Hong Kong attracts a large number of foreign investors and entities to have their business presence. Branch office, Representative office and Subsidiary company are the most three common options for foreign company registration in Hong Kong. In this blog, we offer you a detailed guide on key features and requirements of the first business structure in this scope - opening a branch office in Hong Kong.
1. What is branch office in Hong Kong?
Branch office in Hong Kong
Foreign corporations wish to enter Hong Kong market must conduct business entity registration in Hong Kong. There are three popular options for companies overseas to have their business presence, including Branch Office, Representative Office and Subsidiary Company.
A branch office in Hong Kong is an extension of its parent company, and it is one of the most common business structures for foreigners. Hong Kong branch offices bear some key features as the followings:
- It is a legal entity which is registered with the Hong Kong’s Company Registry;
- It is not a separate entity in its own rights; as a result, it is NOT in charge of any debts and liabilities. Instead, the foreign parent company is fully responsible for such debts and liabilities of the branch office.
- It can take part in the same activities as the foreign parent company does, but is limited to those performed by a foreign company located in Hong Kong.
Branch office vs Subsidiary Company
Some people often get confused between a branch office and a subsidiary in Hong Kong.
A subsidiary is primarily a private limited company in Hong Kong. Both branch office and subsidiary are treated as a legally incorporated entity. But the main difference is that a subsidiary is a separate legal entity from its foreign parent company, meanwhile the branch office is dependent on its parent company.
Another key to mention is that branch office is a preferred option for large corporations to Hong Kong markets, while subsidiary or representative office is widely used by SMEs companies.
2. Why choose Hong Kong branch office?
Foreign entrepreneurs are in favor of Hong Kong branch office by dint of its range of benefits as the followings:
The launch of branch office in Hong Kong offers you tax advantages. Branch office in Hong Kong must only be subject to its Hong Kong profit tax. Other foreign-sourced income of the branch office will enjoy tax-free. In addition, Hong Kong has Comprehensive Double Taxation Agreements (DTAs) with over 40 countries, allowing the branch office to reap benefits concerning tax matters as well.
Hong Kong branch office is also a good option to expand your business presence with light registration and reporting requirements. The process of opening a Hong Kong branch office is quite easy and can be quickly-done in a short period of time.
Having said that, notwithstanding, there are still some drawbacks for those choosing this structure, chief of which is the fact that the parent company will be accountable for all legal debts and liabilities incurred by its branch office.
Keep in mind that you need to well consider both pros and cons in terms of your foreign company’s plans and goals before deciding whether a branch office in Hong Kong is the best-suited.
3. Requirements of opening a branch office in Hong Kong
To register a branch office in Hong Kong, there are certain requirements that foreigners must comply with:
- Name: The branch name must be matched with that of the foreign parent company. Any name which is already used in Hong Kong, or deemed improper or misleading will be rejected to register by the Companies Registry.
- Officers: There must be a minimum of one Hong Kong local resident who acts as the office representative in a branch office in Hong Kong to accept legal notices from competent authorities. This can be either an individual or a body corporate.
- Place of business: The branch office is required to have a physical location or a place of business within Hong Kong. This location will also be the place to keep all statutory documents of the branch.
- Constitution & Activities: No need to have a Memorandum and Articles of Association (MMA) for a branch office, as its activities are directed by parent company’s MAA.
Note that there is no minimum capital requirement to set up a Hong Kong branch office.
In addition, there are some required documents that must be submitted for its registration:
- Details of the branch office: Registered address, local representative, the parent company’s particulars and other relevant information.
- A certified copy of the parent company’s MMA
- A certified copy of the parent company’s Certificate of Registration
- A certified copy of the parent company’s accounts, if the company is required to disclose its accounts
- Documents to identify the local representative of the branch office
NOTE: Keep in mind, two accepted languages for all submitted documents are English and Chinese. Therefore, please translate your documents into one of these two before submission.
4. How to register a branch office in Hong Kong
Branch office registration in Hong Kong includes two important steps as the followings:
Step 1: Choose a valid branch name. There are 3 standardized criteria for a branch name to get approval that you should follow:
- The name must be the same as that of the parent company, but the chose name cannot be identical or similar to an existing name found in “the Index of Company Names” in Companies Registry. For this reason, name check should be done in advance
- The name must not infringe on trademarks
- The name should not be offensive or contrary to the public interest, as in the opinion of the Companies Registry
Step 2: Submit required documents for registration
After the name has been approved, the branch office must send all required documents to the Companies Registry for registration.
If there is nothing wrong with your documents, the Registry will then issue a “Certificate of Registration of Non-Hong Kong Company”.
The person presenting the registration documents (the presenter) will receive a notice of the Certificate issuance via fax. The presenter must then collect in person this Certificate at the Companies Registry.
In case the presenter cannot pick up the certificate, he/she should prepare in advance a written authorization to send a representative on behalf to collect.
It should be noted that the branch office should apply for its registration during one month since its establishment of the branch. Foreign corporations are required to hire a professional service provider for their branch office registration in Hong Kong.
5. Additional matters of Post Registration
Once you have successfully registered your Hong Kong branch office, your branch needs to follow a set of formalities to ensure a smooth operation. Here are additional steps you need to take into consideration:
Obtain Certificate of Business Registration
You need to apply for “Certificate of Business Registration” with the Hong Kong Inland Revenue Department. This is a compulsory requirement and it must be completed within one month of the branch establishment in Hong Kong.
If the application is approved, the Certificate will then be issued on the following day and must be collected physically in person.
Please note that “Business Registration Number” to be appear on the above Certificate will be the Company’s Tax Filling Number.
Apply for a proper business license
Not all businesses in Hong Kong require license.
If you find that your branch activity falls into specific business categories that require business license in Hong Kong, then you should proceed to make application for it before operating your branch office.
Open a Hong Kong bank account
Once you have completed registering the branch office with government departments, you are allowed to open your Hong Kong business bank account. It would be a wise choice if your chosen service firm for your Hong Kong branch registration can support you to get a suited local bank for opening bank account.
In addition to the required documents (may be different depending on each bank), an arrangement to interview with the bank is a must if you wish to open a bank account in Hong Kong.
On-going compliance requirements
It is very crucial to know that a branch office in Hong Kong must be liable to legal tax obligations as well as compliance requirements like other local companies. Here are a few:
- Notifying changes (if any) of the branch’s management structure
- Renewal of Business Registration
- Observing tax regulations
- Filling tax returns with IRD
- Filling annual returns with CR
Branch office is a popular choice for foreign companies to enter Hong Kong market. A Hong Kong branch office is actually the extension of the foreign parent company. One stand-out feature of this structure is that it is NOT responsible for all debts and liabilities, but its parent company is.
Despite the fact that opening branch office in Hong Kong offers lesser reporting requirements compared to some other business entities, it is still liable to a set of tax regulations and compliance requirements for foreign companies located in Hong Kong, including branch offices. Please well noted above documents and requirements we have discussed in order for a successful registration and maintenance for your branch office in Hong Kong.
Subsidiary company and representative office are the two other options available for foreign companies to set up its presence in Hong Kong. Deciding on which one is the best fit with your foreign company should be well examined in the scope of your company goals as well.
Still uncertain about opening branch office in Hong Kong? Contact us now!