Where an overseas company seeks to do business in Hong Kong, they are always required to register that business with Hong Kong authorities, no matter which business structure is used.
Here we explain the registration steps where an international business wishes to open a branch, also known as a ‘branch office’, in Hong Kong.
How does a Hong Kong branch differ from other business structures in Hong Kong?
An international enterprise will be incorporated somewhere in the world. For larger businesses, the international enterprise will be a ‘corporate group’, with both a parent company, and subsidiaries that the parent company has an ownership interest in. The parent company and the subsidiaries may well be incorporated in different jurisdictions.
But as well as incorporating a subsidiary in Hong Kong, an international enterprise can also set up a branch office there: This means that the international enterprise itself does business in Hong Kong (through its integral ‘branch’), rather than a separately incorporated Hong Kong company.
A Hong Kong branch of an international company pays the same corporate tax rate as any Hong Kong-incorporated company: 8.25 percent on the first HKD $2,000,000, and 16.5 percent on subsequent amounts.
All branches operating in Hong Kong must be registered with both the Companies Registry and the Inland Revenue Department.
What are the benefits of registering a branch in Hong Kong?
Given that the tax rate is the same, and the process for incorporating a Hong Kong subsidiary is relatively straightforward, what is the benefit of registering a branch in Hong Kong?
One key benefit is that it is much quicker to close down a branch than a Hong Kong-incorporated subsidiary: Where the company is solvent, all shareholders must agree in order to wind up a Hong Kong company, and a detailed winding-up process must be followed.
By contrast, with a Hong Kong branch, closing down the business in Hong Kong is simply a matter of informing the authorities that the business is ceasing to operate in Hong Kong: Nothing needs to be wound up.
Another potential benefit is that the branch can easily leverage the reputation of the international company when doing business in Hong Kong. This is more difficult with a subsidiary, as potential clients and lenders are aware that the international enterprise is not liable for the actions of the branch.
What is the downside of registering a branch in Hong Kong?
The most significant downside of branch registration in Hong Kong is that the international company will have liability for the actions and debts of its Hong Kong branch: Any contracts entered into by the branch are binding on the international enterprise. By contrast, a Hong Kong-incorporated subsidiary does not put the international parent company at risk.
The key requirements for branch office registration
To register a branch office, you must register with the Companies Registry as a ‘non-Hong Kong company’.
To do so, you need to provide the following information to the Companies Registry:
- Name. The name of the branch should match the legal name of the international company: I.e., the name listed on the company's ‘certificate of incorporation’ (wherever it is incorporated). However, this will not be permitted if the international company's name is already in use in Hong Kong, or is otherwise considered inappropriate
- Business address. The branch office must have a business address in Hong Kong. This is required to be a physical address — a PO Box, or ‘care of’ address will not do
- Authorized representative in Hong Kong. All branches must have at least one authorized representative present in Hong Kong to accept service of any process or notice on behalf of the company
- Company secretary. There must be a company secretary, and their details must be provided with the application
- Compulsory information. The following information relating to the international enterprise must be provided with the application: Names and identifying details for directors, certified copies of the company memorandum and ‘articles of association’, and a certified copy of the original ‘certificate of incorporation’.
What is the process for registering a Hong Kong branch?
When registering a branch in Hong Kong, the process should apply as follows:
- Apply for name approval
- Apply for a ‘certificate of registration of a non-Hong Kong company’, with the Companies Registry
- Apply for business registration with the Inland Revenue Department. It is on application to the Inland Revenue Department that a business registration certificate (BRC) can be received, and the company becomes able to pay taxes in future. Note, this must be done within one month of the date of business commencing in Hong Kong
- Any additional business licenses. Sometimes, companies need to apply for special business licenses that apply to that particular industry in Hong Kong. For example, this is required where a branch plans to operate as a travel agency or as a financial services company
- Ensure ongoing compliance. The branch must prepare audited financial accounts and submit them with their tax returns annually.
Setting up a Hong Kong branch can be beneficial in cases where a business is unsure about its expansion into Hong Kong, and doesn’t want to deal with setting up and potentially closing a subsidiary incorporated in Hong Kong. Where operating a branch in Hong Kong, it is essential that a business ensures that it registers with the Companies Registry, the Inland Revenue Department, and any required licensing bodies.