Hong Kong remains a preferred jurisdiction for cross-border financing due to its transparent regulatory regime, absence of foreign exchange controls, and established legal framework governing lending and security interests. This article provides an overview of key legal and regulatory considerations for foreign lenders contemplating lending transactions to Hong Kong-incorporated companies, including licensing requirements, exempted loan classifications, security creation, enforcement, tax filings, and governance standards
1. Soliciting Lending Business in Hong Kong
Lending activity in Hong Kong is governed by the Money Lenders Ordinance (Cap. 163) (“MLO”) which regulates entities that “carry on business” as money lenders. Entities engaging in regular lending activity within Hong Kong ordinarily require a money lender’s licence, authorisation as a regulated financial institution, or qualification under a statutory exemption.
In practice, whether a foreign lender is deemed to be “carrying on business” depends on the nature and regularity of its activities in Hong Kong. Occasional or isolated lending transactions are unlikely to meet this threshold.
2. Exemptions Under the Money Lenders Ordinance
The MLO contains various exemptions which may apply to overseas lenders, namely in respect of “exempted persons” and “exempted loans”.
(a) Exempted Persons
The ML Ordinance recognises several categories of exempted persons, including banks incorporated outside Hong Kong that are subject to adequate prudential supervision, authorised insurers, credit unions, and certain statutory bodies.
(b) Exempted Loans
Loans made to certain categories of companies qualify as exempted loans, including loans secured by registered charges, loans made to companies with at least HKD 1 million paid-up share capital, and loans to listed companies or their subsidiaries.
Where the borrower meets the paid-up share capital threshold, the loan automatically qualifies as an exempted loan. Lenders should confirm the borrower’s current capital position to ensure continued eligibility.
Even exempted persons and exempted loans remain subject to Hong Kong’s usury provisions, which cap enforceable annual interest rates at 48%.
4. Regulatory Approvals, Filings, and Tax Requirements
Licensing and Prior Approvals
Beyond the licensing obligations under the ML Ordinance, Hong Kong does not impose additional transaction-specific regulatory approvals for foreign lenders.
Tax Filings
A lender deemed to be “carrying on business” in Hong Kong must file profits tax returns disclosing business operations and may be required to provide supplementary information upon request from the Inland Revenue Department.
Stamp Duty and Document Registration
Hong Kong stamp duty generally does not apply to security documents governed by foreign law. For Hong Kong security documents, a fee of HK$340 is payable upon submitting each security document for registration with the Companies Registry.
5. Creation and Enforcement of Security Interests
Hong Kong law recognises a broad range of security interests, including charges over immovable property, movable assets, and other corporate assets. There are no statutory restrictions on the sale of secured assets upon enforcement, provided enforcement is conducted in accordance with the terms of the security document and general insolvency laws.
In a winding-up scenario, registered charges have priority over unsecured creditors. Assets subject to floating charges may first be applied toward preferential debts, such as employee wages and certain government dues.
6. Cross-Border Fund Flows
Hong Kong imposes no foreign exchange controls. There are no restrictions on receiving foreign-currency loan proceeds into Hong Kong or remitting principal, interest, or fees offshore. However, banks may impose their own transfer policies, and transactions must comply with corporate governance, fraud, insolvency, and other applicable legal standards.
7. Security over Bank Accounts and Fixed Deposits in Hong Kong
Hong Kong law recognises fixed and floating charges over bank accounts held by Hong Kong companies. Lenders commonly take an assignment or fixed charge, requiring that withdrawals from the secured account be made only with lender consent. Floating charges are routinely used and may be converted (“crystallised”) into fixed charges upon certain events—such as insolvency—to protect the lender’s priority position.
8. Perfection and Registration Requirements
Security over specified assets of Hong Kong companies must be registered with the Companies Registry within one month of creation. This includes filing a certified copy of the charge and submitting Form NM1 (Statement of Particulars of Charge), which becomes publicly searchable. Failure to register renders the security void against a liquidator or creditors.
Conclusion
Hong Kong offers a clear and creditor-friendly legal environment for cross-border lending transactions. By taking advantage of exemptions under the Money Lenders Ordinance, ensuring proper governance and compliance by the borrower, and registering security interests correctly, foreign lenders can structure effective and enforceable financing arrangements. The absence of exchange controls and straightforward security enforcement mechanisms further strengthen Hong Kong’s attractiveness as a jurisdiction for secured lending.
