views from commercial, industrial and professional sectors, so that Hong Kong’s tax policy can reinforce economic development.

2026 marks the first year of China’s 15th Five-Year Plan. Chan announced that Hong Kong will, for the first time, formulate its own local five-year plan, indicating that the region’s development trajectory will align more closely with national policy priorities in the coming years.

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Hong Kong’s status as the preeminent supply chain ‘super-connector’ for Chinese Mainland enterprises to expand overseas and for global companies to access the market and regional supply chains has been reaffirmed by a major new US-Hong Kong research initiative published in December.

Commissioned by the Hong Kong Trade Development Council (HKTDC) and conducted by the Bay Area Council Economic Institute of the United States, the study analysed the ways in which the shift in US trade policy has triggered the accelerated reconfiguration of global supply chains.

Titled ‘Strategically Leveraging Supply Chains to Access the Asian Market’, the study noted that heightened geopolitical tensions, evolving trade policies, environmental pressures and technological advancements had served as a collective catalyst for a supply chain revolution that was impacting every aspect of the global economy.

In the wake of this mass recalibration, companies are having to reassess their operations and look to manage previously unencountered risks, ensuring that resilience is now prioritised alongside cost management and consistent competitiveness. This, it said, will inevitably impact the primacy of Asia’s role within this transformed landscape.

While subject to the same US reciprocal tariffs as the Chinese Mainland, Hong Kong as a stand-alone customs territory maintains a zero-tariff rate distinct from the Mainland and does not impose reciprocal tariffs on the import of US goods.

This and the exemption from tariffs for qualified goods exported from Hong Kong to the Chinese Mainland under the Closer Economic Partnership Arrangement (CEPA) has positioned Hong Kong as a key potential platform for US sales to the China market. In 2018, the CEPA was extended extension to include trade facilitation measures in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA).

To qualify for the preferential treatment, goods exported to the Chinese Mainland require a Certificate of Hong Kong Origin–CEPA (CO–CEPA) issued by the Hong Kong SAR’s Trade and Industry Department or by one of several Government Approved Certification Organisations (GACOs) such as the Hong Kong General Chamber of Commerce.

International companies with a qualified Hong Kong presence are eligible to leverage CEPA’s benefits when accessing the Chinese Mainland market. This can be done by establishing a legal entity in Hong Kong or by partnering with or acquiring a qualified Hong Kong company.

The manufactured products produced in Hong Kong and sold in the Mainland market will not be subject to Mainland tariffs. Qualifying companies are required to meet Rules of Origin thresholds that may consider where production occurs, apply a change in tariff heading (CTH) approach, and consider local content in a value-added requirement.

For zero-tariff treatment in some product categories, a company’s products must undergo “substantial transformation” in Hong Kong, with a value-added of at least 30%. Companies can subcontract for processing outside Hong Kong and add final finishing to a product in Hong Kong before its export to the Mainland.

This would, for example, allow a US company to establish a base of operations in Hong Kong, develop production partnerships in the GBA, and export those products to the Chinese Mainland under favourable CEPA terms.

When structuring contracts or joint ventures with Chinese Mainland partners, including those in the GBA, the foreign company’s Hong Kong entity has the ability to select Hong Kong as the governing law and seat for arbitration, assuring access to the city’s common law framework and significantly mitigating risk with regard to trade, investment, intellectual property, and other commercial disputes.

Service providers can also access CEPA benefits. Currently, the Chinese Mainland has fully or partially opened up 95.6% of its service sectors to Hong Kong companies. Benefits include the allowance of wholly-owned operations, relaxed restrictions on equity shareholding, reduced registered capital requirements, and relaxed restrictions on geographic location and business scope.

The critical step is to incorporate a legal entity in Hong Kong. Under CEPA’s non-discrimination principle, a foreign-owned company registered in Hong Kong will be treated as a “local Hong Kong service provider” and eligible for CEPA benefits.

The entity could be a regional headquarters, a project-specific company, or a joint venture with a local partner. With the recent removal of a qualification requirement of three years of substantive operations in Hong Kong, newly established companies can access these benefits almost immediately.

Another evolution of the original CEPA provides (with some exceptions) national treatment for investors from Hong Kong in all non-service sectors including manufacturing and investment in assets. Investment protection measures apply to both the service and non-service sectors, including restrictions on the expropriation of assets, the transfer and return of investments, and the simplification of procedures relating to investment. The Trade & Industry Department provides Hong Kong Investor (HKI) certificates to qualifying Hong Kong entities.

The report cited the electric vehicle (EV) sector as one example where Hong Kong is already playing a pivotal role in the regional supply chain transformation process. As mainland-based automotive manufacturers, as well as their global counterparts, prioritise the expansion of EV and battery production in Southeast Asia, Hong Kong has served as a crucial investment and financial hub, acting as an effective conduit for significant capital to be channelled into countries such as Indonesia, Thailand and Malaysia.

More generally, recent investment data also clearly indicated that Chinese Mainland companies are increasingly utilising Hong Kong as the support platform for many of their regional projects. This outcome bolstered by Hong Kong’s wide-ranging financial and professional services sectors, as well as the city’s agility in adapting to technological transformation and the evolving regulatory landscape.

“The adoption of strategies such as reshoring, nearshoring and developing redundant supply routes by many global businesses is accelerating the regionalisation of supply chains,” said Sean Randolph, Senior Director of the Bay Area Council Economic Institute. “Companies are diversifying their manufacturing bases, while relocating certain activities from China to other countries in Southeast Asia, India and Mexico – adopting the so-called ‘China+1’ strategy in order to ensure resilience and reduce risk exposure.

“At the same time, despite the ongoing bilateral friction, it is notable that many US companies remain deeply engaged with China. This is largely on account of the country’s unique concentration of suppliers – especially in the case of regions such as the GBA – which cannot be easily replaced or replicated elsewhere.

“Indeed, a number of recent surveys and announcements – including major Chinese Mainland investment commitments by businesses of the stature of Nvidia and Apple – have clearly demonstrated that, for many US businesses, China remains a key locale, with their engagement at least partly due to the indispensability of the broader regional supply chains,” said Randolph.

This new HKTDC research highlights Hong Kong’s vital roles as both a ‘super-connector’ and a ‘super-value-adder’, while confirming the city’s status as the key enabler for any mainland enterprise looking to expand overseas, and simultaneously serving as a gateway for any global company looking to access the revitalised regional supply chains and the China market.

“As companies reshape supply chains and seek resilient gateways into the region, Hong Kong remains one of the most efficient and trusted locations to establish a presence,” said Alan Fong, Sovereign Managing Director – Asia. “Hong Kong is a key strategic hub where regional, Mainland and global businesses continue to build and expand their operations.”

Sovereign Hong Kong can support clients through:

• Hong Kong company incorporation and redomicilation.
• Full corporate administration and management.
• Professional company secretarial and governance services.
• Accounting, HR, payroll and economic substance services.
• Integrated business and wealth structuring.

With Hong Kong’s strategic role strengthening, now is an ideal time for businesses and families to explore new opportunities in both the city and the wider Greater Bay Area. To learn how we can support your Hong Kong set-up or expansion, please contact us at below.

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Why a company secretary is required in Hong Kong

Understanding the requirements for a company secretary in Hong Kong is crucial for any business owner or director.

The role of a company secretary is to ensure that the company complies with all statutory financial and legal requirements under applicable laws and regulations in Hong Kong. These include, among others, the Companies Ordinance, Business Registration Ordinance and the Inland Revenue Ordinance.

The Companies Ordinance sets out clear guidelines to ensure that every company appoints a qualified and capable company secretary.

Who can act as a company secretary in Hong Kong

A company secretary can be either an individual or a corporate body. A company secretary who is a natural person must be aged 18 or above and must be ordinarily resident in Hong Kong. Company secretaries who are natural persons are only required to report their correspondence addresses to the Registrar of Companies instead of their usual residential addresses.

A company secretary who is a corporate entity must be a Hong Kong-registered company, or an overseas incorporated company registered in Hong Kong as a non-Hong Kong company, that has its registered office or principal place of business in Hong Kong.

If the secretary is a corporate entity, it must further hold a Trust and Company Service Provider (TCSP) licence issued by the Companies Registry.

A private local limited company must have at least one director who is a natural person and one company secretary. The Companies Ordinance expressly prohibits a sole director from acting as the company secretary of the same company. It also provides that no private company having only one director may have a body corporate as its company secretary if the sole director of that body corporate is also the sole director of the private company. If there are multiple directors, one director may take on the role of company secretary.

For listed companies, the requirements are even more stringent: the company secretary must be a member of the Hong Kong Chartered Governance Institute (HKCGI), a qualified solicitor or a certified public accountant.

The HKCGI, formerly known as The Hong Kong Institute of Chartered Secretaries (HKICS), is the only qualifying institution in the Chinese mainland and Hong Kong for the internationally recognised Chartered Secretary and Chartered Governance Professional qualifications.

Why many companies appoint a professional company secretary

Given the complexity and importance of the company secretary role, many companies choose to appoint a professional corporate services provider.

Sovereign Trust (Hong Kong) is a Hong Kong-registered company that has its registered office in Hong Kong. It holds a Trust and Company Service Provider (TCSP) licence issued by the Companies Registry.

We offer expert company secretarial services and registered office facilities to Hong Kong companies, ensuring that your business meets all statutory requirements and operates smoothly and compliantly.

Our company secretarial services include:

• Acting as named company secretary of the Hong Kong company
• Preparing annual returns and filing at the Companies Registry
• Preparing documents in respect of annual general meetings
• Keeping and updating statutory books and records
• Preparing documents in relation to share transfers
• Amending articles of association under Hong Kong law and filing at the Companies Registry
• Preparing documents and filing at the Companies Registry in respect of:
  • Change of director or company secretary
  • Change of registered office address
  • Change of name
  • Share allotment
  • Consolidation or subdivision of share capital

If you are unsure whether your current arrangements meet the legal requirements, or if you need help appointing a qualified company secretary, contact us today for a consultation.

The post What Are the Requirements for a Company Secretary in Hong Kong? appeared first on The Sovereign Group.

Companies, wherever they are based, are required to process employee salaries accurately and on time. They must also ensure their income tax and social security compliance in terms of withholding, calculations and reporting. Every country’s employment and tax system is different.

Payroll is more than a routine task – it’s a strategic function that impacts compliance, employee satisfaction and business reputation. This Guide explores why outsourcing payroll is a smart move for businesses operating in Hong Kong.

What Makes Payroll Management in Hong Kong So Complex?

Hong Kong’s payroll regulations are governed by the Hong Kong Employment Ordinance (Cap. 57), Inland Revenue Ordinance and the Mandatory Provident Fund Schemes Ordinance (MPFSO).

The Employment Ordinance is the primary legislation governing employment practices in Hong Kong. It sets out the rights and obligations of both employers and employees, covering key aspects such as wage payment, rest days, statutory holidays, paid annual leave, sickness allowance, maternity and paternity protections, and end of year payments. It also covers employment contracts, termination procedures, severance and long service payments, and protections against anti-union discrimination.

The Inland Revenue Ordinance is Hong Kong’s main tax law, governing taxes like salaries tax, profits tax and property tax. The salary tax system in Hong Kong employs a progressive tax rate structure that is applied to net chargeable income, calculated by subtracting deductions and allowances from total income.

Every employer in Hong Kong must submit a Form BIR56A return annually for the company, as well as individual annual returns (Form IR56B) for all employees, reporting all income regardless of whether they work in Hong Kong or overseas. Employers must submit also submit an IR56E form to the IRD within three months of a new employee’s start date to officially report their commencement of employment.

The Mandatory Provident Fund (MPF) is Hong Kong’s compulsory retirement savings scheme, which requires employers, employees and self-employed individuals to make regular contributions.

Employees who earn below HKD7,100 per month are exempt from contributions, but the employer must contribute 5% of the monthly income. For employees earning between HKD7,100 and HKD30,000 per month, both employer and employee must contribute 5%. For employees earning HKD30,000 or above per month, contributions are capped at HKD1,500 each for both employer and employee.

Employers must enrol employees in an MPF compliant scheme within 60 days of employment and make timely contributions. Adherence to the MPF regulations is critical for payroll compliance and also shows commitment to investing in your employees’ long-term financial future.

In addition to complying with tax reporting by filing employer’s and employee’s returns annually (Forms BIR56A and IR56B), and notifying the IRD of new hires, terminations or departures, employers must maintain accurate payroll records for at least seven years, including wage details, leave records, and MPF contributions.

How Is Payroll Set Up and Managed in Hong Kong?

The first stage will involve registering the employer and its employees with the local tax office and the government employment department, recording employment notices and contracts, obtaining bank details of the employer and employee and, finally, inserting all that information in the payroll system.

The payroll team must process the monthly payroll for salaried employees. It is responsible for creating, maintaining and updating all payroll data, which can include overtime, commissions, expenses, statutory sickness, maternity and other employee benefits.

Regular payroll tasks include calculating wages, deductions, and bonuses, updating records, managing timesheets and ensuring compliance with tax and employment laws. The payroll team will also assist employees with any payroll queries and liaise with tax authorities.

There is no legal requirement under the Employment Ordinance for employers in Hong Kong to provide payslips to employees, but it is a recommended practice. Payslips provide employees with a detailed breakdown of wages, including basic salary, overtime, allowances and deductions, allowing them to verify that they are being compensated correctly.

Accuracy comes from double-checking calculations, reconciling records regularly, understanding tax rules and keeping up to date with legislation changes. Payroll professionals must stay informed and apply updated labour, income tax, social security, pension and any other statutory rules at the right time. Failure to comply can lead to incorrect payments for employees, regulatory fines and penalties, and reputational damage.

Payroll also involves highly sensitive employee data, including employment records, salaries, tax and bank details. Confidentiality is crucial; access should be restricted and data should be handled in line with company policies and regulations under the Personal Data (Privacy) Ordinance, Cap 486 of the Laws of Hong Kong (PDPO).

If your Hong Kong company has an establishment in the European Union or European Economic Area (EEA) where personal data is processed, you must also comply with the EU’s General Data Protection Regulation (GDPR), which has extra-territorial application and imposes greater data protection obligations, as well as substantial penalties for violations.

Why Should Businesses Outsource Payroll in Hong Kong?

Staying on top of these payroll requirements can be challenging, especially for companies without dedicated HR or finance teams. Experienced payroll managers are well remunerated and will also require investment in systems.

Outsourcing your payroll, particularly when setting up business or expanding into a new market, can free up valuable time and resources, while also ensuring that all your obligations and responsibilities are met in a timely and efficient manner in every jurisdiction of operation.

Sovereign Trust (Hong Kong) provides a comprehensive but flexible outsourced payroll service that can be scaled and structured to a client’s specific requirements. You will able to submit data and access real-time payroll information via an online portal, and we will provide the payroll professionals and specialised software to process this information, including calculating wages, handling tax deductions and contributions, issuing payslips, making mandatory reports and managing pension schemes.

Outsourcing payroll to a trusted provider in Hong Kong offers several advantages:

• Expertise in local regulations – ensures full compliance and reduces risk.
• Timely, accurate payroll processing – enhances employee trust and satisfaction.
• Efficient management of MPF scheme ¬– MPF scheme set-up and trustee services, employee enrolment and monthly contribution submissions.
• Comprehensive record-keeping – supports Hong Kong audits and reporting.
• Scalable solutions – we can adapt and scale up our payroll solutions as your business grows.

Sovereign’s Accounting and Payroll Services are tailored to the unique needs of businesses in Hong Kong. Let us handle your payroll complexities so you can focus on what matters most – growing your business. Contact Sovereign Trust (Hong Kong) today for a customised payroll solution.

The post How to Outsource Payroll in Hong Kong: A Strategic Guide appeared first on The Sovereign Group.

Hong Kong has been ranked as the most international city in Asia in a new index compiled by global market research firm Ipsos and commissioned by the Hong Kong General Chamber of Commerce.

The inaugural ‘Asian Cities Internationality Index 2025’ was established to evaluate the internationality of 11 Asian cities – Bangkok, Ho Chi Minh City, Hong Kong, Jakarta, Kuala Lumpur, Mumbai, Seoul, Shanghai, Singapore, Taipei and Tokyo.

Out of a maximum score of 100, Hong Kong ranked first, with a score of 73.7, followed closely by Singapore at 73.5. The Index recognised Hong Kong’s position as an international financial hub, a centre for international events and an international hub for world-class education, as well as its free, safe, and stable living environment. Singapore was highlighted as a multicultural city that nurtures a diverse talent pool.

The Index measured 113 indicators in seven areas: Business & Economy, Quality of Life, Infrastructure & Connectivity, Innovation & Ideas, Human Capital Diversity, Cultural Interaction, and Government & Legal System for Business.

These included 69 statistical indicators from various national and international sources, and 44 indicators gathered from a survey of 1,107 business executives residing in these cities – both local and expats – to provide a broad spectrum of insights.

Tokyo and Seoul formed the next tier. Tokyo (70.0) was found to excel in quality of life, cultural interaction and international presence, while Seoul (69.4) rated highly in advanced transportation and information connectivity.

They were followed by Shanghai (65.1), Bangkok (61.3), Kuala Lumpur (60.7), Taipei (57.9), Jakarta (55.5), Ho Chi Minh City (53.9) and Mumbai (53.1). Shanghai led in innovation with its vibrant innovation ecosystem. Other cities’ unique strengths included tourism appeal, diverse educational resources and accessibility of information, but they were found to have not fully elevated their international standing.

According to the Chamber, Hong Kong’s top ranking was powered by its lead in the Business & Economy segment. But it placed fourth in Innovation & Ideas, trailing Shanghai, Singapore and Seoul, a weakness that had to be addressed if it was to secure its future amid rising geopolitical risks.

Chamber chief executive Patrick Yeung Wai-tim said Hong Kong’s development had not yet reached the point where its scientific research could successfully be commercialised on a large scale. “Hong Kong’s own enterprises still invest a relatively low proportion of their operational costs in scientific research and development,” he said.

To improve Hong Kong’s performance, the Chamber recommended providing “more investor-friendly policies to support commercialisation of local academic research”. It also urged action to “foster a balanced and diverse talent pool and improve the deteriorating English proficiency of the working population”, after Singapore led the Human Capital Diversity category.

“This new ranking not only highlights Hong Kong’s strength as an international finance centre, but also as a place that offers world-class education and a great place to do business. Similarly, Singapore has been recognised as a multicultural city with a growing tech and innovation hub,” said Alan Fong, Sovereign Managing Director – Asia.

“Asia is at the forefront of technology and innovation, and this has created the perfect ‘ecosystem’ for investors and individuals to start or grow a business. It should also be noted that Hong Kong and Singapore were ranked third and fourth respectively in the latest Global Financial Centres Index (GFCI) report. This means that, including Shanghai, Shenzhen and Seoul, there are now five Asian cities in the top ten.”

In another survey, the International Institute for Management Development (IMD) recently ranked Hong Kong third globally in its annual World Competitiveness Index, behind Switzerland and Singapore.

According to the IMD, Switzerland continued to demonstrate a robust performance, a result of the country’s resilient and stable economic and societal structures. It continued to lead globally in Government Efficiency and Infrastructure, maintaining its first position in both areas.

Singapore slipped to second from its top position in 2024. Singapore’s top rank in Economic Performance was mainly the result of high growth in GDP and capital formation, as well as notable improvements in the export of goods and commercial services. This combined drive in the Domestic Economy and International Trade subfactors was significant enough to offset slight declines in International Investment (from second to third) and Employment (from fifth to sixth).

Hong Kong SAR advanced two positions to secure third place, up from fifth in 2024, with gains across all four factors of competitiveness. These gains, said the IMD, reflected a broad-based approach to attracting private sector investment.

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