How to Transfer Domestic Company Equity to Hong Kong and Embark on an Internationalization Journey?

How to Transfer Domestic Company Equity to Hong Kong A Pathway to International Expansion

In the context of global economic integration, an increasing number of Chinese companies are seeking international strategies to enhance their competitiveness and brand influence. Transferring domestic company equity to Hong Kong has become a crucial step for many enterprises aiming to enter global markets. As one of the world's leading financial centers, Hong Kong offers a mature legal framework, low tax environment, and free capital flow mechanisms, making it an ideal platform for companies going global.

I. Understanding the Basic Process of Equity Transfer

Transferring domestic equity to Hong Kong typically involves the following key steps

1. Establishing an Offshore Holding Company SPV

Most companies choose to set up a Special Purpose Vehicle SPV in jurisdictions like the Cayman Islands or British Virgin Islands BVI, and then establish a subsidiary or holding company in Hong Kong through this SPV. This structure facilitates future financing and potential IPO arrangements.

2. Completing Domestic Asset and Equity Restructuring

After establishing the offshore structure, the original domestic company must restructure its domestic assets and equity. Typically, the existing shareholders transfer their shares in the domestic company to the newly established offshore holding company, forming an offshore entity that controls the onshore operations.

3. Handling Foreign Exchange Registration and Capital Outflow Procedures

Under China’s current foreign exchange regulations, individuals or companies must report to the State Administration of Foreign Exchange SAFE and obtain ODI Outward Direct Investment approval before making overseas investments. They must also comply with relevant approvals from the National Development and Reform Commission NDRC and the Ministry of Commerce MOFCOM.

4. Completing Business and Tax Registration Changes

After the equity transfer, companies must apply for changes in business registration with local authorities and update their tax information. For companies involving foreign investment, applications must also be submitted to the commerce department.

5. Considering the Introduction of External Investors

During the restructuring process, some companies bring in strategic or financial investors to strengthen their capital base and prepare for future listings in Hong Kong.

II. Why Choose Hong Kong as a Stepping Stone?

In recent years, as mainland companies have increasingly focused on overseas capital markets, Hong Kong has emerged as the top choice due to its unique advantages. According to the latest data from the Hong Kong Stock Exchange HKEX, 27 mainland companies listed in Hong Kong in Q1 2025, raising over HKD 30 billion collectively. This trend highlights Hong Kong’s role as a vital bridge between mainland China and international capital.

Key reasons include

Cultural and Linguistic Proximity

Due to historical ties, Hong Kong widely uses Chinese, and its business culture is relatively similar to that of mainland China, allowing companies to adapt quickly.

Mature Regulatory Framework

The Securities and Futures Commission SFC and HKEX enforce strict yet transparent listing requirements, which help build investor confidence.

Favorable Tax Environment

Hong Kong operates under a territorial tax system, meaning only profits sourced in Hong Kong are taxed at a corporate rate of just 16.5%. This is highly attractive for multinational businesses.

Diverse Financing Channels

Beyond the main board and growth enterprise market, Hong Kong also offers bond markets, private equity funds, and other financing options suitable for companies at different stages.

III. Common Challenges and Strategies in Practical Implementation

Despite the many benefits, transferring equity to Hong Kong presents several challenges

Regulatory Compliance Risks

With stricter oversight on outbound capital flows and cross-border investments, companies should conduct early compliance assessments and consider hiring professional legal and accounting teams.

Complex Tax Planning

Cross-border equity transfers may involve multiple taxes, such as capital gains tax and stamp duty. Companies should design tailored tax optimization strategies based on their business models.

Time-Intensive Process

From structural design to final equity transfer, the entire process can take months or even longer. It is advisable to begin preparations early during strategic planning.

Increased Disclosure Requirements

If planning a Hong Kong IPO, companies must disclose extensive operational details as required by the HKEX, placing higher demands on internal governance.

IV. Case Study Success Story of a Tech Enterprise

Recently, a Shenzhen-based AI technology company successfully transitioned from a domestic structure to a red-chip framework and was listed on the Hong Kong Stock Exchange. Its key actions included

Establishing an SPV in the Cayman Islands as the holding company.

Incorporating the onshore operating entity into the group structure via contractual control.

Completing ODI filing and SAFE registration.

Engaging a well-known investment bank as underwriter.

Utilizing a combination of introduction listing and share issuance for fundraising.

The company’s executive stated in an interview We chose Hong Kong not only for its robust financial infrastructure but also because it allows us to attract more international investors who recognize the value of our technology.

V. Conclusion

Transferring domestic equity to Hong Kong represents a significant milestone in a company’s journey toward globalization. It enables greater freedom in capital operations and enhances corporate governance standards. Throughout this process, companies must thoroughly evaluate their capabilities, carefully design their structures, ensure full compliance, and manage timelines effectively in order to truly achieve international expansion.