How to Easily Transfer Hong Kong Company Shares for Domestic Enterprises? A Step-by-Step Guide!

How Can Domestic Enterprises Easily Complete the Transfer of Hong Kong Company Equity? A Step-by-Step Guide

In the context of global economic integration, an increasing number of domestic enterprises are choosing to establish or acquire overseas companies to expand their international operations. Hong Kong, with its unique geographical advantages, mature financial system, and low tax regime, has become a top destination for Chinese companies going global.

For mainland enterprises that already hold Hong Kong-based subsidiaries, equity transfer is a common method of asset restructuring-whether to introduce external investors, conduct capital operations, or achieve exit strategies. However, due to the involvement of cross-border legal systems, foreign exchange regulations, and tax planning, many companies encounter obstacles during the process.

This article outlines the operational procedures for domestic enterprises transferring Hong Kong company equity abroad, incorporating recent market developments and policy changes, to help businesses clarify steps and avoid risks.

1. Clarify Transaction Structure and Legal Entities

Before initiating any equity transfer, it is essential to clearly define the identities of both parties and the transaction structure. Typically, the domestic enterprise acts as the seller, while the buyer could be a foreign individual, foreign-invested enterprise, or offshore entity.

According to the Foreign Investment Law and relevant foreign exchange management regulations, domestic enterprises must complete certain approval or filing procedures when transferring equity in overseas entities. In early 2025, the State Administration of Foreign Exchange emphasized enhanced midand post-event supervision over cross-border capital flows. Therefore, ensuring compliance with regulatory requirements from the outset is crucial to avoid project delays caused by legal issues.

2. Conduct Due Diligence and Valuation Assessment

Any equity transfer should be based on a thorough understanding of the target company’s assets, financial status, and legal risks. Buyers usually commission professional institutions to perform due diligence, while sellers should actively provide necessary documents.

To ensure fair pricing, it is also common practice to engage third-party valuation agencies to assess the value of the Hong Kong company. This not only supports price negotiations but also provides a basis for future tax reporting. With the increase in cross-border MA cases in recent years, the role of professional intermediaries has become increasingly important.

3. Sign Letter of Intent and Non-Disclosure Agreement

After reaching a preliminary agreement, both parties may sign a Letter of Intent LOI or Memorandum of Understanding MOU, outlining key terms such as the percentage of equity involved, price range, and conditions for closing.

Simultaneously, a Non-Disclosure Agreement NDA should be signed to protect sensitive business information. Although these documents typically lack binding legal force, they serve as guiding principles for drafting formal contracts and facilitate smoother execution.

4. Handle Foreign Exchange Registration and Fund Repatriation Procedures

This step is often the most critical-and problematic-in the entire process. Under current foreign exchange rules, proceeds from the sale of overseas equity by domestic enterprises fall under capital account transactions, requiring mandatory registration or deregistration with the State Administration of Foreign Exchange SAFE and proper declaration of fund flows.

The specific process includes

1. Submit Application Documents Including business license, articles of association, shareholder resolutions, draft equity transfer agreement, and due diligence reports.

2. Bank Review The bank where the company holds an account will assist in verifying the completeness of the documents before submitting them to the local SAFE office for record-filing.

3. Fund Repatriation or Reinvestment After the transfer, proceeds can either be repatriated to China or used for other overseas investments.

In early 2025, several media outlets reported that some companies failed to timely cancel their foreign exchange registrations, which later hindered their ability to initiate new overseas investment projects. Compliance at this stage is therefore absolutely essential.

5. Execute Formal Equity Transfer Agreement and Complete Closing

Once all preparatory steps are completed, both parties can proceed to sign the formal equity transfer agreement and fulfill the closing obligations. These include

Registering the equity change with the Companies Registry in Hong Kong;

Transferring company seals, books, contracts, and other documents;

Transitioning between old and new management teams;

Settling the purchase payment.

Under Hong Kong’s Companies Ordinance, any equity transfer must be registered with the Companies Registry and reflected in the updated shareholder register. It is advisable to engage local legal counsel to assist with the formalities and ensure full legal compliance.

6. Tax Reporting and Compliance

Equity transfers involve various taxes, including income tax and stamp duty. Under Hong Kong’s territorial tax system, only profits sourced in Hong Kong are taxed, and there is no capital gains tax. However, if the seller is a mainland Chinese enterprise, it may be subject to corporate income tax under Chinese law.

According to the State Taxation Administration, domestic enterprises must file a report with their local tax authority within a specified timeframe after completing an overseas equity transfer and declare related income. Failure to comply may result in back taxes and penalties.

In recent years, China has strengthened its anti-tax avoidance framework, especially targeting profit shifting through offshore structures. When designing the transaction structure, companies should consider tax optimization strategies and seek advice from professional tax consultants when necessary.

7. Post-Transfer Integration and Information Disclosure

If the equity transfer involves listed companies or affiliated restructuring, additional disclosure obligations apply. For example, A-share listed companies must issue temporary announcements on the stock exchange detailing the transaction background, amount, and impact on the company.

After the new shareholders assume control, adjustments to corporate governance and business direction may be necessary. Planning ahead ensures a smooth transition and minimizes disruptions.

Conclusion

Completing the transfer of Hong Kong company equity is not a one-step process-it requires coordinated planning across legal, financial, tax, and foreign exchange dimensions. As cross-border capital flows become more frequent, regulatory scrutiny continues to intensify. While pursuing efficiency, enterprises must also prioritize risk control.

Only with comprehensive preparation and professional support can companies truly streamline the equity transfer process and pave the way for successful international expansion.