The Hong Kong branch is an extension of the parent company and is one of the ways for foreign companies to enter the Hong Kong market. The branch has a range of important advantages, but there are also some specificities to consider.
Foreign business owners looking to expand their business in Hong Kong have a variety of options when it comes to business entities. When deciding to set up a branch in Hong Kong, company owners should be aware that the main feature of this form of business is reliance on a foreign parent company. If you are interested in opening a company in another Asian country such as Singapore, we can put you in touch with our associate - bestar-sg.com.
Quick Facts | |
Applicable law (domestic/foreign) | The branch is subject to the Hong Kong Employment Ordinance and local legislation regarding ongoing tax and reporting obligations, among other things. |
Best for | Usually banks and other financial institutions. It can only engage in the same business activities as the parent company abroad. |
Minimum share capital (Yes/No) | No |
Timeframe for the incorporation | 8-10 working days |
Management (Local/Foreign) | Foreign |
Legal representative required (Yes/No) | Yes |
Local bank account (Yes/No) | Yes |
Independence from the parent company | No |
Liability of the parent company | Take full liability |
Corporate tax rate | 8.25% on the first HK$2 million of assessable profits and 16.5% on the remaining assessable profits. |
Possibility of hiring local staff (Yes/No) | Yes |
Mandatory branch name requirements | Must have the same name as the parent company |
Branch name restrictions | Rejected if it infringes an existing trademark in Hong Kong, or is considered offensive |
Branch Articles of Association | Branch office does not have separate one, uses the name of the parent company |
Other documents | Parent company's latest accounts (certified copy) Identification document of the local representative, others as required |
Mandatory document translation | In English or Chinese before submitting |
Legal capacity | No, this means the branch cannot participate in the legal process as an independent party |
Minimum number of employees for Hong Kong branch | Not applicable |
Mandatory foreign company size | No, although typically used by mid to large companies |
The main requirements for companies willing to open a Hong Kong branch are as follows:
Presentation of a valid business registration certificate of the parent company, issued by the country in which the business is registered;
Have a valid name in Hong Kong; this name check should be done in advance as the branch will be named after the foreign company and it is important to know if the name is available;
Have a branch registered address in Hong Kong and appoint a branch representative.
A branch office is a form of doing business in Hong Kong and it has several advantages, but foreign business owners are encouraged to explore all available business options such as a subsidiary company - the main alternative to a branch office, or a representative office.
Our consultants who specialize in Hong Kong company formation can provide you with all the necessary information about this type of business so that you can decide whether the model suits your interests and whether it is suitable for the company's purpose in Hong Kong. Businessmen interested in starting a company in Singapore or Malaysia can get dedicated help from our associates.
Key Facts about the Hong Kong Branch
The table below highlights the key features of the Hong Kong branch:
• A branch in Hong Kong is a legal entity registered with the Companies Registry: Although registration and reporting requirements are less stringent, any new branch in Hong Kong will need to follow a registration process.
• Overseas parent company is fully responsible for the actions of the branch: Unlike a subsidiary, a branch is an extension of the parent company, so the foreign company is responsible for the debts and liabilities of the branch in Hong Kong.
• Branches may engage in activities of foreign companies: The local activities that a branch may engage in Hong Kong are limited to those carried out by foreign companies.
• The branch office will be taxed only on its profits in Hong Kong: the city adopts a territorial taxation system, i.e. only Hong Kong income is taxed; more importantly, the branch office can benefit from the provisions of the double taxation agreement.
HOW TO REGISTER A BRANCH IN HONG KONG |
Prepare required documents PARENT COMPANY DOCUMENTS A branch office is formed by a decision issued by the foreign parent company. In addition, to register a branch in Hong Kong, a foreign company's business registration certificate is also required. |
Select branch name VALID NAME Branches need to use an available name which needs to be checked before registration. Since it is not a legal entity itself, it will have the same name as the parent company abroad, if available. |
Appoint representative BRANCH REPRENTATIVE The branch will have a local representative in Hong Kong. The decision to appoint someone as a representative will be filed with all other relevant branch documents. |
Choose registered office HONG KONG OFFICE Like any other company in Hong Kong, a branch is also required to have a registered office at a locally chosen address. |
Tax registration HONG KONG BRANCH REGISTRATION Branches are required to register with the Inland Revenue Department within one month of opening. |
Any branch in Hong Kong must have an authorized representative: a Hong Kong resident authorized to receive legal notices served on the company. This officer can be an individual or an accounting firm. Although there is no minimum capital requirement for a Hong Kong branch, it must have a place of business/office in Hong Kong. The name of the branch company is generally the same as the name of the parent company, but if the name has been used by another company in Hong Kong, the Companies Registry has the right to declare that the name cannot be used. You can use our simple name check tool to find out if a name is already in use.
There is no share capital requirement when registering a Hong Kong branch. If you need help setting up a company in Hong Kong, you can contact our team of company formation experts.
Registering a Branch in Hong Kong in 2023
The registration process has several steps, starting with the approval of the company name. After the name is cleared, the branch must apply to the Companies Registry for branch registration.
The documents required for registration are:
Details about the branch: registered address, local representative.
A copy of the foreign company’s registration documents and a certified copy of its registration certificate;
A copy of the most recent accounts of the parent company;
Details of your local representative.
All documents must be submitted in English or Chinese. Documents are filed with the Companies Registry, and as the branch itself is not a legal entity but an extension, the Memorandum and Articles of Association of the foreign company will be used to open the branch. In other cases, such as when opening a private limited liability company in Hong Kong, the entity will have its own constitutive documents. The branch registration process should last approximately two weeks. After that time, the Companies Registry will issue a Certificate of Registration of Non-Hong Kong Company.
The business registration form filed with the Inland Revenue Department includes the following information on the branch business to be carried out in Hong Kong:
The name under which the business is carried on and the business registration number of the parent company (if registered in Hong Kong).
The Chinese and English name of the branch where the activity is carried out.
Hong Kong branch address;
Description and nature of the business and date of commencement.
Branches must also apply for a Business Registration Certificate from the Inland Revenue Department and apply for any necessary business licenses. A local bank account must be opened for the branch. To open a branch in Hong Kong, a foreign company must handle the branch registration within one month after the establishment of a place of business in Hong Kong. It is important to remember this requirement as applications made before the business start date will not be accepted.
Depending on when you need to set up your branch office in 2023, our team of company formation experts will assist you throughout the process of remote branch office or business formation as required. We can appoint a local representative who will act on your behalf to complete the most important steps of creating a branch.
Hong Kong Branch Compliance
Once registered with the Hong Kong Companies Registry, the branch will automatically be subject to the same compliance requirements as all other local companies. Any changes in the management structure of a branch must be announced to the Companies Registry, which will update the information in its records accordingly. This means that if business partners want to carry out corporate due diligence, they will be able to conduct a search on the trade register where they will find information on the name and address of the branch. Our company formation consultants in Hong Kong provide corporate due diligence services to foreign investors doing business with local companies.
Part of the compliance requirements of Hong Kong also includes obtaining a license for certain activities in the country. It is important to remember that a branch office can only engage in the same activities as the parent company and therefore, if required, will be licensed for the same type of activities. This can be educational, if a foreign company engaged in an education center opens a branch in Hong Kong, or a restaurant, if the foreign franchise also expands to Hong Kong. Regardless of the specific sub-sector, investors opening a branch in 2023 are advised to obtain information on licensing requirements before commencing branch establishment activities so that they can apply for licensing as soon as the branch is officially registered with the Companies Registry. It is important to remember that it is not allowed to operate without proper permission. We recommend foreign companies to complete branch registration and licensing requirements with the help of our Hong Kong company formation agents.
Taxation of Hong Kong Branch
A branch office will be subject to the same tax regulations set by the Inland Revenue Department as any other Hong Kong company. In addition, the Hong Kong branch is also required to file annual accounts with the Companies Registry, signed by a director, authorized representative or secretary. Special mention should be made of the representative, who must be acknowledged by the Registrar at the time the branch is established.
That is why our company incorporation consultants in Hong Kong provide authorized representative and secretary services, which are very useful in complying with the laws and requirements set out by the Companies Registry.
Below, our Hong Kong company formation experts highlight the main taxes applicable in Hong Kong and their respective rates:
-8.25%: This is the first tier of profits tax from the year of assessment 2018/2019; a lower rate of 7.5% applies to unincorporated businesses.
- 16.5%: The second tier of profits tax, with an unincorporated corporate tax rate of 15%.
-15% Standard property tax as a percentage of the net assessed value of the property.
- 0.25%: The stamp duty on the value of gross rent paid to lease the immovable property for one year.
- 0.26%: The stamp duty payable on the value of transfer of shares (to be shared equally between the buyer and the seller).
Branch offices are subject to general rules for tax compliance. In Hong Kong, the tax year starts on April 1 and ends on March 31 of the following year. Tax returns should be filed within one month of the date on which they are issued (in most cases) and companies are required to pay provisional profits tax calculated on profits recorded in the previous year. Excess payments made in this way will be used to pay provisional profits for the following year. As for other types of companies, there are penalties if the Hong Kong branch fails to comply with prevailing tax reporting and tax obligations.
When opening a branch, it is recommended to use the services of our Hong Kong accountants to maintain proper records and books of accounts. While small and private companies have lighter accounting requirements, larger businesses are required to file audited financial statements and comply with different requirements. Our team will help investors understand these.
Hong Kong Branch Filing Compliance
The Hong Kong Inland Revenue Department (IRD) has certain requirements for both locally incorporated companies and foreign companies (branches) doing business in Hong Kong. Annual filing are filed with the Inland Revenue Department and Companies Registry each year.
While branch offices in Hong Kong have less stringent reporting requirements than other types of legal entities such as limited liability companies, investors are advised to seek guidance and representation, if needed, in order to comply with these annual requirements when they cannot be present in Hong Kong by the filing date.
All companies (including branches) must be registered in Hong Kong. Once this step is completed, the branch also needs an annual return and annual accounts. Specific accounting reporting requirements may also depend on the country in which the non-Hong Kong company is located. In these cases, the foreign company may be required to submit certified copies of its annual accounts and lodge them with the Companies Registry.
Alternatives to Hong Kong Branch
As our consutlaattorney stated above, while a branch office has many advantages, it is also important to remember one of its defining characteristics, namely that the parent company remains responsible for its Hong Kong branch. This, combined with the fact that the branch itself does not have legal capacity (for example, in the case of litigation), can dictate that some foreign companies look for alternatives. The table below lists the characteristics of two other options for foreign companies to expand in Hong Kong: subsidiary and representative office.
Alternatives to Hong Kong Branch
While a branch office has many advantages, it is also important to remember one of its defining characteristics, namely that the parent company remains responsible for its Hong Kong branch. This, combined with the fact that the branch itself does not have legal capacity (for example, in the case of litigation), can dictate that some foreign companies look for alternatives. The table below lists the characteristics of two other options for foreign companies to expand in Hong Kong: subsidiary and representative office.
Issue | Subsidiary | Representative Office |
Name and activity | Can be the same name as the parent company or a new name (if available and subject to company name conditions). | Like a branch, it must have the same name as the foreign parent company. |
Liability | The subsidiary is a separate legal entity like any other Hong Kong resident company, so the liability of the subsidiary does not extend to the parent company. | Foreign companies are fully liable for the debts and actions of their representative offices in Hong Kong. |
Operation and activity | Managed as a local resident limited liability company; it has a director, a shareholder and a company secretary who must be a Hong Kong resident. Can perform any business activity, same as parent company and/or other companies. | A representative office can only be used for promotional, marketing, liaison, research or any non-profit activities; it must have a representative in Hong Kong who will be transferred here from a foreign office. |
Time required for registration | A few working days, about a week or more. | Just a few business days, less than a subsidiary or branch. |
Tax and audit | The subsidiary is taxed like any other registered company in Hong Kong. The general auditing and accounting requirements applicable to Hong Kong companies will apply to this business form. | A representative office is not taxed as it cannot derive profits from Hong Kong. There are no accounting and auditing requirements applicable. |
Our company formation consultants in Hong Kong can provide you with detailed information on these different types of structures suitable for foreign company formation, such as a subsidiary or representative office of a foreign company.
Expanding an existing business into Hong Kong is an important step that can bring many benefits to an existing company. The Special Administrative Region has many advantages in terms of ease of doing business, simple company registration procedures, low taxes, and providing an international business environment. Needless to say, expansion through branch offices is done after a company has reached a certain level of maturity, if the Hong Kong market presents the characteristics needed to ensure that branch establishment is profitable. If you would like a personalized consultation on how your business can benefit from expanding into the Hong Kong market, please feel free to contact our consultants. Starting a business in Hong Kong, which provides easier access to the important mainland China market, is a suitable business option for companies that are expanding.
Other options for investors in Hong Kong, for those wishing to have a separate legal entity, is to purchase a Hong Kong shell company or set up a new company in Hong Kong.
Hong Kong Branch and Regional Office Statistics
As a regional financial and business center, Hong Kong is a popular location for branch openings. Many foreign companies choose to expand their operations into the Asian market, with Hong Kong as their preferred location. Many of these companies are based in the US, followed by Japan or the UK. Below, we present a set of statistics released by the Hong Kong Census and Statistics Department:
278 companies: The number of Hong Kong regional headquarters when the parent company is located in the United States.
232: Number of Japanese companies opening regional headquarters in Hong Kong.
216 companies: Hong Kong regional headquarters belonging to Chinese companies.
141: The number of Hong Kong regional headquarters corresponding to the UK-based parent company.
97: Regional headquarters in Hong Kong, parent company in Germany.
Company numbers are recorded at the beginning of June of the relevant year, in this case 2019. For the purposes of the statistics provided, a regional office refers to an office with a parent company registered outside Hong Kong. Statistics provided by the department also include the following:
1,541: The number of regional headquarters in Hong Kong in 2019.
2,490: Number of Hong Kong regional offices in 2019.
5,009: Number of local offices in Hong Kong in 2019.
The figures are based on an annual survey of Hong Kong companies whose parent companies are located outside Hong Kong. Investors who need more information about regional headquarters or regional offices can contact our consultants.
For 2022, figures released by the government show us the following:
874 non-Hong Kong companies have established new places of business in HKSAR (and thus registered under the Companies Ordinance in 2022);
By the end of 2022, the total number of non-Hong Kong companies was 14,533, an increase of 1.29% over the previous year.
Data for the first quarter of 2023 provided by the Companies Registry also shows that registered non-Hong Kong companies remain registered or are newly formed:
There were 58 newly registered non-Hong Kong companies (registered with a place of business) in January 2023; also in January, the total number of non-Hong Kong companies still registered on the Companies Registry was 14,547.
If you have any questions about how to open a company in Hong Kong in 2023, please contact our consultants.
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