Foreign Company Setup Options in Hong Kong
Subsidiary Company vs Branch Office vs Representative Office
As one of the most sought after business destinations in the Asian region, a pertinent question for investors seeking to register a foreign company in Hong Kong would be concerning the options available. Foreign Company Setup Options in Hong Kong include via a representative office, subsidiary company or branch office. These are the three main structures available for investors seeking to establish a strong presence in the country. The structure you choose will depend on what your business goals and plans are for your company. Small to midsize companies generally prefer a representative office or a subsidiary company, while larger corporation generally prefer branch offices.
Registering a Branch Office in Hong Kong
One option to register a foreign company in Hong Kong is via the branch office business structure. You will be legally registered, but the business will be considered as a foreign entity as it is an extension of the foreign parent company. A branch office is not considered a separate legal entity, meaning that your foreign parent company will be responsible and accountable for any liabilities and debts incurred. Your business must be registered with the Hong Kong Companies Registry.
Branch offices will generally be subjected to the same tax and legal consequences as other Hong Kong companies, and you will have to adhere to Hong Kong’s ongoing compliance requirements. To incorporate a branch office in Hong Kong, you will need to meet the following requirements:
- Have your company name approved
- Must have a local resident as an authorised representative
- Must have an established place to do business in the country
Registering a Subsidiary Company in Hong Kong
Another option to registering a foreign company in Hong Kong is via the subsidiary company business structure. A subsidiary company in Hong Kong is for investors who want 100% foreign ownership of their company, making this structure one of the most common and preferred options. Your business must be registered with the Hong Kong Companies Registry.
Incorporating a subsidiary company in Hong Kong provide numerous advantages to investors especially on tax incentives. It is considered a separate legal entity from the foreign parent company hence the subsidiary company will be treated as a resident company in Hong Kong. You will be eligible for all the tax exemptions and incentives which are applicable to local Hong Kong companies.
To incorporate a subsidiary company in Hong Kong, you will need to fulfil the following requirements:
- Have your company name approved
- Have a local registered address
- Must have at least one director or shareholder
- Must have a Company Secretary who is a local resident
- Must have an auditor
- Must have share capital (no minimum requirement)
Registering a Representative Office in Hong Kong
Investors who are considering setting up a foreign company in Hong Kong can first set up a representative office to gain insight into the local market, gain exposure and develop an in-depth understanding of what Hong Kong’s business environment is like. This move is to help them decide if they want to go ahead with a full-fledged office in Hong Kong, and they can get the feel of what it’s like to run a business here through the representative office business structure.
Representative offices in Hong Kong are not allowed to engage in any sort of activities in view to making a profit. It is also not regarded as a legal entity, which means that you will not be able to enter into any contracts or agreements, engage in trading activities, sign deals on the company’s behalf or raise invoices and letters. Your business activities will be limited to only promotion and liaison activities, co-ordinating and organising activities on behalf of the parent company and undertaking market research.
Given that representative offices have no legal standing, any liabilities will be the responsibility of the parent company. There are no registration requirements, no capital or compliance requirements with this entity either. The only requirement which must be met is to have your business registered with the Inland Revenue Department of Hong Kong and be issued with a Business Registration Certificate.
Types of Foreign Companies Structure
|Entity Name||Need not be the same as parent company||Must be the same as parent company||Must be the same as parent company|
|Allowed Activities||Can conduct all business activities||Must be the same as the parent company||Can only conduct promotion, liaison, marketing, research and other non-profit bearing activities|
|Suitable For||For local or Foreign Companies that wish to expand their operations in Hong Kong||For Foreign Companies that wish to expand their operations in Hong Kong||For Foreign Companies that wish to set up temporary vehicle in Hong Kong to conduct research and act as liaison office|
|Disadvantages||Continuing Compliance Obligations eg Financial Reports, Audit, AGMS, etc||Continuing Compliance Obligations eg Financial Reports, Audit etc||It is a temporary vehicle and cannot generate revenue|
|Ownership||Can be 100% foreign or locally owned||Owned 100% by the head office||No Ownership|
|Separate Legal Entity||Yes||No||No|
|Cap on Number of Members||Yes, max 50||Not Applicable||Not Applicable|
|Minimum Setting up Requirement||Min One shareholder, that can be an Individual or corporate (100% local or foreign shareholding allowed).||Must have One Hong Kong Resident Authorised Representative||Must appoint a Manager or Chief Representative who will relocate from headquarters|
|Limited Liability||Yes||No, Liabilities extend to parent company||No, Liabilities extend to parent company|
|Need for Audited Accounts||Yes||No (Subject to conditions)||No|
|Annual Filing with Companies Registry||Yes||Yes||Not Applicable|
|Tax Treatment||Taxed as Hong Kong locally incorporated entity||Taxed as Hong Kong locally incorporated entity||Not Applicable|
|Cessation of Business upon Death of a Member/Partner||No. Equity shares go on in perpetuity||No||Not Applicable|
|Normal Registration Time||1 to 2 days||10 days||1 – 2 days|
|Bank Account||Can open bank account in Hong Kong||Can open bank account in Hong Kong||Can open bank account in Hong Kong|
|Staff Hiring||No restrictions on hiring local or foreign staff||No restrictions on hiring local or foreign staff||Chief representative must be a staff member from the parent company.|
|Local Person Requirement||Must appoint at least one local resident company secretary to set up the Company||Must have One Hong Kong Resident Authorised Representative to set up the Branch||Must appoint a Manager or Chief Representative who will relocate from headquarters|
Which Foreign Company Business Structure Should You Choose?
That would depend on what your business goals and plans involve. If you intend to engage in any profit making activities, then either a branch office or a subsidiary company would best suit your needs.
If your intention is to get a feel of what the business climate in Hong Kong would be like before you go ahead and incorporate a company, then a representative office would be your best bet.
Most people will set up a subsidiary company rather than a branch office as a subsidiary company does not require any local resident personnel and can be set up with sole foreign director and shareholder. It is also a more popular and easier choice for the purpose of opening corporate bank accounts in Hong Kong.