What is a branch office from a Non-Hong Kong company?
When an overseas company seeks to do business in Hong Kong, it is always required to do a business registration with the Hong Kong authorities in the way of a Hong Kong branch office, a Hong Kong limited company, or a Hong Kong representative office.
A Non-Hong Kong company branch allows entering and operating in the Hong Kong market in the same line of business, using the prestige and leverage of the foreign brand or foreign company.
Here, we explain the registration steps needed when an international business wishes to enter the Hong Kong market as a branch, also known as a branch office in Hong Kong.
How does a Hong Kong branch office differ from the parent company and other business structures in Hong Kong?
Let's consider the case of a foreign company considering expanding overseas somewhere in Asia.
For larger businesses, the foreign company will be a 'corporate group,' with both a parent company and subsidiaries that the parent company owns. The parent company and the subsidiaries may also be incorporated in different jurisdictions according to the needs of their foreign investors.
As attractive as Hong Kong is, foreign companies have many options to enter the Hong Kong market, such as incorporating a subsidiary in Hong Kong.
Another option to explore for a foreign company is registering a branch office.
A Hong Kong branch office will allow the foreign parent company to do business in Hong Kong through its integral 'branch' rather than a separate legal entity.
A Hong Kong branch office with a foreign parent company pays the same corporate tax rate as any other Hong Kong-incorporated company. With the two-tier system, there is an 8.25% rate on the first HKD2,000,000 profit and 16.5% on the subsequent amounts, as stated by the Inland Revenue Department.
The branches of Non-Hong Kong companies operating in Hong Kong must comply with the registration with the Companies Registry and the Inland Revenue Department.
What are the benefits of setting up a branch office in Hong Kong?
Given that the tax rate is the same and the process for incorporating a Hong Kong subsidiary is relatively straightforward, then what are the benefits of registering a branch office in Hong Kong?
One key benefit is that the branch office can easily leverage the reputation of the foreign parent company when doing business in Hong Kong.
This is more difficult with a subsidiary, as potential clients and lenders may be aware that the foreign parent company is not liable for the actions of an independent business entity.
Another benefit is the more straightforward internal decision-making process at the parent company that results from its direct involvement in the branch's decision—for example, closing down the branch office in Hong Kong and other administrative matters.
In contrast, a subsidiary, which is an independent legal entity, needs to be solvent and have all shareholders agree to the dissolution. It also needs to follow up the winding-up process for the business entity and inform authorities, such as the Companies Registry and the Inland Revenue Department, that the existing business will be ceasing its operations in Hong Kong.
What is the downside of registering a branch office in Hong Kong?
The most significant downside of branch office registration in Hong Kong is that the foreign parent company will have liability for the actions and debts of its Hong Kong branch.
Any contracts made by the branch office to any Hong Kong company or any other business entity will legally bind the foreign parent company.
By contrast, a Hong Kong-incorporated subsidiary will not leave any foreign companies at risk and would reduce the exposure and liability only to that entity.
Key prerequisites for a branch office registration
Firstly, in order 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 parent company, which is the name listed on the 'certificate of incorporation' (wherever it is incorporated). However, if the international company's name is already in use in Hong Kong or is otherwise considered inappropriate, the usage of the name will not be allowed.
- Business address: the branch office must have a business address in Hong Kong. It is required to be a physical address; a PO Box or 'care of' address will not be accepted.
- Authorized representative in Hong Kong: all branches must have at least one representative present in Hong Kong in order to accept any process or notice on behalf of the parent company.
- Company secretary: there must be someone designated as the company secretary, and their details must be provided with the application.
🔎 Tip: For more information, read our article on What is a Company Secretary in Hong Kong? and our Company Secretary Review
- Compulsory information: the following information related to the international enterprise must be provided with the application, such as names and identity details of the directors, certified copies of the company memorandum and Articles of Association, and a certified copy of the original certificate of incorporation.
Administrative steps for the application of the business registration of a Hong Kong branch office
The process for a Branch office registration in Hong Kong is as follows:
- Apply for a name.
- Apply for a certificate of registration of a Non-Hong Kong company with the Companies Registry.
- Obtain the business registration certificate with the Inland Revenue Department. The business registration certificate (BRC) will allow the branch office to pay taxes to the Inland Revenue Department in the future. Please note that this must be done within one month of starting the business operations in Hong Kong.
- Obtain any additional business licenses. Some businesses may be required to apply for more than one business license for a particular industry in Hong Kong. For example, a parent company needs to apply for a license if its branch office plans to operate as a travel agency or offer financial services.
- Ensure ongoing compliance. The branch office must prepare audited financial accounts and submit them with their tax returns annually to the Inland Revenue Department, renew their business registration certificate, and file their Annual Return for Non-Hong Kong companies with the Companies Registry.
Setting up a Hong Kong branch office can be beneficial in some cases.
If a foreign business entity is unsure about its expansion into the Hong Kong market and does not want to deal with business registration and, potentially, the closing down process of a subsidiary with the related government bodies in Hong Kong, opening a branch office in Hong Kong could be the right path to choose.
For foreign business entities interested in entering the Hong Kong market but are unsure about expanding into the region and do not want to deal with business registration and the closing down process of a subsidiary, establishing a branch office in Hong Kong could be a good option.
Nevertheless, to operate a branch office in Hong Kong, it is essential that the relevant procedures of business registration are conducted with the Companies Registry and the Inland Revenue Department, as well as obtain any necessary license to carry out the intended business.