If you’re a cross-border e-commerce seller, the owner of a company expanding overseas, or already have a Hong Kong, Singapore, or U.S. company under your name, you’ve probably come across a certain term recently:Order No. 837.

Its full title is *Regulations of the State Council on Foreign Investment*, and it will take effect on July 1, 2026.

Many people's first reaction is:

“What does that have to do with me?”
“I just set up a company in Hong Kong to collect payments—it’s not like I’m doing an overseas merger or acquisition.”
“The money wasn’t transferred out of the country through a domestic bank, so I guess that doesn’t count as ODI, right?”
“I own an overseas company in my personal capacity—the company shouldn’t have to worry about that, right?”

If you share similar thoughts, I recommend reading this article carefully. The real significance of Order No. 837 lies not in the fact that it is simply another “new document,” but rather in that it brings many gray areas—which many companies expanding overseas have habitually overlooked—back into a clearer, higher-level regulatory framework.

In particular, the following situations:

• I own a Hong Kong company that I use to receive payments from cross-border platforms;
• Domestic companies establish subsidiaries in Hong Kong, Singapore, the United States, and Europe;
• Use a Hong Kong company to hold trademarks, brands, stores, or overseas business entities;
• We already have overseas warehouses, overseas teams, and overseas assets;
• Having an overseas company held in the name of an individual, family member, employee, or friend;
• Currently establishing a red chip structure or a VIE structure, or preparing to raise capital or go public;
• We have completed the registration required by Document No. 37, but have not filed an ODI report;
• We plan to repatriate overseas profits to China in compliance with regulations in the future.

In these situations, it isn’t necessarily required to “start from scratch” right away, but it’s no longer appropriate to continue assessing risks based solely on the notion that “that’s how everyone used to do it.”

Following Order No. 837, the real issue has become:

Can you explain your offshore structure clearly?
Can you clearly explain the sources and flow of your funds?
Has your Hong Kong or overseas company already triggered any ODI-related obligations?
If banks, tax authorities, investors, or brokerage firms ask you in the future, do you have sufficient compliance documentation to support your claims?

In today’s article, we won’t rely on a jumble of complex legal provisions; instead, we’ll use the most straightforward approach to clarify three points:

What is Order No. 837?
Why is this time different?
What exactly should companies do now?

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I. Let’s get one thing straight: What exactly does Order No. 837 regulate?

Order No. 837 governs one thing:

Investors within China engage in outward investment.

The term “outward investment” here should not be simply understood as “sending money abroad.”

According to the logic of the new regulations, outbound investment includes situations where domestic investors, through the contribution of assets or equity, or by providing financing or guarantees, directly or indirectly acquire ownership, control, operational management rights, and other related interests in overseas enterprises or assets.

To put it simply:

As long as you are a business, organization, or individual resident within China that exercises control, in any manner, over an overseas company, overseas assets, overseas equity interests, or overseas business interests, you may fall under the scope of ODI regulations.

Therefore, regulators look not only at whether “money has been transferred out of the country via domestic banks,” but also at:

• Who is the actual investor?
• Who paid for it?
• Who controls the overseas company?
• Who receives the proceeds?
• What functions do offshore companies serve?
• Have you acquired any overseas enterprises, assets, or management rights?
• Are there any nominee arrangements, circumvention schemes, or multi-tiered structures?

This is also an area where many companies expanding overseas tend to make misjudgments.

In the past, many people thought:

“I just registered a company in Hong Kong.”
“The Hong Kong company is just there to receive payments.”
“The money in overseas accounts is, by definition, overseas.”
“I didn’t send the money through a domestic bank, so it doesn’t count as ODI.”

However, from a regulatory perspective, ODI does not focus solely on the flow of funds, but rather pays more attention toInvestment Relationships and Actual Control RelationshipsThe

Here are a few common scenarios:

Scenario 1: A Mainland Company Establishes a Subsidiary in Hong Kong

This is the most typical ODI scenario.

When a mainland company establishes a Hong Kong company to serve as a holding platform, a payment recipient, a brand entity, or an overseas operating entity, it essentially amounts to the mainland entity acquiring equity or control in an overseas company.

In such cases, it is typically necessary to assess relevant compliance matters, including ODI filing, business registration, filing with the National Development and Reform Commission, and foreign exchange registration.

Scenario 2: Cross-border sellers receive payments through a Hong Kong company

Many cross-border sellers set up a Hong Kong company early on to receive payments from e-commerce platforms, link overseas bank accounts, and accept U.S. dollars or other foreign currencies.

If this Hong Kong company is effectively controlled by a mainland enterprise or individual, and if it serves not merely as an account but also performs functions such as receiving payments, holding shares, conducting operations, and retaining profits, then it can no longer be simply explained away as “merely receiving payments.”

The risks increase even further, especially when a Hong Kong company retains profits over the long term, owns retail stores, holds trademarks, enters into contracts with external parties, or even reinvests in other overseas entities.

Scenario 3: An individual directly owns a Hong Kong company or an overseas company

This is one of the most closely watched changes in the new regulations.

Order No. 837 explicitly includes “individual residents” within the scope of investors.

This means that the widely held view in the past—that “ODI is solely a corporate matter, and individual ownership of overseas companies falls into a gray area”—needs to be reevaluated.

However, it’s important to note that:

Individual residents have now been formally brought under regulatory scrutiny, but specific details regarding the management of individual overseas investments—including whether there will be reporting thresholds and how existing investment structures will be handled—remain to be clarified in subsequent supporting regulations.

Therefore, we do not recommend simply stating that “all individuals who own Hong Kong companies must register immediately.”

A more accurate assessment is:

Regulatory policies are clearly becoming stricter, so individuals should conduct a compliance review in advance for any Hong Kong companies or overseas companies registered in their names, as well as assets held in the names of relatives or employees, and existing overseas assets.

Scenario 4: Reinvestment, Transfer, and Restructuring of Overseas Assets

Many companies believe that ODI only occurs when establishing an overseas company for the first time.

However, the new regulations also address situations in which investors continue to invest, transfer, or dispose of overseas assets and interests acquired through foreign investment.

In other words, running a business isn’t a “one-time thing.”

Subsequent capital increases, mergers and acquisitions, sales, restructurings, and asset transfers involving overseas companies may all require new regulatory assessments.

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II. Why Is This Time Different?

Many business owners ask:

“Hasn’t the ODI filing requirement been in place for a long time? Why is everyone saying the risks have increased now that Order No. 837 has been issued?”

The root cause is not the sudden emergence of ODI, but rather an evolution in regulatory logic.

In the past, ODI operations were primarily governed by regulations issued by agencies such as the National Development and Reform Commission, the Ministry of Commerce, and the State Administration of Foreign Exchange. In practice, many issues were handled based on experience, local interpretations, and historical precedents.

However, Order No. 837 is an administrative regulation issued by the State Council.

This means that the regulation of outbound investment has moved from the previously relatively fragmented set of departmental rules to a more systematic, overarching, and unified regulatory framework.

This change can be understood in terms of three key words:

Elevation of administrative levels, expansion of the scope of entities, and coordinated oversight.

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III. First, an upgrade in the regulatory tier: ODI is no longer just a matter of “filing a single registration.”

In the past, many companies’ understanding of ODI tended to be limited to:

“I need to transfer some money, so I’m filing a report.”
“The bank needs some documents, so I’ll submit an ODI.”
“We’ll need to review the due diligence for the financing, so please prepare a document.”

However, following the issuance of Order No. 837, ODI is no longer merely a standalone filing procedure.

It is beginning to form stronger linkages with regulations governing foreign exchange, taxation, banking, data, export controls, national security reviews, antitrust, and state-owned asset supervision.

Simply put:

In the past, it may have been a case of “one department handling one section.”

Now it will be more like “multiple departments working together to examine the entire chain.”

For example, if a cross-border enterprise establishes a company in Hong Kong, receives U.S. dollars, and reinvests in a U.S. company, while simultaneously providing technical documentation, customer data, and operational systems to its overseas teams, this involves more than just ODI issues; it may also involve:

• Funds Transfer;
• Tax Filing;
• Cross-border data transfer;
• Technology exports;
• Intellectual Property;
• Security Review of Overseas Investments;
• Subsequent profit repatriation;
• Due Diligence for Financing and Going Public.

That is why we have always reminded you:

Don't think of ODI as an isolated “certificate.”
ODI serves as the compliance foundation for global expansion architectures.

If the foundation isn’t solid, subsequent steps—such as opening a bank account, transferring funds overseas, repatriating profits, raising capital for an IPO, and transferring equity—may all hit a snag.

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IV. Second, individual residents have been included: Individual overseas stock holdings can no longer rely on gray areas.

In the past, when setting up offshore structures, many business owners would hold Hong Kong companies directly in their personal capacity or have relatives, friends, or employees act as nominees for offshore entities.

The reason is also quite practical:

• Lack of familiarity with the company's ODI process;
• I think doing it myself is faster;
• I feel that Hong Kong companies are somewhat removed from mainland regulation;
• They think that as long as the funds don't leave the country, everything will be fine;
• I think we should get the business up and running first, and fill in the gaps later.

However, Article 2 of Order No. 837 explicitly includes “individual residents” within the scope of investors.

This has a significant impact on companies expanding overseas.

The message it sends is:

Individuals“ overseas investments are no longer a ”blind spot” outside the scope of regulatory oversight.

In particular, for these types of arrangements, we recommend conducting a self-inspection as soon as possible:

• An individual directly owns a Hong Kong company;
• Individuals who directly own companies in the BVI, the Cayman Islands, Singapore, and the United States;
• Having a spouse, parent, or sibling hold shares in an overseas company on one’s behalf;
• Having an employee or friend act as a nominee for an overseas company;
• The overseas company is actually controlled by a domestic owner, but the shares are registered in someone else’s name;
• Individuals use offshore companies to retain profits from cross-border business over the long term;
• Mixing personal and business accounts;
• There are plans to repatriate overseas profits to China in the future.

Something to keep in mind:

Specific administrative measures governing individual residents’ overseas investments are yet to be formulated by the competent authorities. In other words, how individuals will file reports, what procedures they must follow, and how existing investments will be handled will depend on the supporting regulations.

But that doesn't mean we can just sit back and wait to see what happens.

For a company, the greatest danger isn’t that “you weren’t asked to submit additional documentation right away,” but rather that when you need to raise capital, go public, sell the company, repatriate profits, open a bank account, or explain tax matters in the future, you’ll discover that your early-stage structure has left behind a string of unexplained historical issues.

The gray area is not a safe zone.

In many cases, it’s simply that the risks haven’t yet come to a head.

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V. Third, Hong Kong, Macao, and Taiwan should no longer be regarded as “exceptional regions.”

Many cross-border businesses have a common misconception about Hong Kong companies:

“Hong Kong isn’t overseas, is it?”
“The Hong Kong company is just a middleman.”
“It’s more convenient to receive U.S. dollars in a Hong Kong account.”
“Everyone does it this way, so it shouldn’t be a problem.”

Article 32 of Order No. 837 stipulates that the administration of investments made by investors in the Hong Kong Special Administrative Region, the Macao Special Administrative Region, and the Taiwan region shall be carried out in accordance with these provisions.

This is very important.

This doesn't mean that all Hong Kong companies are unsuitable, nor does it mean that there is necessarily a problem with any Hong Kong company.

What it really means is:

Hong Kong companies can no longer be viewed simply as a safe haven outside the scope of ODI regulations.

In the future, determining whether a Hong Kong company poses compliance risks will depend on its actual function within the overall structure:

• Is it just a shell account, or is it an actual business entity?
• Does it hold equity interests in overseas companies?
• Does it own any trademarks, brands, stores, or intellectual property?
• Does it generate profits from cross-border business?
• Is it actually controlled by a domestic enterprise or a resident individual?
• Does it serve a legitimate business purpose?
• Does it engage in reinvestment abroad?
• Does it explain the source of funds, the allocation of profits, and the nature of the business?

So, the question is no longer “Can a Hong Kong company be used?”

The real question is:Can your Hong Kong company be interpreted as a compliant, genuine, and necessary business arrangement?

If it is merely a “cash-collection shell,” “accounting shell,” “tax-avoidance shell,” or “nominee shell,” it could become a potential risk in future due diligence processes involving banks, tax authorities, financing, and IPOs.

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VI. These Four Factors Have the Greatest Impact on Cross-Border Businesses

Next, let’s address the issues that matter most to businesses.

The impact of Order No. 837 on cross-border enterprises, Hong Kong companies, and offshore structures is primarily concentrated in four areas.

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First thing: The notion that a Hong Kong company is “just a front for receiving payments” is no longer sufficient.

Over the past few years, many cross-border sellers have come to view Hong Kong companies as a standard practice:

• The platform makes it easy to receive payments;
• It's easy to open an overseas account;
• Convenient for receiving U.S. dollars;
• Convenient for payment receipt tools;
• To facilitate profit consolidation;
• To facilitate the subsequent registration of overseas entities.

But the problem is that once a Hong Kong company takes on actual business functions, it becomes difficult to simply describe it as “merely a shell company for receiving payments.”

In particular, in the following situations:

• Linking a Hong Kong company to a platform store;
• Hong Kong companies receive payments from cross-border platforms;
• Hong Kong companies entering into contracts with foreign parties;
• The Hong Kong company owns trademarks, brands, and intellectual property;
• A Hong Kong company holds equity in an overseas operating company;
• Hong Kong companies' accumulated retained earnings;
• A Hong Kong company reinvests in other overseas companies;
• The Hong Kong company is effectively controlled by individuals based in mainland China.

In each of these situations, it is necessary to reassess whether compliance obligations related to ODI, foreign exchange, taxation, and banking due diligence are involved.

Here’s a special reminder:

Having a Hong Kong company does not necessarily mean you are in violation of the law.
However, Hong Kong companies that lack a compliance rationale will certainly find it increasingly difficult to justify their actions in the future.

Just because banks didn't ask in the past doesn't mean they won't ask in the future.

Just because the platform didn't check in the past doesn't mean it won't check in the future.

Just because no one looked at past financing rounds doesn’t mean due diligence for an IPO won’t examine them.

The biggest fear in corporate compliance is not being warned, but rather that risks have been building up for years and only come to light at a critical juncture.

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Second: Risks increase significantly when shares are held personally, held on behalf of relatives, or held on behalf of employees.

When setting up offshore structures in the early stages, many business owners find it more convenient to have shares held by themselves or their relatives.

For example:

• The owner personally owns a Hong Kong company;
• A spouse owns a Singapore company;
• A BVI company held in the parents' names;
• Employees hold shares in the overseas warehouse entity on behalf of the company;
• A friend overseas holds shares in a domestic company on behalf of the owner;
• A local partner holds the license on behalf of the company.

While these arrangements may seem flexible in the short term, they can easily create problems in the long run.

Because once we’re pressed for answers in the future, the core question will become:

• Who paid for it?
• Who owns the shares?
• Who actually controls the company?
• Who makes business decisions?
• Who reaps the profits?
• Is there a nominee agreement?
• Is there a tax payment certificate?
• Is there proof of the source of funds?
• Do you have any ODI or foreign exchange registration documents?
• Can a nominee arrangement withstand scrutiny under domestic and foreign laws?

A nominee arrangement is not a compliant solution.

In many cases, holding shares on behalf of another party merely transforms an obvious compliance issue into a more complex equity dispute, tax risk, and due diligence risk.

In particular, when a company seeks financing, engages in mergers and acquisitions, or goes public in the future, investors and securities firms will certainly look at:

Who actually owns the offshore company?
Is the actual controller the same?
Are past capital contributions in compliance with regulations?
Have the profits been reported in accordance with the law?
Is there any hidden income or improper transfer of benefits?

If these issues cannot be adequately explained, the consequences could range from simply having to submit additional materials to, in more serious cases, affecting the valuation and financing efforts—or even resulting in a veto.

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Third: ODI affects capital outflows, profit repatriation, and financing for IPOs

Many companies view ODI as something they only need “when it’s time to pay.”

However, for companies expanding overseas, ODI affects their entire lifecycle.

1. Impact on the Outflow of Funds

When a company intends to invest in an overseas entity, banks typically review documents such as ODI filings, commercial registration, National Development and Reform Commission (NDRC) filings, and foreign exchange registration.

If the architecture isn't properly planned in the early stages, the following issues may arise later on:

• Investment funds cannot be remitted in compliance with regulations;
• The bank has requested additional documentation;
• Difficulty explaining the use of funds;
• Unclear relationships between domestic and foreign entities;
• The capital contribution path does not match the equity interests registered with the industrial and commercial authorities.

2. Impact on Profit Repatriation

Once an overseas company generates profits, the enterprise may need to repatriate those funds to China in the future in the form of dividend payments, service fees, royalty payments, proceeds from the transfer of equity, and so on.

If there was no compliant capital contribution, no clear equity structure, and no complete tax documentation in the early stages, you are likely to be asked the following questions when repatriating profits:

• What is the nature of this money?
• How are overseas profits generated?
• Who controls the overseas company?
• Was the investment legal at the time?
• Have the reporting obligations been fulfilled within the country?
• Does this involve tax avoidance or profit shifting?

Catching up at this stage is often much more difficult than if it had been planned from the beginning.

3. Impact on Financing and Going Public

When it comes to financing, mergers and acquisitions, and IPOs, the biggest concern is failing to adequately address past issues.

Once a company has an overseas structure, investors and brokerage firms typically focus on the following:

• Is it legal to establish an overseas company?;
• Whether domestic entities are required to obtain approval or file a report for outbound investment;
• Is there a situation where shares are held in another person’s name?;
• Whether taxes have been paid on overseas profits in accordance with the law;
• Whether the funds were transferred abroad in compliance with regulations;
• Is the chain of ownership complete?;
• Are there any material compliance deficiencies?

Many companies initially feel that “they don’t need ODI right now,” but when they seek funding or go public a few years later, they realize that the architectural issues they overlooked back then to save time have become major obstacles for investors.

So, an ODI is not just a piece of paper “to satisfy the bank.”

It is essentially a key foundational document that verifies the legitimacy of a company’s overseas assets, the compliance of its capital flows, and the clarity of its equity structure.

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Fourth: The costs of noncompliance will be more clearly defined, and there will be less room for “acting first and making amends later.”

Decree No. 837 clarifies the liability provisions for non-compliant foreign investment.

If an investor fails to complete the required approval and filing procedures for overseas investments, or submits false materials or conceals material information when applying for approval and filing, the investor may face consequences such as being ordered to rectify the violation, having illegal gains confiscated, or being fined; if the investor refuses to rectify the violation, the investor may also be ordered to cease investment activities or dispose of shares or assets within a specified time limit.

Corresponding liabilities have also been established for situations such as fraudulently obtaining filing approval, failing to cooperate with security reviews, and failing to comply with security review decisions.

What does this mean?

This suggests that the mindset many people used to have—“Just get started first; we can fix it later”—is becoming increasingly risky.

Compliance is no longer just a matter of “submitting a document.”

If historical investment activities have already taken place, overseas assets have been accumulated, funds have changed hands multiple times, and equity ownership has shifted, the subsequent corrective measures will not simply involve filling out forms, but rather require a thorough re-explanation of the entire chain of events.

Included:

• Why was this overseas entity established in the first place?
• Where does the investment capital come from?
• What types of business do offshore companies engage in?
• Why was the equity structured this way?
• Is there a nominee arrangement?
• Does this involve tax filing?
• Does this involve the export of technology, data, or personnel?
• How should we go about making these corrections now?

The longer it drags on, the more complicated the chain of events becomes, and the higher the cost of rectification will be.

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VII. Which companies and individuals should conduct self-inspections right now?

If you fall into any of the following categories, we do not recommend waiting any longer.

This doesn’t mean you have to register immediately, nor does it mean you have to overhaul your existing architecture; rather, you should at least conduct a compliance audit first to identify where the risks lie.

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Category 1: Cross-border sellers who already have a Hong Kong-based or overseas company

In particular, the following situations:

• Hong Kong companies use this for receiving payments on platforms such as Amazon, TikTok Shop, and independent websites;
• Link Hong Kong companies to payment collection tools such as Payoneer, Airwallex, and PingPong;
• A Hong Kong company owns overseas stores, brands, and trademarks;
• Hong Kong companies' accumulated retained earnings;
• The Hong Kong company is held directly by the owner;
• Hong Kong companies reinvesting in overseas entities in Singapore, the United States, Europe, and elsewhere;
• The Hong Kong company is merely a shell; it has no actual business operations.

Companies of this type are most prone to one common misconception:

“I’m just doing this to make it easier to collect payments; it’s not an investment.”

However, if a Hong Kong company is actually controlled by a mainland entity and performs functions related to business operations, capital, profits, and assets, this cannot be explained solely by “convenience in receiving payments.”

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Category 2: Companies with overseas warehouses, overseas teams, and overseas assets

Included:

• Establish an overseas warehouse company abroad;
• Lease or purchase an overseas warehouse;
• Hire local employees;
• Owns vehicles, equipment, and inventory;
• Establish a local delivery company;
• Establish a joint venture with a local partner;
• Using an overseas entity to enter into contracts with clients;
• Overseas entities generate revenue from warehousing fees, delivery fees, and service fees.

Many logistics providers, freight forwarders, and overseas warehouse companies may feel that:

“I have a real warehouse, employees, and business—it should be fine.”

However, it is important to distinguish between two things here:

Genuine business operations address the core issues of commerce.
ODI focuses on whether domestic entities have made outward investments.

Having a physical business presence does not automatically exempt a company from ODI requirements.

If a domestic enterprise or resident individual actually invests in or controls an overseas entity or asset, it is still necessary to assess the relevant compliance obligations.

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Category 3: Business owners who have overseas companies registered under their own or their relatives’ names

These types of risks are often the most difficult to detect.

Common situations include:

• The owner personally owns a Hong Kong company;
• The boss's spouse owns an overseas company;
• Parents and siblings hold shares on behalf of an overseas entity;
• A company where employees hold shares on behalf of the company in an overseas warehouse;
• A friend overseas holds shares in a domestic company on behalf of the owner;
• The company is effectively controlled by a domestic owner, but the nominal shareholder is based overseas.

In the short term, these arrangements appear to have resolved the question of “who will hold the shares.”

However, in the long run, it will lead to three even bigger problems:

First, Ownership Risks

If the nominee changes their mind, leaves the company, gets divorced, passes away, or becomes involved in a debt dispute, it may be difficult to prove who actually owns the overseas equity.

Second, Tax Risks

Who actually owns the profits of overseas companies? Do they need to be reported in China? Is there any concealment of income? These issues will all be magnified.

Third, financing due diligence risks

Investors are most wary of unclear actual control relationships.

If an overseas company appears to be owned by a relative or a third party but is actually controlled by the business owner, such a structure can easily be viewed as involving nominee ownership, concealment of income, transfer of benefits, or defects in ownership.

Therefore, having a family member or friend hold the assets on your behalf does not mean “circumventing the risk.”

Often, the risks are simply hidden more deeply.

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Category 4: Companies that are establishing a red chip structure or a VIE structure, or are preparing to raise capital through an IPO

If a company plans to raise capital, go public, or bring in investors in the future, it is even more important not to set up an offshore structure haphazardly.

Key points to note:

• Whether a domestic individual directly or indirectly controls an overseas company;
• Has registration under Document No. 37 been completed?;
• Does registration under Document No. 37 cover all compliance obligations?;
• Are there any unregistered ODI nodes?;
• Are the overseas financing entity, the shareholder entity, and the operating entity clearly aligned?;
• Does a subsequent reinvestment by an overseas company require filing?;
• Are the shareholding arrangements, historical capital contributions, and tax filings complete?

Please note:

Registration under Document No. 37 cannot simply be equated with ODI compliance.

Document No. 37 primarily addresses foreign exchange registration issues, whereas ODI also involves the regulatory frameworks of multiple departments, including the National Development and Reform Commission, the Ministry of Commerce, and the State Administration of Foreign Exchange.

In the past, many companies treated Document No. 37 as a “universal pass”; this understanding needs to be revised.

To put it simply:

Document No. 37 is more like a registration requirement in the foreign exchange process;
An ODI is more like a certificate of compliance for outbound investment by domestic entities.

The two cannot simply be used interchangeably.

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VIII. What Should We Do Now?

At this point, many people may already be feeling anxious:

“So do I need to file the required documentation right away?”
“Does that mean we can’t use Hong Kong companies anymore?”
“Do all individual shareholdings need to be changed?”
“Are all the old architectures flawed?”

Don't panic just yet.

Order No. 837 is not intended to prevent companies from expanding overseas, nor does it mean that all existing overseas structures cannot be used.

What really needs to be done is:

Investigate thoroughly before making a judgment; examine the architecture before deciding on a path.

We recommend a three-step approach.

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Step 1: Start by creating a diagram of the domestic and international structures

Don't start by asking, “Do I need ODI filing?”

This issue cannot be assessed without considering the architecture.

We recommend that you start by organizing the following information:

• What are some domestic companies?
• What are some examples of offshore companies?
• Who are the shareholders of a Hong Kong company?
• Who actually controls an offshore company?
• Are there any individual shareholders?
• Are there any relatives, employees, or friends holding shares on your behalf?
• What types of business do offshore companies engage in?
• Does the overseas company own any trademarks, stores, platform accounts, overseas warehouses, inventory, or equipment?
• Where does the funding come from?
• Where do profits accumulate?
• Has the overseas company made any reinvestments?
• Will the company seek funding, go public, or repatriate profits in the future?

Only by getting a clear picture of this can we identify where the risks lie.

It’s not that many companies lack an awareness of compliance; rather, they haven’t even fully mapped out their own domestic and overseas structures.

That's what's most dangerous.

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Step 2: Determine whether ODI-related obligations have been triggered

After reviewing the architecture, check to see if any of the following situations exist:

• Domestic enterprises or individual residents establish and control overseas companies;
• Acquire equity in an overseas company;
• Acquiring ownership or control of overseas assets;
• Obtain the right to manage operations overseas;
• Increase capital in an overseas company;
• Reinvestment by overseas companies;
• A framework for the active participation of Hong Kong, Macao, and Taiwan;
• Overseas companies are used for receiving payments, holding shares, conducting operations, or retaining profits;
• Investments involving sensitive industries, sensitive countries, or sensitive assets;
• Involves the cross-border transfer of technology, data, personnel, and intellectual property.

If any of these situations apply, it is not advisable to base your judgment on statements such as “the money never left the country,” “it was just a receipt of payment,” or “everyone does it this way.”

The most prudent approach is to evaluate the situation by taking into account ODI, foreign exchange, taxation, bank account opening, and future financing plans.

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Step 3: Design processing paths based on different scenarios

Every company is different, so there’s no one-size-fits-all solution.

Scenario 1: No overseas company has been established yet

We recommend designing the architecture first, then registering the company.

Don’t go ahead and register a Hong Kong company, open a bank account, or start receiving payments first, only to try to make up for it later when the bank or regulators ask questions.

A more reliable order is:

1. Clarify the business purpose of the overseas company;
2. Design equity structures for domestic and international entities;
3. Determine whether ODI filing is required;
4. Coordinate the planning of foreign exchange registration, tax filing, and bank account opening;
5. Next, establish an overseas entity.

It is easiest to establish standards for a newly created architecture, and that is precisely why historical issues should not be carried over from the start.

Scenario 2: An overseas company already exists, but there is no ODI

Don't rush to “catch up on your filing” right away, and don't rush to deregister either.

Start by conducting a compliance review.

Key Points:

• Who was responsible for establishing it in the first place?
• What is the source of the funds?
• Is the overseas company already in operation?
• Have there been any capital increases, share transfers, or reinvestments?
• Is there any retained earnings?
• Does this involve personal shareholdings or shares held in trust?
• Does this involve a need for capital repatriation?
• Are there any plans for future financing or an IPO?

Different risk areas require different corrective action plans.

Some require additional filings, some require adjustments to equity structures, some require updates to tax documentation, and some require a re-planning of funding channels.

Scenario 3: An individual or a relative owns an overseas company

You should be especially cautious in situations like this.

It is recommended that the following be verified as a priority:

• Whether it constitutes an actual foreign investment by a domestic individual resident;
• Is there a nominee arrangement?;
• Are equity ownership and actual control consistent?;
• Is the source of the investment funds clear?;
• Is the attribution of overseas profits clear?;
• Have you registered under Document No. 37?;
• Is it necessary to wait for the supporting regulations on individual overseas investment?;
• Is it necessary to adjust the corporate ownership structure?;
• Will this affect future financing, an IPO, and the repatriation of profits?

We do not recommend simply and indiscriminately “changing everything to corporate ownership.”

This is because restructuring itself may involve issues such as equity transfers, taxation, foreign exchange, and foreign laws.

The correct approach is to assess the situation first, then design a plan.

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IX. These misconceptions are most likely to lead companies to misjudge risks

Finally, let’s take a moment to address some common misconceptions.

Many bosses have said things like this.

However, following the issuance of Order No. 837, it is really not recommended to continue making such determinations.

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Misconception 1: “A Hong Kong company is just for receiving payments; it doesn’t count as an investment.”

Not necessarily.

If a Hong Kong company is effectively controlled by a mainland enterprise or an individual resident and performs functions such as receiving payments, holding shares, conducting operations, and retaining profits, it is necessary to assess whether this constitutes an outward investment.

“Merely collecting payments” is not a valid defense.

The key is to look at its actual role within the entire business chain.

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Misconception 2: “If the money isn’t transferred out of the country, it doesn’t count as ODI.”

Not necessarily.

The ODI does not merely look at whether funds have been remitted from within the country.

It also depends on whether overseas enterprises, assets, equity interests, control, management rights, or related interests have been acquired.

If a domestic entity effectively controls an overseas company, even if the flow of funds is relatively complex, one cannot simply assume that “as long as no funds were transferred, there is no issue.”

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Misconception 3: “I’ve already completed the registration required by Document No. 37, so there’s no problem with the ODI.”

Not necessarily.

Registration under Document No. 37 and ODI filing are not the same thing.

Document No. 37 primarily addresses the logic behind foreign exchange registration, while ODI involves a regulatory framework spanning multiple departments, including the National Development and Reform Commission, the Ministry of Commerce, and the foreign exchange authorities.

The fact that registration under Document No. 37 has been completed does not mean that all obligations related to foreign investment have been fulfilled.

In particular, situations such as red-chip structures, individual ownership of overseas companies, and reinvestment overseas require separate evaluation.

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Misconception 4: “It’s safe to have a family member or friend hold the assets on your behalf”

Not safe.

Regulators, banks, tax authorities, and investors look at the substance, not just the nominal shareholders.

As long as the funds, decision-making, profits, and control are all attributable to the same actual controller, the nominee arrangement may be pierced.

To make matters worse, nominee holdings can also lead to equity disputes, tax risks, and issues during due diligence for an IPO.

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Misconception 5: “My overseas company is actually conducting business, so I don’t need to file a record.”

This is also a common misconception.

The existence of genuine business operations indicates that the company has commercial substance, but this does not automatically exempt it from ODI requirements.

ODI focuses on whether domestic entities have invested in, exercised control over, or acquired interests in overseas entities.

The fact that there are actual warehouses, employees, and business transactions actually indicates that the overseas assets and equity are more genuine, which makes it all the more important to establish a solid foundation for compliance.

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X. Final Thoughts: It’s Not That We Can’t Go Overseas—It’s That We Can No Longer “Go Overseas Blindly”

Order No. 837 is not intended to put the brakes on companies expanding overseas.

On the contrary, the message it conveys is:

Companies can expand overseas, but they must do so within the rules;
Capital can flow overseas, but it must be clearly accounted for, properly managed, and able to return.

Over the past few years, many companies have built their overseas structures in a way that was driven by business needs:

First, register a Hong Kong company; then, open a bank account; next, collect the funds; and finally, get the business up and running.

This might have worked in the early days.

However, as a company grows in size, its profits increase, its assets become more substantial, and its need for financing and an IPO intensifies, those early-stage arrangements of “acting first and sorting things out later” will become an increasingly difficult historical burden to manage.

Especially following the issuance of Order No. 837, the following issues can no longer be left to chance:

• Who actually controls Hong Kong companies?
• Who Actually Owns Overseas Profits?
• Can you explain the sources and flows of funds?
• Are personal stock holdings in compliance with regulations?
• Is the nominee arrangement clear?
• Have the obligations regarding reinvestment abroad been fulfilled?
• Will future profits be able to be repatriated in compliance with regulations?
• Will the due diligence for the IPO and financing be approved?

Compliance isn't meant to scare people.

The true value of compliance lies in ensuring that a company’s future cash flow, profits, equity, taxes, and financing all operate smoothly.

If you already have a Hong Kong company, an overseas company, or an overseas warehouse—or if you’re in the process of setting up your global expansion framework—the most important thing to do right now is not to panic or sit on the sidelines, but to conduct an ODI compliance review.

Understand the architecture clearly, identify the risk points, address any gaps that need to be filled, and make the necessary adjustments.

The sooner you act, the more options you'll have.

The longer you wait to address the issue, the higher the cost will be.

Expanding overseas isn't a problem.

The real problem is setting sail without a clear plan.