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By Vlad Cuc, specialist in company formation matters
The branch in Hong Kong is an extension of the parent company and it is one of the available methods through which foreign corporations can enter the Hong Kong market. The branch has a set of important advantages but also some particularities that need to be taken into consideration.
Foreign business owners who want to expand their activities in Hong Kong have several options regarding the business entity. When deciding to establish a branch in Hong Kong, company owners should know that its main feature is that this type of business form is dependent on the foreign parent company.
The main requirements for companies willing to open a Hong Kong branch are the following:
-to present a valid Business Registration Certificate for the parent company, issued by the country where that business is registered;
-to have a valid name in Hong Kong; this name check should be performed in advance as the branch will be named after the foreign company and it is important to know if the name if available;
-to have a registered address in Hong Kong for a branch and also to appoint a branch representative.
A branch is a form of doing business in Hong Kong that has several advantages, however, foreign business owners are encouraged to explore all existing business options, such as the subsidiary - the main alternative to the branch, or the representative office.
Our agents who specialize in company formation matters in Hong Kong can give you all of the needed information about this type of business so that you can decide if the model suits your interests and if it will be suitable for the company’s purposes in Hong Kong.
Key facts about branches in Hong Kong
The list below highlights the main characteristics of a branch in Hong Kong:
•A branch in Hong Kong is a legal entity registered at the Company Registry: Even though it has lighter registration and reporting requirements, any new branch in Hong Kong needs to follow the registration procedure.
•The parent company abroad is fully liable for the branch’s actions: Unlike the subsidiary, the branch is an extension of the parent company and thus the foreign company is accountable for the debts and liabilities of the branch office located in Hong Kong.
•The branch can engage in the activities of the foreign company: the local activities in which the branch can engage in Hong Kong are limited to those performed by the foreign company.
•The branch will only be taxed on its Hong Kong profit: the city has a territorial taxation regime, meaning that only Hong Kong income is taxed; what’s more, then branch can benefit from the provisions of the double tax treaties.
Any branch in Hong Kong must have an appointed officer: a Hong Kong resident who is authorized to accept legal notices served for the company. The officer can be an individual or an accounting firm. Although no minimum capital is required for a branch in Hong Kong, it must have a place of business/office located in Hong Kong. The name of the branch is generally the same as the one of the parent company, however, if the name is already taken by another company in Hong Kong, the Companies Registry has the right to declare that the name cannot be taken. You can use our simple name check tool to find out if a name is already in use.
There are no requirements for a minimum share capital when incorporating a Hong Kong branch.
Registering a branch in Hong Kong
The registration procedure has several steps and it begins with the approval of the company name. After the name is cleared, the branch must make an application for branch office registration at the Companies Registry.
The documents requested for registration are:
- details about the branch: registered address, local representative.
- a copy of the foreign company’s incorporation documents and a certified copy of its Certificate of Registration;
- a copy of the most recent accounts of the mother company;
- the details of the local representative.
All documents must be submitted in English or Chinese. The documents are submitted to the Companies Registry and because the branch is not a legal entity in itself, but an extension, the foreign company’s Memorandum and Articles of Association will be used to open the branch. In other cases, for example, when opening a private limited liability company in Hong Kong, this entity will have its own constitutive documents. The branch registration procedure should last approximately two weeks. After this time, the Companies Registry will issue a Certificate of Registration of non-Hong Kong Company.
The business registration form submitted with the Inland Revenue Department includes the following information about the branch business that will be carried out in Hong Kong:
-the name under which the business will be carried out and the business registration number for the parent company (if registered in Hong Kong).
-the branch business name under which the activities will take place in English and Chinese.
-the address of the Hong Kong branch;
-the description and the nature of the business as well as the commencement date.
The branch must also apply for a Business Registration Certificate at the Inland Revenue Department and apply for any necessary business licenses. A local bank account must be opened for the branch. A foreign company opening a branch in Hong Kong is required to apply for the branch registration within one month after the commencement of the branch. It is important to keep this requirement in mind as applications made before the commencement date will not be accepted.
We also invite you to watch the following video about branches in Hong Kong:
Compliance of branch offices in Hong Kong
Once a management seat is registered with the Companies Register in Hong Kong, a branch office will automatically be subject to the same compliance requirements of all other local companies. Any change brought to the management structure of the branch must be announced to the Trade Registry which will update the info in its records accordingly. This means that if business partners will want to conduct a company due diligence process, they will be able to carry out a search with the Trade Register where they will find information on the branch office’s name and address. Our company formation consultants in Hong Kong offer company due diligence services to foreign investors doing business with local companies.
Part of the compliance requirements of the Hong Kong Commercial Code is also obtaining a license for certain activities carried out in the country. It is important to remember that the branch office may only undertake the same activities of the parent company, thus the license, if required, will be obtained for the same type of activity. This can be an educational one, in case of branches of foreign companies engaged in opening education centers in Hong Kong or one for a restaurant, in case of a foreign franchise that is also expanding to Hong Kong. Regardless of the specific sub-sector, investors who open a branch are advised to obtain information about the licensing requirements before they commence the branch set-up activities so that they may apply for the license as soon as the branch is duly registered with the Companies Registry. It is important to keep in mind that operating without a proper license is not permitted. We recommend that foreign companies follow through with the branch registration and licensing requirements with the help of our Hong Kong company formation agents.
Taxation of branch offices in Hong Kong
Just like any other Hong Kong company, the branch office will respect the same tax regulations imposed by the Inland Revenue Department. Moreover, the Hong Kong branch is also required to file annual accounts with the Companies Register which will be signed by the director, by the authorized representative or secretary. A special mention should be made regarding the representative, which must be acknowledged by the Registrar upon the incorporation of the branch office.
This is why our company registration agents in Hong Kong offer nominee director and secretary services, which can be very useful when it comes to respecting the legislation and requirements imposed by the Companies Register.
Below, our Hong Kong company formation specialists highlight the main taxes applicable in Hong Kong and their respective rates:
-8.25%: this is the first tier for the profits tax as from the year of assessment 2018/2019; a lower 7.5% tax applies to unincorporated businesses.
- 16.5%: the second tier for the profits tax, with 15% for unincorporated businesses.
-15% the standard real property tax as a percentage of the net assessable value of the property.
- 5%: the value of the regular contributions made by the employer and the employee to the Mandatory Provident Fund scheme.
- 0.25%: the value of the stamp duty on immovable property of the total rent that is paid for a lease with the term of one year.
- 0.2%: the value of the stamp duty payable on the transfer of shares (divided equally between the buyer and the seller).
Branches are required to observe the general rules for tax compliance. In Hong Kong, the year of assessment starts on April 1 and ends on March 31 the following year. Tax returns are to be filed within one month from their issue date (in most cases) and companies need to pay a provisional profits tax that is calculated based on the profits recorded in the previous year. Excess payments made in this manner will be applied against the provisional profits that that is to be paid the following year. As for other types of companies, penalties apply when branches in Hong Kong fail to comply with the tax filing and payment obligations in force.
Filing compliance for branches in Hong Kong
The Hong Kong Inland Revenue Department (IRD) has certain requirements in place both for locally incorporated companies and for foreign companies (branches) that engage in business operations in the city. The annual filing requirements are due both with the IRD and with the Companies Registry.
While branches in Hong Kong have lighter reporting requirements than other types of legal entities, such as the limited liability company, investors are advised to seek guidance and representation if needed in order to comply with these annual requirements if they cannot be present in the city when the filing date is due.
Company registration in Hong Kong is mandatory for all companies, including branches. Once this step if complete, the annual returns and annual accounts are also needed for a branch. The specific accounting reporting requirements may also depend on the country in which the non-Hong Kong company is based. In these cases, the foreign companies may be required to deliver an annual certified copy of its accounts and submit it ti the Companies Registry.
Alternatives to the branch office in Hong Kong
While the branch presents many advantages, as described above by our agents, it is also important to remember one of its defining traits, the fact that the parent company remains liable and accountable for its Hong Kong branch. This, along with the fact that the branch does not have legal capacity on its own (in case of litigation, for example), can determine some foreign companies to look for alternatives. The table below presents the characteristics of the two other options for foreign companies expanding to Hong Kong: the subsidiary and the representative office.
Name and activities
Can be the same as that of the parent company or it can be a new name (if available and if observing the conditions for company names).
Like the branch, it must have the same name as the parent company abroad.
The subsidiary is a separate legal entity recognized just as any other Hong Kong resident company, thus the liability of the subsidiary does not extend to the parent company.
The foreign company bears full liability for the debts and actions of its representative office in Hong Kong.
Management and activities
It is managed as a local resident limited liability company or a joint stock company; it has one director, one shareholder and a company secretary who must be a Hong Kong resident. Can perform any business activities, the same as the parent company and/or other ones.
The representative office can only be set up for promotional, marketing, liaison, research or in any case non-profit activities; it must have one representative in Hong Kong who will be relocated here from the foreign office.
Time required to register
A few working days, approximately one week or more.
Just a couple of working days, less than for the subsidiary or the branch.
Taxation and auditing
The subsidiary is taxed like any other registered company in Hong Kong. The general auditing and accounting requirements available for Hong Kong companies will apply for this business form.
The representative office is not taxed because it cannot derive profits from Hong Kong. There are no applicable accounting and auditing requirements.
Our company formation agents in Hong Kong can give you detailed information about these different types of structures suited for foreign company incorporation, like the subsidiary of a foreign company or the representative office.
Expanding an already existing business in Hong Kong is an important step and one that can bring many benefits to the current company. The Special Administrative Region presents many advantages, in terms of ease of doing business, the simple company incorporation procedure, the low taxes and the fact that it offers an international business environment. Needless to say, expansion through a branch office is performed after a company has reached a certain level of maturity and if the Hong Kong market presents the needed characteristics to ensure a profitable branch set up. If you would like to receive personalized counseling on how your business could benefit from an expansion to the Hong Kong market, do not hesitate to reach out to our agents. Doing business in Hong Kong, and thus having easier access to the important market that is Mainland China, can be a suitable business option for an expanding company.
Statistics about branches and regional offices in Hong Kong
As a regional financial and business center, Hong Kong is a popular location to open a branch. Many foreign companies choose to expand their business to the Asian market and use Hong Kong as their preferred location. Many such companies are based in the United States of America, followed by Japan or the United Kingdom. Below, we present a set of statistics issued by the Census and Statistics Department in Hong Kong:
- 278 companies: the number of regional headquarters in Hong Kong when the parent company was located in the United States.
- 232 companies: the number of regional headquarters opened in Hong Kong by a Japanese company.
- 216 companies: the regional headquarters in Hong Kong belonging to a Chinese company.
- 141: the number of regional headquarters in Hong Kong corresponding to a parent company located in the United Kingdom.
- 97: regional headquarters in Hong Kong for which the parent company was located in Germany.
The number of companies was recorded at the beginning of June for the year in question, in this case, 2019. For the purpose of the presented statistics, a regional office is one that has a parent company which is registered outside of Hong Kong. The latest statistics, as presented by the Department, also include the following data:
- 1,541: the number of regional headquarters in Hong Kong in 2019.
- 2,490: number of regional offices in Hong Kong also in 2019.
- 5,009: the number of local offices in Hong Kong in 2019.
The data was based on the Annual Survey of Companies in Hong Kong with Parent Companies Located Outside Hong Kong. Investors who need more information on regional headquarters or regional offices can reach out to our agents.
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