What is a Representative Office?
Foreign companies that want to enter the Hong Kong market, have many options that adjust to their business needs. Non-Hong Kong companies have a wide umbrella of business entities to choose from and register with the Hong Kong authorities. For example, a Hong Kong Representative Office, a Private Limited Company (a subsidiary), or even a Hong Kong Branch Office.
Generally speaking, a Hong Kong Representative Office allows the foreign parent company to test and evaluate the market, for their intended business plan. Even though the scope of action is limited to non-profit activities, a Hong Kong Representative Office is a safe choice and allows for a structured business plan to take place.
If this option fits best your business plan needs, here we will explain a few simple steps on how to do the business registration procedures for a Representative Office in Hong Kong, and some other general considerations for the process as a whole.
Differences between a Hong Kong Representative Office, the foreign parent company, and other entities in Hong Kong
When choosing an overseas expansion strategy, there are many factors to consider, such as location, tax regime, and local hiring laws, especially if the first steps of business plans are going to be taken and all the possibilities and scenarios are being evaluated. Additionally, the internal structure of the foreign company and its complexity might need careful revision and therefore have a repercussion on the decision-making process and end result.
As the city’s market ranks high as a business-friendly environment in Asia and in the world, the local authorities offer various options to foster business development and adapt to different needs. Many people choose to directly open a subsidiary, which is an independent legal entity with its own responsibilities. However, for other business needs, there is the alternative path of the Hong Kong Representative Office, with its own features and limits, allowing a direct presence to explore the potential of the local market firsthand.
Additionally, this kind of office is considered as an extension of the Non-Hong Kong company that only generates a cost, and therefore it needs to be registered with the Hong Kong authorities and act within the permitted line of business. Once the business needs change and there is potential to make sales or make agreements, the Hong Kong Representative Office would have reached its purpose and must be closed down. Other Hong Kong entities with a wider business capacity could be explored, such as the Branch Office or the subsidiary.
Advantages of setting up a Representative office in Hong Kong
A notable advantage of having a limited scope of activities is a much simpler registration process with the Hong Kong authorities. But what other simplified steps can a Representative office in Hong Kong offer?
In order to carry out market research and promotional activities for the Non-Hong Kong company, a Representative Office in Hong Kong is able to hire staff and rent office space. It is important to mention that there are no minimum capital requirements for registration since it is one of the most simple investment vehicles offered in Hong Kong.
Furthermore, a Representative Office does not need to file the Annual Return with the Companies Registry since it will not start business in Hong Kong. This is an annual requirement for other forms of Hong Kong entities, such as the subsidiary, reducing the compliance obligations to a minimum for the representative office.
On the side of the taxes and the Inland Revenue Department, since the Representative Office will not be engaging in profit activities, there should not be taxes to declare, although filling the tax returns as “nil” it's encouraged. For this, a Business Registration Certificate needs to be obtained with the Inland Revenue Department and renewed every year.
In contrast to a subsidiary, there are fewer procedures to follow and, especially, there is no need for audited financial statements on an annual basis.
Disadvantages of setting up a Representative office in Hong Kong
As Representative Offices are limited to non-profit activities in the local market, these entities only generate costs. Activities that require a legal nature, such as celebrating contracts, arranging shipments of products, letters of credit, and other activities that are reserved for entities that have an independent legal standing, such as a subsidiary. Additionally, the parent foreign company is legally liable for the Representative Office actions in Hong Kong.
Key considerations for the registration
Since a Representative Office has no recognition as an independent legal entity, the process for registration is simpler if it is compared to other types of Hong Kong entities. In the following section, we mention some key considerations:
- The name of the Representative Office must be similar to the name of the parent company. In the case that the name is already in use, or is considered inappropriate, the name should be chosen as similarly as possible.
- There is no minimum capital required.
- A manager should be nominated, and normally, this role is occupied by someone that belongs to the foreign parent company.
- Hiring local employees to support the activities of the office is also allowed while having someone to act as the company secretary is required.
- It is expected that, as the tasks of market research are carried out and the needs are fulfilled, the Representative Office must close down. Arrangements to open another form of company in Hong Kong must be planned ahead.
Application steps for obtaining a business registration certificate
While there are no formal procedures with the Companies Registry to register a Representative Office in Hong Kong, a Business Registration Certificate must be applied with the Inland Revenue Department. For this process, it is required to provide the following information:
- The application form includes the details of the Representative Office, such as the name and the address in Hong Kong.
- A document with the details of the incorporation from the parent foreign company, that indicates the place where it is incorporated and the postal address. Please note that this document must be a certified copy, similar to the articles of incorporation of the overseas company.
Choosing to open a Hong Kong Representative Office, is one of the best options to evaluate the local market. From the side of the foreign business entity, it is a safe way to plan, with time, an entry strategy and to define the structure of the organization for the future. Nonetheless, since the activities allowed for the Representative Offices are limited in Hong Kong, special attention needs to be paid to avoid legal problems with the local authorities.