Opportunities and Challenges for HK Individuals Holding Equity in Domestic Companies Directly

Opportunities and Challenges of Hong Kong Residents Directly Holding Shares in Domestic Companies

With the rapid development of China's economy and the deepening of globalization, opportunities for Hong Kong residents to invest and start businesses in mainland China are increasing. In recent years, the state has introduced a series of policies to provide convenient conditions for residents from Hong Kong and Macao to develop in the mainland. For example, the outline of the development plan for the Guangdong-Hong Kong-Macao Greater Bay Area clearly supports residents from Hong Kong and Macao to start businesses and work in the mainland and simplifies relevant procedures. These policies have created a favorable external environment for Hong Kong residents directly holding shares in domestic companies.

For Hong Kong investors who wish to enter the mainland market, direct holding is a relatively flexible way. Under this model, investors can more directly participate in company management decisions and enjoy more shareholder rights. At the same time, compared with indirect holding through setting up offshore companies, this method has relatively simpler procedures and reduces operating costs. For instance, a Hong Kong-funded enterprise opened a trading company in Guangzhou, and after adopting the direct holding model, not only did it shorten the registration time, but it also saved about 20% of intermediary fees.

However, while enjoying these conveniences, Hong Kong residents also face some challenges. The first is the issue of legal application. Although there are close ties between the mainland and Hong Kong in economic and trade fields, there are still differences in certain specific regulations. For example, provisions regarding corporate governance structures and information disclosure requirements may need to adapt to different legal systems in both places. Therefore, it is recommended that investors consult professional legal teams in advance to ensure that all operations comply with the requirements of laws and regulations in both places.

The second consideration is taxation. According to current tax laws, dividend income earned by Hong Kong residents from domestic enterprises needs to be subject to personal income tax. However, it should be noted that the new version of the Personal Income Tax Law implemented from 2025 provides a clearer definition of overseas income, which may affect the actual tax burden of some cross-border investors. When formulating investment strategies, reasonable planning of tax arrangements is particularly important.

The market access threshold is also an important factor that cannot be ignored. Although China has continuously relaxed foreign investment restrictions in recent years, project approvals for sensitive industries such as finance and telecommunications remain relatively strict. In this situation, choosing the right industry sector is crucial. For example, the booming new energy vehicle industry chain has attracted attention from many Hong Kong capital. Statistics show that by the end of 2025, more than 50 Hong Kong-funded enterprises have entered this field, among which there are successful cases.

In order to better seize development opportunities and address potential risks, Hong Kong residents should make adequate preparations before starting business. First, they should thoroughly understand the characteristics and demands of the target market and formulate scientifically reasonable business plans; second, establish stable cooperative networks, including hiring professional advisory teams familiar with local situations; finally, focus on brand building and corporate culture shaping to enhance competitiveness and social responsibility.

In summary, direct holding of shares in domestic companies by Hong Kong residents holds great business opportunities as well as certain challenges. Facing complex and changing economic situations, only through prudent decision-making and active innovation can sustainable development be achieved on this vibrant land. In the future, with the in-depth advancement of the Belt and Road Initiative and the new opportunities brought by the entry into force of the RCEP agreement, it is believed that more Hong Kong compatriots will participate in the great practice of modernization construction of the motherland.