Hong Kong as the APAC IP holding hub of choice - Part 2

In this second part of the series, we examine how reciprocal enforcement arrangements, cross-border insolvency cooperation, preferential tax treatment and financial infrastructure collectively make Hong Kong an effective IP holding hub for businesses with substantial operations facing the Chinese Mainland.

Enforcement and recoverable value

The true test of an IP structure often comes when a counterparty defaults or a Mainland-facing business relationship breaks down. In those circumstances, what matters is the enforceability of IP rights and the recoverability of value.

Hong Kong has a particular advantage in cross-border enforcement. The Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the "REJ Arrangement"), signed on 18 January 2019 and implemented on 29 January 2024, provides a streamlined framework for reciprocal recognition and enforcement of judgments between Hong Kong and the Chinese Mainland. Where an IP licensing agreement is governed by Hong Kong law, the IP owner may obtain a Hong Kong judgment and seek recognition and enforcement in the Chinese Mainland. This makes Hong Kong a more practical platform for enforcing IP rights against Mainland counterparties. 

In contrast, although a non-binding Memorandum of Guidance (the "MOG") between the Singapore and PRC courts provides useful guidance, enforcement outcomes remain subject to case-by-case assessment. For IP-heavy structures, the MOG is limited to money judgments and does not provide the same statutory route for non-monetary relief—such as injunctions or specific performance—that an IP holding company may require.

For qualifying contractual IP claims against Mainland counterparties, the REJ Arrangement therefore gives Hong Kong a more developed enforcement pathway than many offshore holding jurisdictions can offer.

Arbitration and GBA connectivity

Hong Kong’s arbitration and jurisdictional framework also supports Mainland-related IP structures. Under measures applicable in the Guangdong-Hong Kong-Macao Greater Bay Area ("GBA"), Hong Kong-invested enterprises registered in the nine GBA cities may choose Hong Kong as the seat of arbitration for qualifying commercial contracts. Those registered in Shenzhen and Zhuhai may even choose Hong Kong law as the governing law of those contracts. This flexibility can be valuable where a Mainland-incorporated Hong Kong-invested enterprise serves as the contracting, operating or sublicensing platform. Businesses can therefore position commercial activities closer to the Chinese Mainland market whilst retaining Hong Kong legal tools for contractual governance and dispute resolution.

The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region enables parties to qualifying Hong Kong-seated arbitrations to apply to Mainland courts for interim measures, including property preservation, evidence preservation and conduct preservation. Such measures help preserve IP value during ongoing disputes.

Together with Hong Kong’s reciprocal enforcement arrangements, these mechanisms provide a more integrated and policy-supported route for licensing and operating arrangements. For IP-heavy businesses concentrated in the Chinese Mainland, this integration can be compelling for its neutrality, enforceability and operational fit.

Cross-border insolvency and liquidation recognition

Hong Kong’s advantages also extend to insolvency and liquidation where an IP asset is licensed into the Chinese Mainland. Under the Record of Meeting of the Supreme People’s Court and the Government of the Hong Kong Special Administrative Region on Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region, signed on 14 May 2021, Hong Kong liquidators and provisional liquidators may seek recognition and assistance from Mainland courts in the pilot areas of Shanghai, Xiamen and Shenzhen. Mainland bankruptcy administrators may likewise seek recognition and assistance from the Hong Kong Court.

If a Mainland licensee becomes insolvent, the Hong Kong IP holder’s position depends on the terms of the licence, Mainland insolvency law, and the location of relevant assets and proceedings. However, where a Hong Kong insolvency process applies and the statutory requirements are satisfied, the cooperation framework may assist liquidators in preserving, recovering and realising IP-related assets through a cross-border process. This reinforces Hong Kong's role as both an IP holding location and a platform for enforcement and recovery when the commercial relationship breaks down.

Preferential tax treatment under the Double Tax Arrangement

Hong Kong’s simple tax framework remains one of its core advantages. Under the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, Mainland withholding tax on royalties paid to a Hong Kong resident is generally capped at 7% of the gross royalty amount.

In Hong Kong, the tax treatment of royalty receipts depends on source, character and the applicable statutory deeming provisions. Qualifying IP income can benefit from the patent box regime's 5% concessionary tax rate, as discussed further in Part 1. Offshore IP income may also need to be analysed under Hong Kong’s refined foreign-sourced income exemption regime. A properly substantiated Hong Kong IP holding company can combine treaty access, controlled royalty collection and a coherent Hong Kong tax profile. Recent PRC tax authority scrutiny of Hong Kong intermediary holding companies also highlights the importance of demonstrating genuine commercial substance and beneficial ownership when claiming treaty benefits.

That combination is especially attractive where royalty value and commercial exploitation are concentrated in the Chinese Mainland. Hong Kong can offer preferential Mainland-facing treaty rates, alignment with Mainland-facing operating structures and a tax framework that supports a real IP management function.

Financial infrastructure

Beyond legal and tax considerations, Hong Kong offers financial infrastructure that supports IP monetisation. Hong Kong does not impose exchange control restrictions, although remittances out of the Chinese Mainland remain subject to foreign exchange control, tax clearance and payment administration requirements. Groups receiving or holding IP income in RMB may benefit from Hong Kong's deep offshore RMB liquidity pool.

Although IP-backed financing remains an evolving area, Hong Kong provides a practical financial environment in which IP income can be received, managed, hedged, and redeployed to facilitate and support licensing, enforcement, settlement, reinvestment, and restructuring across multiple jurisdictions.

Substance drives value

Hong Kong offers a compelling platform for holding, licensing, enforcing and monetising IP, particularly for businesses closely connected to the Chinese Mainland. Its territorial tax system, refined foreign-sourced income exemption rules, double taxation avoidance arrangements with the Chinese Mainland, cross-border reciprocal enforcement and insolvency cooperation frameworks are among its core advantages.

IP businesses should ensure appropriate decision-making, personnel or outsourced management arrangements, board oversight, contractual control, R&D or IP management activities, and transfer pricing support. These factors are relevant not only for Hong Kong profits tax and patent box purposes but also for Mainland treaty relief, beneficial ownership and anti-abuse analysis.

Taken together, the advantages discussed across this two-part series demonstrate why Hong Kong remains one of the most compelling jurisdictions in Asia for IP holding structures with a Mainland China focus. By combining a sophisticated legal framework, a competitive and innovation-friendly tax regime, strong dispute resolution and enforcement mechanisms, and deep connectivity with the Chinese Mainland market, Hong Kong offers businesses a practical platform for the ownership, protection, enforcement and commercialisation of IP assets. Whilst the optimal structure will always depend on a group's specific commercial and operational objectives, businesses with significant Mainland-facing IP activities should give serious consideration to Hong Kong as a jurisdiction that aligns legal, tax, dispute resolution and commercial objectives within a single, internationally recognised platform.

If you have any questions on this topic, please get in touch with your usual Withers contact or the authors of this article.