Setting up a subsidiary in Hong Kong is one of the available business forms that foreign investors and entrepreneurs choose to expand their business scope. Unlike a branch or representative office, a subsidiary is essentially a separate legal entity that can carry out the activities of the parent company.
Our Hong Kong company setup specialists can help foreign companies interested in setting up a business in Hong Kong choose between a subsidiary company and a branch office.
Hong Kong is known for its excellent infrastructure, free economy and low taxes. It is located in Asia, close to mainland China, an ideal location for doing business in the Asian market and globally.
Quick Facts | |
Applicable law (local/foreign) | Hong Kong law |
Best for | All business operations |
Minimum share capital (Yes/No) | There is no minimum requirement. Usually HK$1.00 |
Time to establish (approximately) | 2 working days to complete the registration |
Management (local/foreign) | Local |
Legal representative required (Yes/No) | Usually appointed |
Local bank account (Yes/No) | Yes |
Independence from the parent company | Yes |
Liabilities of the parent company | No, only to the extent of the ownership in the subsidiary |
Corporate tax rate | 8.25% on the first HK$2 million and 16.5% on the remaining assessable profits |
Possibility of hiring local staff (Yes/No) | Yes |
Key Facts about Hong Kong Subsidiary
Subsidiary is the business form most chosen by foreign companies in Hong Kong. A subsidiary is a private limited liability company registered in Hong Kong and is considered a separate legal entity from the parent company, so the liability of the subsidiary does not extend to the parent company like a Hong Kong branch.
The four characteristics of a Hong Kong subsidiary can be summarized as follows:
Independence: This is probably the most important characteristic of a subsidiary, as a Hong Kong company is completely independent from its parent company abroad.
Limited Liability: The subsidiary is a Hong Kong limited liability company, which means that the founders and the parent company have only limited liability for the debts and obligations incurred by the subsidiary.
Independent Management: The subsidiary is managed separately from that of the parent company; the subsidiary handles its own books and accounting.
Flexibility: A subsidiary is independent from the parent company and this also extends to business activities; it can perform the same business activities and other businesses if required.
A subsidiary can have the same name or choose a different name, it can have the same listed activity, or it can be different. However, it is important that the company name is approved by the Companies Registry. Some general requirements for company names (applicable to subsidiaries and other companies in Hong Kong) are as follows:
The company can have an English, Chinese or English-Chinese name; the name cannot be a combination of Chinese characters and English words or letters.
When the company name is in English, it will end with "Limited", and the Chinese name will end with specific characters.
Chinese names have special considerations and should contain Traditional Chinese characters that can be found in specific dictionaries and ISO international encoding standards.
The name cannot be the same as the name of the registered company, and if the Registrar considers the use of the name to be a criminal offense, offensive or contrary to the public interest, the name will not be registered.
The inappropriate use of certain words may be considered a criminal offence; for example, using the word "bank" without the approval of the Hong Kong Monetary Authority.
When a company name is deemed too similar to another company, a court order will be issued to the second company registering a similar name, prohibiting it from using the name or requiring the company to change its name; failure to comply with the terms of changing names that are too similar will result in a fine of up to HK$100,000 and, in some cases, six months' imprisonment.
5 STEPS TO OPEN A SUBSIDIARY IN HONG KONG |
1. Select the company type A SEPARATE ENTITY A subsidiary is separate from the foreign company and established as a separate legal entity, usually as a private limited liability company. |
2. Drafting company documents ARTICLES OF ASSOCIATION Articles of Association of the subsidiary state the company type, name, registered address, shareholding structure, directors and other details |
3. Register subsidiary MANDATORY REGISTRATION Subsidiaries in Hong Kong need to be registered with the Companies Registry. Certain registration fees apply. |
4. Open a bank account COMPANY BANK ACCOUNT Subsidiaries in Hong Kong must open a corporate bank account with a local bank. The minimum share capital is deposited into the account. |
5. Apply for a license SPECIAL PERMITS AND LICENSES Subsidiaries may need to apply for special permits and licenses. This applies to companies in the banking and insurance industries, but also to restaurants and other businesses. |
One of our consultants specializing in Hong Kong company formation can provide investors with more details on name registration, especially if it is considered a "shadow company" - a legal entity registered in Hong Kong with a name similar to in international brand names. These so-called shadow companies represent the brand in an illegal manner. Investors wishing to open a subsidiary should be aware of this practice.
Foreign businessmen who are interested in opening a subsidiary company in other countries such as Singapore or Malaysia can get professional assistance from our staff.
For investors interested in doing a quick name check, our tool allows you to perform an initial name verification for your subsidiary.
There are no minimum or maximum share capital restrictions for Hong Kong subsidiaries in 2023, and subsidiaries are subject to the same tax regime and rates as private limited companies.
The basic requirements for a subsidiary company include:
At least one director;
At least one shareholder and a maximum of 50 shareholders;
Company secretary;
An appointed auditor who must be a member of the Hong Kong Institute of Certified Public Accountants and hold a practicing certificate.
The current company registration requirements in Hong Kong do not mandate minimum or maximum share capital deposits for subsidiaries. However, in practice, it is common for ordinary shares to have a value of HK$1.00 each and at least one share of that value in the issued or paid-up share capital. As mentioned above, a company may elect to have 10,000 ordinary shares representing an issued share capital of HK$10,000.
The subsidiary is subject to the accounting principles applicable to locally incorporated companies, meaning that the HKSAR Financial Reporting Standards apply to its circumstances. In the case of a public limited company, annual financial statements are required to be prepared and audited. Private companies have less stringent requirements and our accountants in Hong Kong can explain the principles.
Our company formation experts in Hong Kong can tell you more about the accounting requirements for subsidiaries and other types of companies.
Register a Subsidiary in Hong Kong
The company registration procedure for a subsidiary company consists of several steps. The following documents are required to register a subsidiary company:
The application form, signed and completed;
Registration documents of the subsidiary company;
Memorandum and Articles of Association of the parent company and certificate of incorporation;
Documents for appointed company officers: identity documents, proof of residence and bank letter.
Registration fees and capital are required. The process usually lasts four to seven days. After the company is registered, a Certificate of Incorporation will be issued. After registration, any company must register with the Inland Revenue Department and obtain a Business Registration Certificate. Companies will also need to open a bank account in Hong Kong and apply for any necessary business licenses, depending on the type of activity they are engaging in.
Post-registration Requirements for Hong Kong Subsidiaries
Once a company is registered with the Hong Kong Companies Registry, it must also be registered with the Inland Revenue Department, which is the country's tax authority. The Inland Revenue Department will issue a Business Registration Certificate enabling the subsidiary to operate in Hong Kong. The application must be filed within one month of the company's registration with the Registrar of Companies and must be carried out regardless of whether the subsidiary has started business activities or not. The process is simple and the business registration certificate is collected in person, usually within one working day. Subsidiaries are required to display this certificate in a prominent place in the office at all times.
The next requirement is for the subsidiary company's director or representative to open a company bank account with a Hong Kong bank. A subsidiary company can open an account in any bank, regardless of the parent company's foreign bank. Different banks have different requirements for opening a bank account, and the fees for opening and maintaining an account will vary. Documents typically required to open this account include:
Certified copy of Articles of Association, Certificate of Incorporation and Business Registration Certificate;
Board resolution to open a company bank account;
Identification documents of company directors and specimen signatures of authorized signatories (directors or other designated persons);
A certificate showing the percentage of the foreign company's shareholding in the Hong Kong subsidiary;
Business plan or audited financial statements.
This list is not exhaustive and may vary from bank to bank. We recommend choosing a bank to work with and contacting them to find out the exact list of documents. Alternatively, one of our specialists can handle this step.
Our Hong Kong company formation consultants can assist with opening bank accounts and advise foreign investors on their options if going through company formation formalities in Hong Kong is not possible. With the help of our consultants, you can handle part of the process through notarization and have one of our consultants handle specific company registration stages. An important advantage is that you do not have to travel to Hong Kong at various stages in the process of opening a subsidiary.
Once these requirements are met, the Hong Kong subsidiary can apply for a business license issued by the competent authority. It must be taken into account that, depending on the activities of the subsidiary, certain special licenses may be required. Examples of regulated businesses include travel agencies, restaurants, employment agencies, educational businesses, financial services companies, event management companies, retail stores or trading companies. These are just some examples, however, investors interested in registering a company in Hong Kong to open a subsidiary in 2023 may need to obtain different types of licenses depending on the type of activities carried out by the subsidiary.
An example of a regulated business includes a financial services company. Hong Kong is a popular business and financial center and many such companies choose to expand their services here. For subsidiaries in this business area, the following are required in addition to the Business Registration Certificate and others already mentioned. For these types of companies, the following licenses are generally required, depending on the exact type of activity:
Licensed Individuals, licensed Corporations, Licensed Representative and Registered Institutions issued by the Securities and Futures Commission.
Licensing of Money Lenders issued by Companies Registry.
Registration of Insurance Agents issued by the Insurance Authority and required to carry out activities as an insurance agent.
Authorization of Insurance Business is also issued by the Insurance Authority.
Regulation of Insurance Broker, also issued by the Insurance Authority.
Pawnbroker License, which is issued by the Hong Kong Police Force.
Deposit-Taking Company registration, provided by the Hong Kong Monetary Authority.
Registration of Money Service Operators (MSOs) (i.e. Remittance Agents and Money Changers), also issued by the Customs and Excise Department (C&ED).
One of our consultants specializing in company formation in Hong Kong can provide you with more information on financial services licences. The examples above include only some of the business categories in this field that require special licensing. Depending on the type of services provided, financial firms in Hong Kong are required to obtain one or more of these licenses. The same applies to restaurants, where business owners need to obtain multiple licenses, from storing and producing food to selling alcoholic beverages.
Hong Kong Subsidiary Taxation in 2023
As mentioned above, a subsidiary in Hong Kong will be treated the same as a local company for tax purposes. The corporate tax rate for Hong Kong subsidiaries is 16.5%, one of the lowest in Southeast Asia. In addition to this, the parent company can also apply for certain tax exemptions or credits under the double taxation agreement signed between its home country and Hong Kong.
Subsidiaries are also subject to the same accounting requirements as Hong Kong companies. They must file their tax returns within one month of the Inland Revenue Department issuing their tax returns. The tax year in Hong Kong starts on April 1 and ends on March 31 of the following year.
Options for Foreign Companies in Hong Kong
Many foreign companies choose to register a subsidiary in Hong Kong, but this is not their only option. Branches and representative offices are also two ways of establishing a presence in the market, although they are quite different from subsidiaries.
A branch is an extension of the parent company and, like a subsidiary, engages in economic activities in Hong Kong. However, unlike a subsidiary, it is not a separate legal entity from the foreign company, which will assume all the debts and obligations of its Hong Kong branch office. A foreign company opening a branch needs to appoint a branch representative and needs to register the branch with the Companies Registry.
Requirements for opening a branch include obtaining an approved company name (which needs to be the same as the foreign company name), providing the articles of association and a business registration certificate from the foreign Companies Registry, and decision to appoint a branch representative. The branch is also subject to annual filing requirements and tax requirements.
A representative office is only suitable for companies that need to understand the business environment and conduct market assessment before opening a branch or subsidiary in Hong Kong. It can only be used for marketing or promotional purposes and cannot be used to enter into contracts or derive any type of profit from Hong Kong.
One of our consultants specializing in Hong Kong company formation can provide you with detailed information on these business forms, especially a subsidiary company (if this is the chosen business type).
Of the three options, a subsidiary is usually the preferred model as it implies fewer liabilities for the foreign company. Some of the differences in the tax regime are often not as important to foreign companies as the fact that liabilities are limited to Hong Kong subsidiaries.
Starting a business in Hong Kong in 2023 has the same advantages for investors, among which we would like to highlight again the foreign investor-friendly regime, as well as the fast registration process. If you are unable to travel to Hong Kong in the near future, we can assist you with the company registration process by drafting, preparing and submitting notarized documents. This is done in agreement with our team who will act in your best interest.
Low tax regime, proximity to the Chinese market, and excellent infrastructure are the main advantages for investors who choose to open a subsidiary or company in Hong Kong. According to the Companies Registry, the following statistics apply to Hong Kong company registration:
10,064: The number of newly registered companies with a place of business in Hong Kong in April 2023;
1,413,190: The total number of Hong Kong companies still remain registered with the Companies Registry in April 2023.
Based on 2022 data, the total number of newly registered businesses in 2022 was 104,120. The total number of Hong Kong companies was 1,391,678 (companies registered locally under the Companies Ordinance). As a result, the total number of legal entities was larger, with an increase of 16,506 entities compared to 2021.
Available statistics so far for 2023 show 4 public companies and 6,310 private companies were incorporated in January. In February, only 1 public company and 10,637 private companies were established. All such entities were incorporated under Chapter 622 of the Companies Ordinance.
Our company formation consultants in Hong Kong are ready to help you and answer any questions you may have. Please contact us for more information.
If you happen to be in need of professional company registration services in Singapore, we can put you in touch with our colleagues.
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