Understanding the Process of Redomiciling Companies

When business conditions deteriorate in the country where a legal entity is registered, one of the natural solutions may be to look for a place for more profitable business activities. And when the company’s management finds such a place, a complex relocation procedure is launched – redomiciliation. This is the transfer of a company’s legal address from one jurisdiction to another without ceasing operations in the original country. This is not the creation of a new company or branch, but the re-registration of an existing enterprise while preserving its history, assets, and credit obligations. Redomiciliation is permitted by law in most states. Some foreign jurisdictions offer favorable tax conditions for companies that have re-registered with them. The procedure involves submitting certain documents to the registration authorities of both countries. At the same time, many companies retain their names and relationships with partners, sellers, and contractors. Below, we will consider the main aspects that relate to the implementation of this process and all the legal nuances.

Our team is first-class specialists in the field of establishment, licensing and professional support of businesses. We have enormous experience and knowledge. Our experts are ready to help you in the redomiciliation of your company, providing comprehensive support along the entire path.

Redomiciliation – what do you need to know about?

Now, this term is used in the sense of changing the place of registration of a company. However, such a change does not imply the liquidation of the company in the country of registration and its opening in a new one. Redomiciliation means re-registration of a company in another country, which preserves the firm’s continuity, particularly:

  • organizational and legal form (LLC, public joint stock company or other in accordance with the regulatory framework of the country of business establishment);
  • structure of the enterprise and its management;
  • composition of assets;
  • existing obligations.

Thus, redomiciliation turns out to be more profitable than changing the place of registration through liquidation. If a company closes in its country of registration, it would be forced to repay all loans, buy back bonds and shares from investors, fire employees, cancel licenses and constituent documents, and so on. Then, after registration in the new jurisdiction, the activity would have to be restored, performing all the procedures in reverse order. During the redomiciliation process, the company submits a package of documents and receives registration in another country, while maintaining everything else.

Many companies, when determining the place of registration, choose the best conditions, for example, the minimum level of taxation. If the situation in the world and the country is stable, no problems arise and the business develops systematically. However, over time the situation may change. Many countries that acted as offshore companies are significantly tightening legislation and requirements for registered companies: they require mandatory Economic Substance compliance, change previously existing confidentiality conditions (for example, open registers of top management and beneficiaries), and introduce licensing and regulation of certain types of activities.

In the context of an emerging financial crisis, the conditions of currency regulation are changing, lending rates are rising, and often together with changes in the terms of existing loan agreements. All of these problems can be solved by redomiciliation. Thus, it is carried out with the aim of:

  • reducing the tax burden;
  • transferring business to more lenient legislation;
  • gaining access to new, usually cheaper sources of capital and borrowed funds;
  • bringing the operating part of the business closer to the main shareholders and management companies of the holding, clients, and partners.

Benefits and peculiarities of redomiciliation

Redomiciliation involves changing the state of registration of a company and its legal address in such a state to another state of registration with the simultaneous assignment of a new legal address. Typically, all assets, as well as the rights and obligations of the company under previously concluded transactions, are retained by it in full, and in some cases it is even possible to retain its name and existing bank account.

When the situations described above and other possible negative conditions for corporate development arise, in some cases a business decides to liquidate a company in one jurisdiction and register a new company in another jurisdiction with the subsequent transfer of rights, any asset, liabilities, etc. Redomiciliation has a number of features that, when compared with liquidation, can be advantages, in particular:

  • preservation of the company’s assets and liabilities without the procedure of transferring them from a liquidated person to a newly registered person;
  • with the consent of the bank, it is possible to continue activities using a pre-existing bank account;
  • the established business reputation or established market position will be affected to a significantly lesser extent than during the liquidation of the company and the subsequent registration of a new legal entity.

General procedure

To transfer a company from one jurisdiction to another, it will be necessary to carry out registration actions in both the original and new jurisdictions. At the same time, it is important that the legislation of both the original jurisdiction and the new one directly provides for the possibility of redomiciliation. This must be verified at the stage of selecting a new jurisdiction to which the company is supposed to be redomiciled.

Most jurisdictions that are or were previously classic offshores provide for the possibility of redomiciliation. It usually involves interaction with the registration authorities of both jurisdictions by submitting relevant documents to them. The volume of documents, requirements for their execution and deadlines for completing the procedure may vary, because they are established by internal legislative or other acts of a particular state (territory).

The result of redomiciliation is the registration of a company in a new jurisdiction with the assignment of a new registration number and legal address, as well as the termination of the registration of the company in the original jurisdiction and its deletion from the register of companies.

By way of redomiciliation, the international company should apply with the next-mentioned to the relevant government control authority.

  1. Application for state registration of an international company. This is a document that confirms the state registration (creation) of a foreign legal entity.
  2. A copy of the charter (constituent document) of the foreign legal entity with all amendments and additions made to it and the approved charter of the international company.
  3. Decision of the highest governing body.
  4. A copy of the annual financial report.
  5. The decision of the authorized body, which approves the sole executive body of the company.
  6. Information about beneficiaries.
  7. Certification of a foreign legal entity that there are no obstacles to registration.

To complete the redomiciliation procedure you will also need:

  • confirm the applicant’s credentials;
  • provide documents that are required by special requirements, in particular regarding the registration of shares;
  • confirm payment of the state duty, if payment is required by the legislative framework of the selected jurisdiction.

If it is not possible to provide all documents for redomiciliation, an explanation of the reasons will be required. Redomiciliation, in comparison with the procedure of liquidating a company in one country and re-registering it in another, is significantly advantageous; after all, connections developed over perhaps years and decades are not destroyed, the company’s activities are not suspended, its business reputation and credit rating remain unchanged.

The main reasons for this procedure can be listed below:

  • negative changes in the legislation of the country where the company is located (tightening mandatory requirements and government regulation, administrative pressure);
  • sanctions risks and restrictions;
  • tightening of tax laws, restrictions on the movement of capital, difficulties in paying dividends, adding the country to black or gray lists with all the ensuing consequences;
  • desire to enter new markets and expand business;
  • personal motivation of the owners (relocation of the company owner to another country).

All reasons are determined by the desire to create more favorable conditions for the company’s work.

Basic conditions for redomiciliation:

  • the presence in the legislation of both countries of legal norms providing for the possibility of its commission;
  • redomiciliation agreement between the country of relocation of the business and the host country;
  • regulation of this possibility in the company’s statutory documents;
  • corresponding decision of the owners of the organization;
  • stability and solvency of the company, its absence of tax and credit debts, completion of tax reporting and fulfillment of other administrative duties. The company must not be in the process of liquidation or reorganization.

Thus, redomiciliation does not mean the termination or suspension of the activities of a legal entity; the company continues its activities but in the territory of another state and according to its laws.

If you are the owner of a foreign company and for some reason have decided to change your corporate residence, our professional team is ready to provide you with full advisory and practical support in the implementation of this plan. We will become your reliable allies on the path of redomiliation of your business and will help in any other commercial matters. Contact us now.

Article’s author is Denys Chernyshov – founder and CEO of the globally-famous organization Eternity Law International.