Hong Kong is a popular destination for international businesses and investors. According to the World Bank, it is first-equal in the world for its business-friendly regulatory environment. More specifically, international businesses like the idea of incorporating a subsidiary in Hong Kong to take advantage of low corporate taxes, to access both international and mainland China markets, and to benefit from 100% foreign ownership.
The most popular option for international businesses setting up in Hong Kong is incorporating a Hong Kong subsidiary company. This is a private limited company incorporated in Hong Kong, in which the international business or entrepreneur has a majority shareholding in that company. Where the subsidiary is 100% owned by the international parent company, it is known as a ‘wholly-owned’ subsidiary.
Here, we set out the key requirements for registering your Hong Kong subsidiary.
What are alternatives to subsidiary incorporation?
Opening a Hong Kong subsidiary is not the only way an international company can operate in Singapore. Other possibilities include:
- An affiliate/joint venture. Subsidiaries involve the international company having a majority shareholding in the Hong Kong company. It is also possible for that enterprise to set up an affiliate in Hong Kong, or a special purpose company for a joint venture, where that enterprise only has a minority shareholding in the Hong Kong company. This will only be appropriate where the international enterprise does not seek to fully control the activities of the Hong Kong company
- A branch/branch office. A branch is registered with the Hong Kong authorities but is not incorporated in Hong Kong. It pays corporate income tax in Hong Kong, just as a subsidiary does. Crucially, as the branch is considered an integral part of the broader company, the branch does not have limited liability, and any debts it takes on become debts of the international enterprise
- A representative office. A representative office (RO) is empowered to carry out certain preliminary and non-profit generating activities in Hong Kong. This will only be useful for international businesses in very specific circumstances.
The key requirements for registering a Hong Kong subsidiary
When registering a Hong Kong subsidiary, it is important to consider the following requirements:
- Company name. International businesses must apply to the Companies Registry for approval of the name for their Hong Kong subsidiary. The name can be in either English or Chinese, and must not infringe on the copyright or trademarks of other Hong Kong companies
- Directors. A Hong Kong subsidiary company must have at least one director, who must be a natural person, above 18 years of age, of full capacity, and who has not been disqualified from being a director. Corporate directors (i.e., directors who are themselves bodies corporate, rather than natural persons) are permitted, but only where there is at least one other director who is a natural person
- Shareholders. A Hong Kong subsidiary is allowed to have up to 100% foreign shareholding. Shareholders can be foreign companies or natural persons. Note, ‘bearer shares are not permitted in Hong Kong (all shareholders must be registered with the Hong Kong authorities). There must be at least one shareholder who holds an ordinary share with full voting rights, and general meetings of shareholders must be held annually
- Company secretary. Every Hong Kong subsidiary must have a company secretary who is a local resident of Hong Kong. The company secretary may be an ordinary individual or a body corporate
- Business address. All Hong Kong subsidiaries must have registered physical addresses in Hong Kong. The address cannot be A PO Box or an ‘in care of’ address
- Share capital. There is no minimum share capital in Hong Kong, and share capital can be paid in any currency
- Tax. Hong Kong subsidiaries are subject to corporate income tax in Hong Kong. The tax rate is 8.5 percent up to the first HKD $2 million, and then 16.5 percent thereafter
- Ongoing compliance. Audited accounts and tax returns must be filed annually with the Inland Revenue Department. In addition, the subsidiary’s annual return must be filed every year with the Companies Registry.
The main steps for Hong Kong subsidiary registration
The Hong Kong subsidiary incorporation process usually proceeds as follows:
- Gather the necessary information. Identification information is required for all shareholders and directors. You will also need to provide essential information relating to the ultimate beneficial owners of the subsidiary (e.g., the details of any foreign trust arrangements). This information is required for the Significant Controllers Register
- Apply to the Companies Registry for approval of company name
- Together with required documentation, apply to the Companies Registry to incorporate the Hong Kong subsidiary
- Applications are usually processed within one week, and upon approval, the Companies Registry issues a Certificate of Incorporation for the Hong Kong subsidiary.
Ongoing requirements after registration
In addition to incorporation with the Companies Registry, all Hong Kong subsidiaries are required to register with the Inland Revenue Department. Upon registration there, the company will receive a Business Registration Certificate (BRC). These last between one and three years.
Once registered, the international enterprise will be in a position to apply for a corporate bank or business account for the Hong Kong subsidiary. When dealing with multiple currencies, it will be important to have a multi-currency account, and FX trading capabilities.
Finally, a newly incorporated Hong Kong subsidiary should ensure that it has any necessary business licenses. Some activities in Hong Kong require a special business license, for example, where the business is in the financial services industry.
Where an international enterprise has decided that subsidiary incorporation is the right move, it needs to ensure that it follows all the steps for setting up a company prescribed by Hong Kong law: This includes applying for name approval, company incorporation and business registration.