It is also a business-friendly compliance and tax environment, with one of the lowest corporate tax rates in the world, and minimal business ‘red tape’.
But company incorporation is not the only option available for business registration. Businesses need to consider whether other registration options are more appropriate, including:
- Opening a branch office, or
- Opening a representative office.
When a business has decided to incorporate in Hong Kong, they still need to consider the best way of doing that: For example, a business must ask, will the local company be wholly-owned by the international business or only majority-owned? Where there is a collaboration with a local company, how will a joint venture be formalized?
Here we look at the key options for registering a business in Hong Kong.
Registering a Business as a Hong Kong Company
For most businesses interested in incorporating in Hong Kong, the ‘private company limited by shares, will be their chosen form. The other corporate forms that exist such as a ‘public company limited by shares' or a ‘private company limited by guarantee’ are only a good option in a minority of cases (e.g., where the company is sufficiently large or the proposed operation is charitable in purpose).
The Hong Kong company may be a wholly-owned subsidiary of the international business, majority-owned, or an affiliate company (where the foreign business has a minority shareholding alongside other owners). Where the company is not 100 percent foreign-owned, it could be a ‘special purpose vehicle’ (SPV) for a joint venture with a local company or company.
As a distinct legal entity with limited liability, any international parent company is not responsible for the liabilities of the Hong Kong company. Furthermore, due to incorporation in Hong Kong, this company has easy access to clients and partners in mainland China, benefiting from the free trade area that exists between the two regions.
The key requirements for forming a Hong Kong company are:
- Approval of company name
- Setting up a local registered address (must be a physical address; a post office box will not do)
- Establishing at least one director and shareholder, and a company secretary (the latter must be locally resident).
- Issuing at least one share (no minimum amount is required).
Branch Office
A branch office is a part of the wider international enterprise and does not have a separate legal identity or entity in Hong Kong. While the branch office will be required to pay taxes on any profit-making activities in Hong Kong (in tax-speak, they are usually a ‘permanent establishment’ of the international parent company, and therefore liable to pay taxes).
The branch office must be registered with the authorities in Hong Kong and has compliance obligations similar to a locally incorporated company. Unlike a local subsidiary company, the parent company will be responsible for all the liabilities and debts of its local branch.
A key advantage of a branch office is that it can be more straightforward to set up and close down than a locally incorporated company: There is no local company to go through the liquidation or winding-up process.
Representative Office
Where a foreign enterprise wants a better understanding of the Hong Kong business environment before committing to a local company, they might consider opening a representative office (RO). This kind of business cannot engage in profit-making activities, nor generally trade (e.g., entering into contracts or invoice in their business name) in Hong Kong.
It is usually suited to initial market research and company promotion activities, or in order to enter into discussions with local businesses (such as discussion of potential joint ventures).
A representative office must register with the Inland Revenue Department, but they do not need to meet the general registration requirements with the Companies Registry in the way that a Hong Kong company or a branch office needs to.
Compare the Key Three Options
Consider the table below which compares the three key options for registering a local business in Hong Kong:
|
Branch |
Hong Kong Company (subsidiary) |
Representative Office (RO) |
|
|
Legal entity in Hong Kong? |
No |
Yes |
No |
|
Do liabilities extend to international/parent companies? |
Yes |
No |
Yes |
|
The business name must be the same as the international enterprise/parent company? |
Yes. As the branch operates entirely in the name of the wider enterprise |
No |
Yes, as the RO ‘represents’ the international enterprise |
|
Permissible activities |
Same as the international company that it is a branch of |
Maybe the same, or different from, the parent company |
Strictly limited to promotion, marketing, liaison, research and other non-profit activities |
|
Hong Kong tax liability? |
Yes |
Yes |
Doesn’t apply, as not permitted to engage in profit-making |
|
Required to file annual returns with Companies Registry? |
Yes |
Yes |
No |
|
Required to submit tax returns to Inland Revenue Department? |
Yes |
Yes |
Doesn’t apply, as does not engage in profit-making |
|
Permitted to open a bank account in Hong Kong? |
Yes |
Yes |
Yes |
|
Required appointees? |
Requires an authorized representative who is a local resident |
Must be at least one shareholder, one director (shareholder and director may be the same person), and a company secretary (must be local resident and in addition to a director) |
1 representative from the international company |
