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Insight from the Recent CFA decision in Commissioner of Inland Revenue v Poon Cho Ming, John – Whether Benefits Received on Termination of Employment are Taxable or Not

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Employee termination is not uncommon during economic downturn or group restructuring. The termination payments or the compensation packages, especially for top executives or senior employees, often consist of many components such as salaries, gratuities, discretionary bonuses, golden handshakes, settlement sum for the employment dispute. Given the diversified nature of the compensation components, it might not be easy to identify which part of entire package is taxable and which is not under the definition of section 8(1) of the Inland Revenue Ordinance, Cap. 112 (“IRO”).

As a starting point, the IRO provides that only income earned in the course of employment is chargeable to salaries tax. It is however not always easy to determine which compensation component has direct corelation to the employment and which is not. The precedent case, Fuchs v Commissioner of Inland Revenue [2011] 14 HKCFAR 74, offers some guidance on this issue. The Court ruled in Fuchs that what an employee received in satisfaction of his rights under his contract of service was taxable, while what he received in abrogation of his rights under the contract was not taxable.

The Court of Final Appeal has reaffirmed such position in its recent decision in Commissioner of Inland Revenue v Poon Cho Ming, John [2019] HKCFA 38 whereby it was held that rewards for past services and inducements to enter into employment and providing future services are chargeable under the said provision, whereas payment which were for something else were not chargeable. This article seeks to discuss the legal principles concerning the subject matter and how unnecessary dispute could be avoided.

A. Brief facts in Poon Cho-Ming case

The Respondent Taxpayer (‘Respondent’) was employed as a director of the Company pursuant to a written employment contract dated 20 October 1999 (‘Service Agreement’). In July 2008, his employment was abruptly terminated without cause. The Respondent and the Company entered into negotiations, with legal representatives on both sides, which resulted in a separation agreement dated 20 July 2008 (‘Separation Agreement’) to terminate the employment on the same day.

During the employment, the Respondent was eligible to be considered for a discretionary bonus and for the grant of unvested share options under an employee’s shares option scheme. Under the scheme, Options granted in one year would vest, provided the Respondent was still employed by the company, in annual tranches over the following 5 years.

After the termination of his employment, the Respondent received payments and benefits from the Company and were taxed by the Commissioner of Inland Revenue. The items that were in disputes are as follows.

  1. EUR500,000 provided for under the Separation Agreement, labelled as a ‘payment in lieu of a discretionary bonus’ (‘Sum D’); and
  2. the amount derived from the exercise of the Respondent’s share options which the Company agreed under the Separation Agreement to vest on an accelerated basis (‘Share Option Gain’).

The Commissioner of Inland Revenue, the Board of Review and the Court of First Instance considered and ruled that the above sums constituted income ‘from’ the Respondent’s employment and were therefore chargeable to Salaries Tax under section 8(1) of the IRO.

The Respondent appealed to the Court of Appeal which overturned the CFI’s decision. The Court of Final Appeal upheld the decision of the Court of Appeal and unanimously decided that the above sums were ‘for something else’ and were not therefore taxable under section 8(1) of the IRO.

B. The relevant legal principles

The ‘operative test’ is succinctly summarized by Ribeiro PJ in Fuchs (at para 22).

In short, the question that needs to be asked is: ‘in the light of the terms on which the taxpayer was employed and the circumstance of the termination, what, in substance not form, the sum and benefits is for?’

If the purpose or nature of the payment constitutes income from employment, the payment is taxable under s.8(1) IRO, as illustrated in the table below.

 Purpose or nature of the paymentIncome from employment
(s. 8(1) IRO)		Taxability
1‘acting as or being an employee’YesYes
2 ‘as a reward for past service’ Yes Yes
3 ‘as an inducement to enter employment or for future services’ Yes Yes
4‘for something else’NoNo
C. Application of the test to the facts of Poon Cho-Ming Case

In Poon Cho-Ming case, the IRD was of the view that both Sum D (i.e. the payment in lieu of discretionary bonus) and Share Option Gain were employment income because “discretionary bonus” was employment performance-linked and Share Option Gain was derived from employee benefit scheme. 

The Court, however, was of the view that both Sum D and Share Option Gain were not Respondent’s entitlement under the terms of the Service Agreement, nor had he any accrued rights on his termination which he could enforce at law in relation to them.

Although Sum D was described as a substitution of the discretionary bonus, the Court preferred substance over form. The Court analysed the facts and found that Sum D is, in substance, materially different from the discretionary bonus, in term of their purpose and nature. The amount of Sum D was arrived arbitrarily by way of negotiation between the Respondent and the CEO of the company, without reference to the performance of the Respondent and other considerations or procedure which would have been relevant in determining discretionary bonus in the Company.

The Court also found that the accelerated vesting of the share options under the Separation Agreement constituted a new right. With regard to the terms of the Grant Letters, the Court found that the original right was plainly not exercisable on the separation date and would have lapsed if the Respondent was no longer an employee of the Company. The new right under the Separation Agreement replaced the original right under the Service Agreement, allowing the Respondent to exercise the share options within 3 months from the separation date when he was no longer an employee of the Company.

The Court of Appeal concluded (and the CFA agreed) that the purpose of Sum D and Share Option Gain were for something else. The aforesaid benefits were found to be the consideration for the Respondent Taxpayer agreeing to:-

  1. ‘go quietly’ with a joint announcement that he had ‘resigned’ to mitigate adverse market reaction;
  2. additional post-employment covenants in the Separation Agreement which created new obligations on him; and
  3. settle or abrogate any and all claims which he might have against the Company arising from the termination of his employment.
D. Insight from Poon Cho-Ming case

The CFA’s decision in Poon Cho-Ming has reaffirmed the orthodox position as set down in precedents. However, the application of the legal principles is not a straightforward exercise. Detailed analysis of the facts in each case is required. How the termination letter or the separation agreement is crafted and the wordings therein could lead to unnecessary confusion and debate.

To avoid the hassle of litigation, the employers and/or taxpayers should involve legal representatives in the early stage of termination process. A well-structured termination package, careful drafting of agreements as well as appropriate responses to the Authorities will help reflect the true intent and nature of the termination payment and save taxpayers from unnecessary tax exposure.

Our firm has extensive experience in advising on employment-related matters and on tax advisory matters. If you have any question regarding the topic discussed above, please contact our partner Anna Chan at anna.chan@oln-law.com for further assistance.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Form 5472 Reporting: What Hong Kong-Owned U.S. Businesses Need to Know

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For Hong Kong families, investing in the United States can provide access to attractive For Hong Kong businesses with U.S. subsidiaries or other U.S. entities, Form 5472 reporting may extend well beyond the company’s direct Hong Kong owner. Related companies, family members, affiliated entities, and businesses under common control can potentially come into the analysis. Understanding these relationships is an important part of meeting U.S. reporting obligations and avoiding substantial penalties.

Hong Kong companies expanding into the United States often focus first on operational matters – establishing a U.S. entity, opening bank accounts, hiring employees, entering contracts, or acquiring assets.

But establishing a U.S. presence can also create important federal tax reporting obligations.

One of these is IRS Form 5472, an information return that can apply when a U.S. corporation is at least 25% foreign owned and has reportable transactions with foreign related parties during the tax year. Certain foreign-owned U.S. disregarded entities are also subject to Form 5472 reporting under special rules. The penalties for not filing are severe. Even though the form is relatively short, the penalty is $25,000 per year, per form, for each non filing violation.

For a U.S. company owned by a Hong Kong business or individual, determining who must be reported is not always as simple as identifying the shareholder listed on the company’s records.

U.S. tax rules can extend the analysis to a much broader network of related individuals and businesses.

Form 5472 and Hong Kong Business Groups

At first glance, the ownership structure might appear straightforward: the Hong Kong parent owns the U.S. company, so the parent is the foreign owner relevant to the Form 5472 analysis.

But the reporting analysis may not end there.

If the Hong Kong parent also owns businesses elsewhere in Asia or other jurisdictions, those affiliates may qualify as related parties. Depending on the ownership structure, transactions between the U.S. company and those entities can potentially trigger additional reporting.

This becomes particularly important for Hong Kong-headquartered groups with multiple subsidiaries, holding companies, or family-owned entities.

A separate Form 5472 is generally required for each reportable related party with which the reporting corporation had reportable transactions. As a result, identifying the complete related-party network is a fundamental part of the compliance process.

Who Can Be a Related Party?

One category involves a person or entity that directly or indirectly owns at least 25% of the U.S. company’s stock by vote or value. The analysis considers the relevant ownership interests rather than simply looking at the name appearing on a shareholder register.

Another category covers relationships defined under various provisions of U.S. tax law. Depending on the circumstances, these rules can capture relationships involving:

  • Family members
  • Corporations and their controlling shareholders
  • Companies belonging to the same controlled group
  • Partnerships under common ownership
  • Trusts, beneficiaries, grantors, and other trust relationships
  • Estates and their beneficiaries
  • Other entities connected through specified ownership relationships

For Hong Kong family-owned businesses, these rules can be especially important because business interests may be spread among family members, holding companies, trusts, and affiliated entities.

The analysis therefore needs to look beyond the U.S. company itself and consider its relationship with its 25% foreign shareholder and the broader ownership structure.

Why Sister Companies Can Create Reporting Issues

One of the easier relationships to overlook involves sister companies. Suppose a Hong Kong parent company owns a U.S. subsidiary as well as operating companies in Hong Kong, Mainland China, Singapore, or other markets.

Those Asian companies may have no direct ownership interest in the U.S. subsidiary. The U.S. company may not own them either.

Nevertheless, the companies may still be related for U.S. tax purposes because they are connected through their common parent.

This matters when transactions occur between the U.S. business and its overseas affiliates.

For example, the U.S. company might pay a Hong Kong affiliate for management services, purchase products from another group company, receive financing from its parent, or reimburse expenses incurred by an overseas affiliate.

Transactions of this nature should be reviewed as part of the Form 5472 analysis.

For a Hong Kong business group with several overseas entities, what initially appears to be a filing involving one foreign shareholder can therefore become a broader reporting exercise.

Formal Ownership Is Not Always the End of the Analysis

Another potential mistake is assuming that related-party status depends entirely on formal share ownership.

U.S. tax rules can look beyond legal form when determining whether common control exists. Depending on the applicable rule and circumstances, direct and indirect control, the economic relationship between businesses, and the way parties act in practice can become relevant.

This means a Hong Kong-owned U.S. business should not necessarily conclude that no related-party relationship exists simply because an overseas company does not appear on its ownership chart.

The substance of the relationship may need to be considered alongside the formal corporate structure.

Constructive Ownership Can Change the Result

Constructive ownership, sometimes called attribution, adds another layer to the analysis.

Under applicable U.S. tax rules, a person can sometimes be treated as owning shares that are legally held by certain family members or related entities.

As a result, someone who appears to own less than 25% of a U.S. company based solely on direct ownership could potentially meet the relevant threshold after the attribution rules are applied.

This issue deserves particular attention in family-owned Hong Kong businesses. For example, shares in a family enterprise may be divided among siblings or held through several family-controlled companies. Looking at each person’s direct percentage separately may not provide the complete answer under U.S. constructive ownership rules.

Ownership should therefore be analyzed under the applicable U.S. attribution provisions before concluding that a shareholder falls below the Form 5472 threshold.

Transactions Between the U.S. Company and Hong Kong Affiliates

Identifying the related parties is only part of the process. The business must also determine whether it had reportable transactions with those parties during the relevant tax year.

For a Hong Kong-owned U.S. company, transactions requiring review may include payments or transfers involving:

  • Sales and purchases of inventory or other property
  • Management or administrative services
  • Consulting and professional services
  • Royalties and licensing arrangements
  • Interest and financing
  • Loans or advances
  • Rent and leasing arrangements
  • Capital contributions
  • Distributions
  • Expense reimbursements
  • Other monetary and nonmonetary transactions

Intercompany activity that may seem routine from an operational perspective can still have U.S. reporting implications.

This is one reason Form 5472 compliance should be coordinated with the group’s accounting and transfer-pricing processes rather than addressed only when the U.S. tax return is being prepared.

Why Accurate Reporting Matters

Form 5472 carries significant penalties for noncompliance. A failure to file a required Form 5472, filing a substantially incomplete form, or failing to maintain required records can result in a substantial monetary penalty. Additional penalties may apply when a failure continues after notification by the IRS.

Where several related parties should have been reported, the exposure can increase because reporting requirements are evaluated separately.

For Hong Kong groups with numerous affiliates, this makes it particularly important to identify all potentially relevant entities before preparing the U.S. company’s annual filing.

Common Form 5472 Mistakes for Hong Kong-Owned Businesses

Several practical steps can reduce the risk of incomplete reporting:

  1. Look beyond the Hong Kong parent. Map the wider corporate group, including sister companies and other entities under common ownership or control.Review family ownership. For privately held and family-owned Hong Kong businesses, determine whether attribution rules alter the apparent ownership percentages.
  2. Consider existing trusts and holding companies. If shares are held through trusts, investment vehicles, or intermediate holding companies, the ownership analysis may require additional steps.
  3. Review intercompany transactions throughout the year. Payments between the U.S. entity and Hong Kong or other overseas affiliates should be identified and categorized rather than reconstructed at the last minute.
  4. Do not rely solely on the organization chart. Formal legal ownership is important, but it may not resolve every question concerning related-party status or control.
  5. Coordinate U.S. and Hong Kong finance teams. The information needed for Form 5472 may sit with accountants or finance personnel in Hong Kong rather than with the U.S. subsidiary.

A Practical Example

Consider a Hong Kong family that owns HK Holdings Ltd., which in turn owns a U.S. operating company.

HK Holdings also controls businesses in Hong Kong and Mainland China. During the year, the U.S. company purchases products from the Hong Kong affiliate, pays management fees to its parent, and receives an intercompany loan from another group entity.

It would be a mistake to review only the direct ownership of the U.S. company.

The broader group structure and each intercompany transaction need to be considered to determine which entities qualify as related parties and which transactions are reportable on Form 5472.

For larger Hong Kong groups, this exercise may need to extend across multiple levels of ownership and several jurisdictions.

Form 5472 FAQs for Hong Kong Businesses

1. Does a Hong Kong company with a U.S. subsidiary need to file Form 5472?

Potentially. Form 5472 generally applies to a 25% foreign-owned U.S. corporation that has reportable transactions with a foreign related party during the tax year. Special reporting rules can also apply to certain foreign-owned U.S. disregarded entities. The specific facts and entity classification should be reviewed.

2. Do transactions between a U.S. subsidiary and its Hong Kong parent need to be reported?

They may. Transactions between a U.S. reporting corporation and its foreign parent can fall within Form 5472’s reporting requirements. The nature and amount of the transactions should be reviewed under the applicable rules.

3. Can other companies owned by the Hong Kong parent be related parties?

Yes. Sister companies and other businesses within the same controlled group may qualify as related parties even when they do not directly own shares in the U.S. company.

4. Can family ownership affect Form 5472?

Yes. U.S. constructive ownership rules can attribute certain ownership interests between family members and through entities. This can affect whether a person is treated as meeting the relevant ownership threshold.

5. Does each foreign related party require a separate Form 5472?

Generally, a reporting corporation files a separate Form 5472 for each related party with which it had reportable transactions during the tax year. This makes identifying the complete related-party network particularly important for businesses belonging to larger international groups.

6. What are the penalites for not filing Form 5472?

Standard penalties are $25,000 per year, per form.

Review the Structure Before Filing

For Hong Kong businesses operating in the United States, Form 5472 compliance should not begin and end with the direct shareholder.

If you have questions about Form 5472 reporting for a Hong Kong-owned U.S. business, OLN’s US Tax Advisory Services team can help assess your ownership structure, related-party relationships, and U.S. reporting obligations. Contact us for guidance.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Investing in the U.S.: What Hong Kong Families Should Know

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For Hong Kong families, investing in the United States can provide access to attractive markets, diversification opportunities, and long-term wealth-building potential. But before capital is committed, it is important to consider how the investment will be owned and managed. The legal and tax structure chosen at the outset can significantly affect U.S. taxation, reporting obligations, liability, succession planning, and future flexibility.

For families and investors based in Hong Kong, a U.S. investment is rarely just a question of identifying the right asset. Whether the opportunity involves real estate, an operating business, private equity, or an investment portfolio, the way the investment is structured can be just as important as the investment itself.

This is particularly relevant for families whose assets, businesses, and family members may span Hong Kong, the United States, Mainland China, and other jurisdictions.

Decisions made before a transaction closes can have consequences for years – or even generations. A structure that appears straightforward today could create unexpected tax exposure, administrative requirements, or succession challenges later.

Start With the Ownership Strategy

There is no single structure that works for every investor entering the U.S. market. The appropriate approach depends on the investor’s circumstances, objectives, existing holdings, and connections to different jurisdictions.

Before selecting an entity or ownership arrangement, families should generally consider factors such as:

  • Hong Kong and other relevant tax residency considerations
  • The type and purpose of the U.S. investment
  • Long-term family and succession objectives
  • Potential exposure to U.S. estate tax
  • Existing trusts, companies, or family holding structures
  • Financing arrangements
  • The location and residency of family members and beneficiaries
  • Plans to sell, transfer, or pass the investment to future generations

These considerations are interconnected. A structure that is efficient for one family may be unnecessarily complicated – or potentially disadvantageous – for another.

Common Ways to Structure U.S. Investments

1. Limited Liability Companies (LLCs)

LLCs are frequently considered when international investors acquire U.S. assets or establish business operations. Depending on the circumstances, they can provide liability protection, management flexibility, and relatively straightforward ownership arrangements.

However, Hong Kong investors should not consider the U.S. treatment of an LLC in isolation. The way an entity is characterized and treated in other relevant jurisdictions may differ from its treatment under U.S. law.

This becomes particularly important for internationally mobile families or those with assets and family members in several countries. The analysis should therefore consider the broader cross-border implications before an LLC is established.

2. Corporations

A corporation may be appropriate for certain U.S. business investments, particularly where a company expects to grow, bring in additional investors, or establish substantial operations.

Corporate structures can offer practical advantages from an operational and governance perspective, but they may also introduce additional tax and compliance considerations.

Hong Kong investors should therefore evaluate the benefits of a corporate structure in the context of both the U.S. investment and their wider international arrangements.

3. Trusts

Trusts can play an important role for Hong Kong families concerned with preserving and transferring wealth across generations.

Depending on the family’s circumstances and applicable laws, trusts may support succession planning, asset protection, family governance, and estate planning objectives.

For Hong Kong families with beneficiaries, trustees, settlors, or assets located in different jurisdictions, however, trust planning can become particularly complex. U.S. rules governing trusts may interact with the family’s existing structures and the laws of other jurisdictions in ways that are not immediately apparent. This may be true even if the U.S. involvement is by beneficiaries that do not yet have transactions with the trust.

4. Partnerships and Joint Ventures

Partnership and joint venture arrangements can be useful when several family members, investors, or business partners want to participate in the same U.S. opportunity.

This may be particularly relevant to Hong Kong investors pursuing U.S. real estate, private business, or other investment opportunities alongside family members or investment partners.

These structures can offer considerable flexibility, but issues such as management authority, allocation of profits and losses, reporting responsibilities, transfer rights, and exit provisions should generally be addressed from the outset.

Don’t Underestimate U.S. Compliance Requirements

Completing the investment is only the beginning. Once an investor owns assets or conducts business in the United States, a range of U.S. reporting and compliance obligations may apply.

Depending on the structure and circumstances, these can include:

  • U.S. federal income tax returns
  • State-level tax filings
  • Information reporting requirements
  • Applicable ownership or disclosure requirements
  • Trust-related reporting
  • Entity filings and maintenance
  • Other cross-border reporting obligations

Missing an applicable filing can result in penalties, additional professional costs, and unnecessary administrative difficulties.

A common challenge for international families is that their advisors may be located in different jurisdictions. A Hong Kong accountant, U.S. attorney, wealth advisor, trustee, and other professionals may each be providing advice from a different perspective.

Each recommendation may make sense independently while creating unintended consequences when combined with the family’s wider international structure.

Coordinating Hong Kong and U.S. Planning

For Hong Kong families investing in the United States, coordination between advisors can be particularly important.

A typical transaction may involve U.S. attorneys and accountants alongside Hong Kong legal, tax, trust, banking, or wealth management professionals. Families with connections to additional jurisdictions may require an even broader advisory team.

For example, an ownership structure selected for a U.S. real estate investment could affect the family’s estate planning. Financing arrangements could influence how an investment is held or eventually transferred. An existing family trust or holding company could create considerations that would not arise for an individual investor.

When these issues are identified before a transaction is completed, families generally have more options for addressing them. Discovering them after closing can make restructuring considerably more difficult and expensive.

Why Planning Before the Investment Matters

Ideally, cross-border planning should begin before purchase agreements are finalized, entities are established, or investment funds are transferred from Hong Kong or elsewhere.

Early planning gives families an opportunity to consider the investment from several perspectives at once. It can help them:

  • Choose an appropriate ownership structure
  • Identify potential U.S. and cross-border tax consequences
  • Coordinate personal, family, and business objectives
  • Prepare for ongoing U.S. reporting and compliance
  • Understand relevant options considering the U.S. and Hong Kong do not have a Tax Treaty
  • Integrate the investment with existing family structures
  • Reduce unnecessary administrative complexity
  • Preserve flexibility for a future sale, transfer, or succession

The objective is not simply to complete a U.S. transaction efficiently. It is to establish a framework that continues to make sense as the investment -and the family’s circumstances – evolve.

Think Beyond the Initial U.S. Investment

For many Hong Kong families, an investment in the United States forms part of a much broader international wealth strategy.

A U.S. property acquisition may eventually become part of a family’s long-term investment portfolio. An initial business investment could lead to additional U.S. operations or acquisitions. A trust or holding structure established today may influence how wealth is managed and transferred to the next generation.

International mobility also matters. Children may study or live in the United States, family members may relocate, and business interests may expand into new jurisdictions. Changes of this kind can affect planning assumptions that were appropriate when an investment was first made.

Effective cross-border planning therefore looks beyond the immediate transaction.

Families should consider how a prospective U.S. investment fits with their existing assets, business interests, family arrangements, succession objectives, and overall global footprint.

Frequently Asked Questions for Hong Kong Investors

1. What is the best structure for a Hong Kong investor buying assets in the U.S.?

There is no universally preferable structure. The appropriate choice depends on factors including the nature of the investment, the investor’s tax residence, existing companies or trusts, financing requirements, succession objectives, and the jurisdictions with which the family has connections, and keeping in mind there is no Tax Treaty between the U.S. and Hong Kong.

2. Should a Hong Kong family use an LLC or a trust for a U.S. investment?

The two structures serve different purposes. An LLC may be useful for liability protection, management, and ownership flexibility, while a trust may have a greater role in succession, wealth preservation, and estate planning. Depending on the circumstances, more than one entity or structure may form part of the overall arrangement.

3. Do Hong Kong investors have U.S. tax and reporting obligations?

Potentially, yes. The requirements depend on the type of investment, ownership structure, activities conducted in the United States, and other circumstances. Obligations can include federal and state tax filings, information returns, trust reporting, entity filings, and other applicable disclosures. Additionally, without a proper structure, U.S. assets could be subject ot the estate tax.

4. Why should Hong Kong investors plan before transferring funds to the U.S.?

Decisions about ownership and structure can be considerably easier to implement before an investment is completed. Reviewing the U.S. tax, legal, succession, and compliance implications in advance can help avoid unnecessary restructuring and preserve greater flexibility later.

5. Why is cross-border coordination particularly important for Hong Kong families?

Hong Kong families may have assets, companies, trusts, beneficiaries, or family members across several jurisdictions. A decision that works well from a U.S. perspective may have different consequences elsewhere. Coordinating U.S. and Hong Kong advisors – and advisors in any other relevant jurisdictions – helps ensure that the investment is considered as part of the family’s overall wealth and succession strategy. OLN has a dedicated US Tax Advisory Services practice in Hong Kong. Contact us for guidance.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

The End of the “418 Rule”: What Employers in Hong Kong Need to Know About the New “417/468” Continuous Contract Requirement

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Introduction

For decades, whether an employee was regarded as employed under a “continuous contract” under the Employment Ordinance (Cap. 57) (“EO”) depended on the “418 rule”: the employee had to be employed continuously by the same employer for four weeks or more and work at least 18 hours in each week. Continuous contract status matters because it is the gateway to important statutory protections and benefits, including paid annual leave, statutory holiday pay, sickness allowance, maternity and paternity leave, severance payment and long service payment.

With effect from 18 January 2026, the “418 rule” has been replaced by a more flexible “417/468” framework. Under the new requirement, an employee will be regarded as employed under a “continuous contract” if they have been employed continuously by the same employer for four weeks or more and either: (i) worked at least 17 hours in each week; or (ii) where they worked less than 17 hours in any week, worked 68 hours or more in the four-week period comprising that week and the three weeks immediately preceding it. This article explains the new threshold, why the rolling four-week calculation matters, and which industries and working arrangements are likely to be most affected.

“Continuous Contract”

The practical concept and threshold of a “continuous contract” is fundamental to Hong Kong employment law. By virtue of satisfying this threshold, employees access a broad array of statutory protections and entitlements, subject in each case to the employee satisfying the applicable eligibility conditions for that particular benefit, including:-

  • Annual leave and statutory holidays;
  • Sickness allowance and maternity/paternity leave;
  • Severance payment and long service payment; and
  • Protection against unreasonable dismissal.

The New “Continuous Contract” Threshold: From “418” to “417/468”

A comparison of the old and new requirements is as follows:-

Definition of “continuous contract” under “418 rule”
(effective before 18 January 2026)		Definition of “continuous contract” under new “417/468 rule”
(effective on or after 18 January 2026)
Employee works 18 or more hours per week for four consecutive weeks.Employee works at least 17 hours in each week for four or more consecutive weeks; OR 
Where the employee works less than 17 hours in any week, the employee works 68 hours or more in the four-week period comprising that week and the three weeks immediately preceding that week. The 468 limb does not apply during the first three weeks of a new employment.

In particular, under “468 rule”, rather than measuring hours on a week-by-week basis, it looks at an employee’s aggregate working hours across a rolling four-week window. This makes it far harder for employers to sidestep the threshold by varying rosters from week to week. For illustration, an employee whose hours fluctuate between 10 and 22 hours per week may well qualify, even if they never consistently exceed 17 hours in any given week.

In particular, the “468 rule” is significant because it moves the analysis beyond a simple week-by-week threshold. Where an employee works less than 17 hours in a given week, employers must look at the employee’s aggregate working hours across that week and the three immediately preceding weeks. This makes fluctuating rosters more important: a shorter week will not necessarily prevent continuous contract status if the rolling four-week total reaches 68 hours, although the assessment remains fact-sensitive and the 468 limb will not assist during the first three weeks of a new employment.

Crucially, under section 3(2) of the EO, the burden of proving that an employment contract is not a continuous contract lies with the employer in the event of a dispute.

Impact on the Employment Landscape

The practical ramifications of this amendment are significant and broad-reaching.

Part-time, casual, seasonal and variable-hours workers are likely to be the primary beneficiaries. The sectors most directly affected are those with heavy reliance on shift-based or fluctuating staffing, including retail, catering, hospitality, food and beverage, entertainment, logistics, events and promotional work. Platform or gig-style arrangements may also require closer review where the underlying relationship is, in substance, employment rather than genuine self-employment.

Meanwhile, employers face a corresponding increase in compliance and administration obligations. Businesses that previously relied on the 18-hour weekly threshold, or rostered staff close to that threshold, should reassess their workforce structures, contracts, payroll rules and timekeeping systems. Key areas of review include:-

  • Employees newly qualifying as continuous contract employees may become entitled to statutory benefits, requiring payroll and benefits recalculation.
  • Employment contracts, staff handbooks and rostering policies that refer to the old “418 rule” or assume a fixed 18-hour weekly threshold should be reviewed and updated.
  • Given the combined “417/468” framework, employers should track both weekly hours and rolling four-week totals, and maintain robust timekeeping and payroll records to determine eligibility and support the employer’s position in any dispute.
  • Severance and long service exposure: As more workers qualify as continuous contract employees, employer exposure to severance payment and long service payment claims, as well as holiday, sickness and leave-related costs, may increase.

How can OLN help?

The replacement of the “418 rule” with the new “417/468” continuous contract requirement represents one of the most significant expansions of statutory employment protection in Hong Kong in recent years. For businesses with part-time, casual, seasonal, event-based or variable-hours staff, the implications are immediate and wide-ranging.

Our team at OLN can assist with workforce audits to identify employees who now qualify, or may soon qualify, as continuous contract employees; review and update employment contracts, staff handbooks and rostering practices to reflect the new threshold; and advise on statutory entitlements, payroll administration, record-keeping and dispute risk under the amended framework.

Should you have any questions, please feel free to contact us.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or legal advice of any kind to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

The Rise of the Employer of Record in Hong Kong and How Businesses Can Leverage It

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Introduction

Hong Kong’s employment landscape is changing. The recent amendment to the Employment Ordinance (Cap. 57) (“EO”), which introduces a broader continuous contract threshold from 18 January 2026, is one of several developments that should prompt businesses to take a closer look at how they structure and manage their workforce. For many, that review may well lead them to an increasingly familiar solution: the Employer of Record.

The Employer of Record (“EOR”) model is not new, but its profile in Hong Kong has grown considerably in recent years. Fuelled by the rise of cross-border hiring, more flexible workforce models, and a steady expansion of statutory employment obligations, more businesses are turning to EOR arrangements to simplify the way they engage workers. The appeal is understandable. There are, however, risks that businesses should plan against.

The EOR Model

An EOR is a third-party entity that formally acts as the employer on record of workers on behalf of a client company. In a typical EOR arrangement, the EOR signs the employment contract and handles payroll, MPF enrolment and contributions, employer tax reporting and other employment administration, while the client company retains day-to-day operational control over the workers’ activities.

The tripartite EOR structure is, in essence, as follows:

  • The EOR employs the workers on paper and manages agreed compliance obligations;
  • The client company directs the workers’ daily tasks and business activities; and
  • The employees are formally contracted to the EOR but functionally serve the client.

The EOR model has found particular appeal among businesses seeking to expand into new markets without the delay and cost of establishing a local entity, as well as multinationals looking to centralise employment administration across jurisdictions.

The Benefits of EOR

In light of the new continuous contract framework, EOR arrangements offer a number of practical attractions for Hong Kong businesses.

  1. The EOR can take responsibility for monitoring evolving statutory requirements and managing outsourced compliance processes so that employment contracts, payroll systems and benefits structures reflect the applicable law.
  2. Businesses can engage talent quickly, without setting up a local entity and without having to build the full local employment administration infrastructure themselves. This can reduce costs and increase efficiency.
  3. The administrative burden on internal HR departments is also reduced. Payroll calculations, MPF enrolment and contributions, employer reporting to the Inland Revenue Department (“IRD”) under the salaries tax regime, and statutory leave tracking can all handled by the EOR.
  4. Companies considering a Hong Kong presence can hire locally on a trial basis through an EOR before committing to a formal corporate structure, allowing them to conduct market testing before committing capital and labour for the long term.

Key EOR Risks to Consider

Despite its commercial appeal, the EOR model carries meaningful legal and operational risks that businesses should evaluate carefully before proceeding.

1. Risk of Being Deemed the True Employer

Under Hong Kong law, the question of who is the “employer” for the purposes of the EO may turn on the substance of the relationship, not merely the label assigned to it. The courts and tribunals may examine the reality of the arrangement. If the client company:

  • exercises substantial control over the worker’s day-to-day activities;
  • provides the worker’s equipment, workspace, and tools;
  • integrates the worker into its own organisational structure; or
  • fails to maintain a meaningful distinction between its own staff and the EOR-engaged worker,

there is a risk that the client company may be found to be the worker’s true employer, depending on the facts, notwithstanding the contractual position with the EOR. This could expose the client to EO-related liabilities, including obligations relating to severance payment, statutory holiday pay, annual leave, sickness allowance and claims for unreasonable dismissal.

2. Employment Agency Regulations

The EOR model, if not properly structured, may also raise employment agency licensing issues. Employment agencies are regulated under the  EO and the Employment Agency Regulations (Cap. 57A), and employment agencies must generally be licensed by the Labour Department. An EOR that functions essentially as a broker, by introducing or placing workers with client companies without genuinely acting as the substantive employer, may risk being treated as an unlicensed employment agency, with attendant regulatory and criminal exposure.

3. MPF and Salaries Tax Obligations

Even where an EOR arrangement is properly structured, client companies should satisfy themselves that the EOR is enrolling eligible employees in an MPF scheme within the statutory framework, making timely and correct MPF contributions, and filing accurate employer returns and related IR56 forms with the IRD. The statutory obligation to make MPF contributions sits with the employer of record, but reputational and operational risks can flow back to the client if an EOR defaults on these obligations.

4. Permanent Establishment Risk

For overseas companies engaging workers in Hong Kong through an EOR, there may also be Hong Kong profits tax risk if the worker’s activities constitute a permanent establishment in Hong Kong or otherwise result in Hong Kong sourced profit for Profits Tax purposes, particularly if they involve entering into contracts on the company’s behalf. Businesses should take advice on this risk before deploying an EOR arrangement, particularly where the engaged workers exercise significant commercial discretion.

5. Continuity of Employment and the “417/468 Rule”

Under the new framework, businesses that rotate EOR-engaged workers through consecutive contracts must be vigilant. From 18 January 2026, an employee is regarded as employed under a continuous contract if the employee has been continuously employed by the same employer for four weeks or more and either works at least 17 hours in each week or, where the employee works less than 17 hours in a week, has worked 68 hours or more in the four-week period comprising that week and the preceding three weeks. The “468 Rule” does not apply to the first three weeks of a new employment, and attempts to structure arrangements to avoid statutory entitlements may create additional legal and reputational risk.

How can OLN help?

OLN has extensive experience advising businesses, from market entrants to established multinationals, on the full spectrum of employment issues in Hong Kong. Whether you are considering an EOR arrangement for the first time, reviewing an existing structure for compliance risk, or navigating the implications of the new continuous contract framework, our team can help you assess your exposure and structure your workforce arrangements on a sound legal footing.

Should you have any questions, please feel free to contact us.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or legal advice of any kind to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Hong Kong Succession Guide – What Happens to Hong Kong Assets When a Mainland Entrepreneur Passes Away

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When a mainland Chinese entrepreneur dies, leaving assets in the Hong Kong SAR, the assets do not automatically transfer to family members. The Hong Kong SAR has its own legal system and probate process, which must be followed before assets can be accessed or distributed to the deceased’s heirs. This article briefly explains the Hong Kong SAR legal process to distribute a deceased’s assets.

First step: Are there assets in Hong Kong?

The first step would be to determine which assets fall within the legal jurisdiction of the Hong Kong SAR. These assets may include bank accounts held with Hong Kong banking institutions, shares held in Hong Kong companies, real property (real estate) held in Hong Kong and/or securities traded on the Hong Kong Stock Exchange. The administration of the above types of assets would be dealt with through the Hong Kong court process and Hong Kong law will generally govern Hong Kong real estate, regardless of the deceased’s nationality or place of residence.

The legal authority to deal with the deceased’s Hong Kong assets is granted by the High Court of Hong Kong either in the form of a grant of probate (if the deceased left a valid will naming an executor who is willing to act) or a type of letters of administration, if the deceased left no will, the will is invalid or no executor is able to act.

Did the deceased leave a Will?

If the deceased left a Will, the Hong Kong court will need to decide whether the Will is valid under Hong Kong law and whether it covers Hong Kong assets. Hong Kong recognises Wills executed in accordance with the law of the place of execution or the deceased’s domicile. If the Will was executed in the People’s Republic of China (“PRC”), issues that sometimes arise include the differences in formal requirements between the two jurisdictions, lack of clarity over asset coverage and the absence of an appointed executor. If an executor is named in the Will, the executor (usually with the help of his/her Hong Kong solicitor) applies for probate in Hong Kong.

What if the deceased left no Will or an invalid Will?

If the deceased left no Will or an invalid Will, this is deemed an intestacy and the deceased’s estate will be distributed in accordance with Hong Kong’s intestacy rules pursuant to the Intestates’ Estates Ordinance Cap 73.

Who are the heirs in an intestacy?

Very broadly speaking, the surviving spouse (with a fixed statutory legacy in specific situations) and children take priority and extended family members such as parents and siblings inherit only if closer relatives do not exist.  A suitable family member (often the surviving spouse or an adult child) applies for Letters of Administration in order to administer the estate.

What are the documents generally required of PRC heirs?

PRC heirs are typically required to present the following documentation – death certificate issued by mainland Chinese authorities, resident identity cards of the deceased and heirs, hukou registration records to prove family relationships, marriage or divorce documents if applicable and notarial certificates confirming identity and kinship. In practice, Hong Kong courts usually require these documents to be notarised by a notary public in the PRC and properly authenticated (for example, via current apostille/legalisation arrangements).

What if probate proceedings have already been completed in the PRC?

Even if probate proceedings have already been completed in the PRC, it is not possible to apply for recognition of these probate documents in Hong Kong. Unfortunately the PRC is not listed as a country under Hong Kong’s statutory resealing regime as the listed countries are all common law regimes. A fresh application in Hong Kong is required.

Are there estate duties and estate taxes in Hong Kong?

Estate duties have been abolished in Hong Kong for deaths occurring after 11 February 2006 and there have never been estate or inheritance taxes. However, tax issues may arise in the PRC and other applicable jurisdictions.

What are some practical challenges faced by PRC heirs?

As a result of the numerous complications mentioned above, some common challenges faced by PRC heirs include delays due to incomplete documentation, difficulty proving family relationships where hukou registration records differ from actual family relationships, translation (from Chinese to English) as well as notarisation requirements and disputes over the validity or interpretation of Wills (the latter complication is not unique to PRC heirs but occurs across all jurisdictions).

It is important to note that if the deceased was domiciled in the PRC, PRC succession law may be relevant in deciding who inherits movable assets in Hong Kong, although the Hong Kong court issues the grant and supervises the administration.

What is the expected timeline?

A straightforward probate application in Hong Kong takes a few months to complete. Complex cross-border estates take longer, particularly where there is no will, documents must be obtained from mainland authorities and/or heirs are in dispute about their entitlements.

Does planning ahead help?

For PRC citizens with assets in Hong Kong, advance planning can significantly reduce complications in the probate process. Many have opted to execute separate Hong Kong wills to cover their Hong Kong assets to streamline the legal process in Hong Kong, appointed executors familiar with Hong Kong laws and maintained clear records of bank accounts, shareholdings, property and other assets.

Conclusion

The passing of a loved one is one of the most difficult times in a person’s life. With the benefit of advance legal planning, heirs will be able to navigate the complicated process of probate more smoothly and avoid unnecessary stress during a time of immense grief. And with a properly drafted will, one can generally choose who should inherit one’s assets, without regard to fixed intestacy rules in Hong Kong.

In conclusion, it is advisable to seek professional legal advice if one’s estate involves Hong Kong assets.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Reproductive Technology in Hong Kong – Legal Framework, Ethics and Emerging Judicial Trends

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(This article was published in the August 2026 Issue of the Hong Kong Lawyer)

Introduction

Louise Joy Brown, born in Manchester on 25 July 1978, was the world’s first baby conceived via in vitro fertilisation (“IVF”). Eight years later, Hong Kong’s first IVF baby was born in December 1986 at a private hospital in Happy Valley. His birth at the time was so controversial that his parents declined to reveal his and their identities, as well as his birthdate. As reported in the South China Morning Post, the Catholic Church had condemned the procedure as “an artificial manoeuvre to create life”.

Today it is estimated that 57 IVF babies are born every hour globally. Technological advancements over the years have rendered IVF procedures more mainstream, safer and success rates much higher.

Meanwhile in Hong Kong, the total fertility rate has been below the replacement level of 2.1 for decades, and even plunged to a record low in 2025. The HKSAR government’s recent efforts to reverse this trend include a one-off cash allowance of $20,000 for babies born between 25 October 2023 – 24 October 2026, increased child tax allowance, a “families with newborns allocation priority scheme” for public housing, increased childcare centres, increased quota for  IVF treatment within the public medical system and a new tax deduction for medical expenses related to assisted reproductive services.

In December 2025, the Human Reproductive Technology (Licensing) (Amendment) Regulation 2025 L.N. 160 of 2025 removed the previous 10-year statutory limit on own-use gamete and embryo storage. This is a significant change that aligns with modern international norms and advances reproductive autonomy.

Another area of reform that has been debated is updating the Human Reproductive Technology Ordinance, Cap 561 (“HRTO”). Enacted in 2000, the HRTO is the principal legislation that governs human reproductive technology (“RT”) procedures in Hong Kong. The HRTO at present effectively ringfences access to RT procedures (other than egg freezing) to “parties to a marriage”. Same sex marriage is not yet recognised under Hong Kong laws, leaving access to infertile, married heterosexual couples. Commercial surrogacy is also prohibited under the HRTO.

Principal Legislation

The HRTO preamble states that it is an ordinance “to regulate reproductive technology procedures, and the use, for research and other purposes, of embryos and gametes; to confine the provision of reproductive technology procedures to infertile couples subject to any express provision to the contrary in any code; to regulate surrogacy arrangements; to establish a Council on Human Reproductive Technology; and to provide for matters incidental thereto or connected therewith”.

Regulatory Body and Licensing

Pursuant to the HRTO, s.5, the Council on Human Reproductive Technology (“CHRT”) is the statutory body charged with a number of statutory functions under the HRTO, including licensing and policy-related duties..

Definitions

Reproductive technology procedures are defined in the HRTO as,

“…a medical, surgical, obstetric or other procedure (whether or not it is provided to the public or a section of the public) assisting or otherwise bringing about human reproduction by artificial means, and includes—

(a) in vitro fertilization;

(b) artificial insemination;

(c) the obtaining of gametes;

(d) manipulation of embryos or gametes outside the body;

(e) a procedure specified in a notice under subsection (2)(a)(ii) to be a reproductive technology procedure; and

(f) a gender selection achieved or intended to be achieved by means of a procedure which falls within this definition,

but excludes a procedure specified in a notice under subsection (2)(b)(ii) not to be a reproductive technology procedure;”.

The HRTO does not define infertility. There is a general reference in the preamble to confining reproductive technology procedures to infertile couples. The World Health Organization defines infertility as “a disease of the male or female reproductive system defined by the failure to achieve a pregnancy after 12 months or more of regular unprotected sexual intercourse” and this is a generally accepted definition for practical purposes.

Code of Practice and Professional Standards

Pursuant to the HRTO, s.8, the CHRT shall issue and maintain a Code of Practice on Reproductive Technology and Embryo Research (“Code”), which sets out detailed guidelines for RT service providers and embryo researchers. The Code first came into effect on 1 August 2007. 

The preamble of the Code states that while it provides guidance and minimum standards to safeguard the health and interests of service users and to protect the welfare of children born via RT, professionals concerned should still follow the codes of practice and professional ethics of their own disciplines, which the Code does not supersede.

Eligibility

The HRTO, s.15(5) restricts RT procedures being provided to persons who are parties to a marriage. Read in conjunction with the preamble to the HRTO and the Code paragraph 4.2 which refer specifically to infertile couples, in general only infertile married couples are treated in practice as able to avail themselves of RT procedures except this shall not apply to surrogate mothers pursuant to section 15(6) or couples who are permitted to use embryo sex selection for medical conditions e.g., to avoid serious sex linked diseases, pursuant to section 15(3) and as specified in Schedule 2 of the HRTO.

Since the preamble of the HRTO and Chapter IV of the Code state that RT procedures should only be made available to infertile couples, RT procedures for social or non medical reasons are not generally permitted except in very limited circumstances.

Specific Exclusions and Exceptions

Single persons, cohabiting heterosexuals who are not married and same sex couples are not eligible to receive RT procedures as the HRTO generally limits treatment to persons who are parties to a marriage as interpreted under current laws (the Code paragraph 4.1 note 12).

Within that framework, the HRTO allows for narrowly defined exceptions such as under section 15(7) which allows the continuation of an RT procedure where the couple was married at the time gametes or an embryo were first placed in the woman’s body, even if the marriage has subsequently ended. Another example is embryo sex selection to avoid serious sex linked diseases. Schedule 2 (and its amendment) of the HRTO specifies the sex linked diseases for which embryo sex selection is permitted.

While it appears that those who are legally allowed to avail themselves of RT procedures in Hong Kong are adequately protected and supported, those who do not fit within the current legal framework (such as singles, unmarried heterosexual couples, same sex couples) remain effectively excluded, regardless of their reproductive circumstances and Hong Kong’s alarming birth rate.

​The HRTO and the Code restrict the provision of RT procedures, in general, to infertile, married heterosexual couples. Same sex couples and single persons are excluded from the vast majority of RT procedures under current legislation.

Commercial transactions in (the buying and selling of) embryos, gametes and surrogacy are prohibited. Hence, only altruistic donations of embryos, gametes and surrogacy arrangements are permitted although reimbursement of legitimate expenses is allowed, in accordance with the HRTO, s.16 and s.17. Appendix II of the Code sets out guidelines on reimbursing donors.

Emerging Judicial Trends

While legislation has been updated at a slow pace, case law sits at the intersection of law, evolving ethics and current public policy. In Re A and Another HKCFI 1749; 5 HKLRD 366 (HCMP 1571/2018, Au-Yeung J, 14 October 2019), the court had extended the statutory 6 month time limit in the Parent and Child Ordinance Cap 429 s.12(2) and retrospectively approved commercial surrogacy payments despite the illegality of commercial surrogacy arrangements in Hong Kong because 1) the applicants acted in good faith without moral taint or intent to defraud, 2) the payments were not so disproportionate as to offend public policy and 3) the A & B v E ** HKCFI 3143** (HCMP 731/2023…) parental order was in the best interests of the children vis-a-vis their lifelong welfare and legal identity. Au-Yeung J applied and elaborated the same analytical framework in A & B v E HKCFI 3143 (HCMP 731/2023, Au-Yeung J, 4 December 2023).

The above two cases, together with CS v SW HKCFI 2326 (HCMP 1731/2023, Au-Yeung J, 25 September 2024) and HSC v T; HSC v D HKCFI 770 (HCMP 706–707/2025, Au-Yeung J, 2 February 2026) form an emerging body of case law that points to Hong Kong courts granting parental orders and approving commercial surrogacy payments made in good faith, always with an overriding concern for the lifelong welfare of the child. In the latter case, the court again granted parental orders and approved separate commercial surrogacy payments for two oral surrogacy arrangements made in Shenzhen with two surrogates and extended the deadline of the statutory 6 month time limit in the Parent and Child Ordinance Cap 429, s.12(2). The lifelong best interests of the two children were considered. Rather than deliberately committing a breach, the commissioning parents had unfortunately acted without obtaining proper legal advice and had been ignorant of the law.

Surrogacy and Legal Parenthood

Surrogacy arrangements fall within the purview of the HRTO. The preamble of the HRTO sets out its mandate to “to confine the provision of reproductive technology procedures to infertile couples subject to any express provision to the contrary in any code”. Pursuant to the Code paragraph 12.2(b), a RT procedure may only be provided if the wife in that marriage is unable to carry a pregnancy to term and no other treatment option is practicable. In accordance with the Code paragraph 12.7, counselling by a multi-disciplinary team must be provided to all parties in the surrogacy arrangement, including the husband of the surrogate, if any.

Surrogacy is only permitted in altruistic circumstances and not on a commercial basis. Pursuant to the HRTO, s.17, there is a prohibition on surrogacy arrangements on a commercial basis. The Code paragraph 12.1 cross references the prohibition.

No surrogacy arrangement is enforceable by law under the HRTO, s.18 and as set out per the Code paragraph 12.6. As well, all parties to a surrogacy arrangement should be informed that the surrogacy arrangement is not enforceable.

The Code paragraph 12.8 sets out the suitability criteria by which commissioning couples and their surrogates must be assessed, taking into account their physical, mental and social well being. The surrogate must be at least 21 years of age (the Code paragraph 12.4).

The Parent and Child Ordinance Cap 429, s.9 states that the woman who gives birth is treated by law as the child’s mother (and if she is married and her husband has consented, he is treated by law as the child’s father) despite any surrogacy agreement that is in place. Section 12(2) prescribes that a commissioning couple must apply to the court within six months of their child’s birth for a parental order, and the court may make such a parental order provided all the conditions of subsections 12(1) – (7) have been met.

In the case of HC v WYH HKCFI 1157 (HCMC 3/2023, Chu J, 30 April 2024), the parties were married but subsequently separated. The issue before the court was whether the lack of parental orders or adoption orders (the two children in question were born out of commercial surrogacy arrangements made in California) were obstacles to the Family Court making orders in the best interests of the children as they were “children of the family”.

The court ruled that the statutory definition of “child of the family” as set out in section 2 of the Matrimonial Proceedings and Property Ordinance Cap 192 is broad and autonomous and children born of commercial surrogacy arrangements fall within the definition (without adoption or parental orders in place), giving the court jurisdiction to make custody and maintenance orders in divorce proceedings.

In the case of CS v SW HKCFI 2326, HCMP 1731/2023 (25 September 2024, Au-Yeung J), the court ruled that the children’s best interests and the need for secure lifelong legal status with their de facto parents outweighed the serious breaches of Cambodian, Thai and Hong Kong laws regarding commercial surrogacy and a delay of over 4 years beyond the statutory limit specified in the Parent and Child Ordinance Cap 429 s.12(2).

Sanctions and Enforcement

Breaching the HRTO may be a criminal matter and may lead to fines, imprisonment and regulatory sanctions including the loss of professional licences for practitioners and researchers.

Conclusion

Hong Kong’s legal framework in respect of RT was enacted a quarter century ago. The December 2025 removal of the 10-year limit on gamete and embryo storage was a welcome modernisation although the foundational framework for eligibility and access to RT remains the same.

The more significant developments have come from the judicial rather than legislative front – the four seminal cases discussed above have established that the courts will grant parental orders and approve commercial surrogacy payments made by commissioning parents where they acted in good faith (often in ignorance of their legal positions), the payment amounts were not disproportionate and the child’s best interests were taken into account.

The gap between what the HRTO prohibits and what courts have been willing to regularise is widening. Children born into this tenuous legal environment deserve legal certainty beyond what the courts have been able to grant. Hong Kong’s record low birth rate should tilt economic and social policy towards inclusive legislative reforms that follow judicial developments. Until then, those who are being denied access to RT procedures in Hong Kong will continue to search overseas for solutions.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.