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By Vlad Cuc, specialist in company formation matters
A subsidiary in Hong Kong is one of the available business forms for foreign investors and entrepreneurs who choose to expand their activities. Unlike the branch or the representative office, the subsidiary is essentially a distinct legal entity that can carry on the activities of the mother company.
Our experts specializing in setting up a company in Hong Kong can help foreign companies interested in establishing their presence here to choose between the subsidiary and the branch office.
Hong Kong is known for its excellent infrastructure, free economy, and low taxes. Its location in Asia, close to Mainland China, makes it an ideal location for businesses operating in the Asian market and worldwide.
No, only to the extent of ownership in the subsidiary
Corporate tax rate
8.25% on the first HKD 2 million and 16.5% on the rest of the taxable profits
Possibility of hiring local staff (YES/NO)
Key facts about subsidiaries in Hong Kong
The subsidiary is the most popular business form chosen by foreign companies in Hong Kong. The subsidiary is a private limited liability companyregistered in Hong Kong treated as a separate legal entity from its parent company, thus the liabilities of the subsidiary do not extend to the parent company, as they would in the case of a branch in Hong Kong.
The four main traits of the subsidiary in Hong Kong can be summarized as follows:
Independence: this is possibly the most important trait of the subsidiary, as the company in Hong Kong is completely independent of the parent company abroad.
Limited Liability: the subsidiary is a Hong Kong limited liability company meaning that both the founders and the parent company only have limited liability in terms of debts and obligations incurred by the subsidiary.
DistinctManagement: the management of the subsidiary is separate from that of the parent company; the subsidiary handles its own accounts and accounting.
Flexibility: the subsidiary is independent of the parent company and this also extends to the business activities; it can perform the same business activities and others if needed.
The subsidiary can have the same name or choose a different one and it can have the same listed activities or these can differ. However, it is important that the name of the company is approved by the Companies Registry. Some general requirements for the name of the company (that apply to subsidiaries as well as other companies in Hong Kong) are the following:
- the company can have an English, Chinese or English-Chinese name; it cannot have a name with a combination of Chinese characters and English words or letters.
- when the company name is in English, it will end in the word “Limited” and the Chinese name will end with the specific characters for this.
- there are special considerations for the Chinese name, which should contain traditional Chinese characters that can be found in specific dictionaries as well as in the ISO international coding standard.
- the name cannot be the same as the one of an already registered company and it will not be registered if the Chief Executive believes that its use is a criminal offense or if it is offensive or contrary to the public interest.
- the improper use of some words may be perceived as a criminal offense; for example, using the word “Bank” without the approval of the Hong Kong Monetary Authority.
- when the company name is considered too alike with the one of another company, the company that was the second to register a similar name will be issued a court order that either prohibits it from using the name or demands that the company changes the name; failure to comply with these terms for changing names that are too alike results in fines of a maximum of 100,000 HKD and, in some cases, imprisonment of six months.
One of our agents who specialize in Hong Kong company formation can provide investors with more details on the registration of names, especially in what is perceived to be a “shadow company” – a legal entity that is registered in Hong Kong, with a name that is similar to an international brand name. These so-called shadow companies present themselves as representative of that brand in an unlawful manner. Investors who wish to open a subsidiary should be aware of this practice. Foreign businessmen interested in opening subdiaries in other countries, for example in Brazil or in India, can receive specialized assistance from our partners.
For investors who are interested in performing a quick name check, our tool allows you to perform a preliminary name verification for the subsidiary.
There is no minimum or maximum share capital for a subsidiary in Hong Kong in 2022 and subsidiaries are subject to the same tax regime and tax rates applicable to private limited companies.
The basic requirements for a subsidiary include:
- at least one director;
- at least one shareholder and a maximum number of shareholders of 50;
- a company secretary;
- an appointed auditor who must be a member of the Hong Kong Society of Accountants and has a practicing certificate.
The current company registration requirements in Hong Kong do not make it mandatory to deposit a minimum or maximum share capital for a subsidiary. However, in practice is it common to have ordinary shares with a value of 1.00 HKD each and to have an issued or paid-up capital of at least one share with this value. Companies can choose to have an authorized capital of 10,000 HKD represented by 10,000 ordinary shares, as described above.
The subsidiary is subject to the accounting principles applicable to locally registered companies, meaning that the Hong Kong SAR Financial Reporting Standards apply in its case. It needs to prepare annual financial statements and audit them if it is a public limited company. Lighter requirements apply in case of private companies and our accountants in Hong Kong can explain the principles.
Our company formation specialists in Hong Kong can tell you more about the accounting requirements for subsidiaries and other types of companies.
Our agents invite you to watch a short video about Hong Kong subsidiaries:
· - the incorporation documents for the subsidiary;
· - The parent company’s Memorandum and Articles of Association and Certificate of Incorporation;
· - Documents for the appointed company officers: identification documents, proof of residence and a bank letter.
A registration fee and a capital fee apply. The procedure usually lasts between four and seven days. After the company is registered, a Certificate of Incorporation will be issued. After registration, any company must register at 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, according to the type of activity they perform.
Requirements for Hong Kong subsidiaries after registration
After the company is registered with the Trade Register in Hong Kong, it must also register with the Inland Revenue, which is the tax authority in this country. The Inland Revenue will issue the Business Registration Certificate which will enable the subsidiary to operate in Hong Kong. This application must be submitted within one month of registering the company with the Companies Registry and it is performed whether or not the subsidiary has started the business activities or not. The process is a simple one and the Business Registration Certificate is collected in person, usually within one business day. The subsidiary needs to display this certificate on the office premises, in a visible spot, at all times.
The next requirement is for the subsidiarydirectors or representatives of the company to open a corporate bank account with a Hong Kong Bank. The subsidiary can have an account with any bank, regardless of the bank of the parent company abroad. Different banks have different requirements for opening a bank account and the fees for opening and maintaining one will vary. The documents usually needed to open this account include the following:
-certified copy of the Articles of Association, the Certificate of Incorporation and the Business Registration Certificate;
-Board resolution for opening the corporate bank account;
-identification documents for the company directors and specimen signatures for the authorized signatories (either the directors or other appointed individuals);
-a certificate showing the percentage of shareholdings owned by the foreign company in the Hong Kong subsidiary;
-the business plan or the audited financial statements.
This list is not an exhaustive one and it can differ from one bank to the other. We recommend selecting a bank to work with and then reaching out to them to find out the exact document list. Alternatively, one of our specialists can handle this step.
Our Hong Kong company formation agents can assist with the opening of the bank account and can help advise foreign investors on their options when they cannot be present in Hong Kong during all of the company incorporation formalities. With the help of our agents, you can handle part of the procedures through a power of attorney, allowing one of our specialists to handle particular company incorporation phases. An important advantage is that you do not have to travel to Hong Kong at different stages in the process of opening a subsidiary.
Once these requirements are complied with, the Hong Kong subsidiary may apply for the business license which will be issued by the competent authority. It must be taken into account that certain special licenses could be required, depending on the activity of the subsidiary. Examples of regulated businesses include travel agencies, restaurants, employment agencies, education business, financial services companies, event management companies, retail shops or trading companies. These are just some example, however, investors interested in company registration in Hong Kong in 2022 for the purpose of starting a subsidiary may need to obtain different types of permits according to the types of activities undertaken by the said subsidiary.
One example of a regulated business includes financial services companies. Hong Kong is a popular business and financial hub and many of these types of companies choose to expand their services here. For a subsidiary in this business field, the following will be required, apart from the Business Registration Certificate and the others already mentioned. For these types of companies, the following licenses are generally required, depending on the exact type of activity or activities:
-A corporate license issued by the Securities and Futures Commission, a representative license and an authorized institution registration.
-Money lenders license which is issued by the Companies Registry.
-Insurance agent’s registration that is issued by the Office of the Commissioner of Insurance and it is needed in order to perform activities as an insurance agent.
-Insurance Business Authorization also issued by the Office of the Commissioner of Insurance.
-Authorization of Insurance Brokers, also issued by the Office of the Commissioner of Insurance.
-Pawnbrokers License, which is a license issued by the Hong Kong Police Force.
-Deposit-Taking Company Registration, offered by the Hong Kong Monetary Authority.
-Registration of Remittance Agents and Money Changers, also issued by the Hong Kong Police Force.
One of our agents who specialize in setting up companies in Hong Kong can give you more information about the financial services licenses. The examples above include just some of the categories of businesses in this field for which a special license is needed. Depending on the types of services they provide, financial companies in Hong Kong will need to obtain one or more of these licenses. The same applies to restaurants, where business owners will need to obtain several licenses, from those needed to store and produce foodstuffs to selling alcoholic beverages.
Taxation of subsidiaries in Hong Kong in 2022
As mentioned above subsidiaries in Hong Kong will be treated the same as local companies in terms of taxation. The corporate tax for a Hong Kong subsidiary is 16,5%, which is one of the lowest in Southeast Asia. Apart from that, the parent company may also file for certain tax exemptions or credits depending on the double taxation agreement its home country has signed with Hong Kong.
Subsidiaries must also comply with the same accounting regulations as Hong Kong companies. They must file their tax returns within one month of their issuing by the Inland Revenue Authority. The tax year in Hong Kong starts on April 1st and ends on March 31st the next year.
Options for foreign companies in Hong Kong
Many foreign companies choose to register a subsidiary in Hong Kong, however, this is not their only option. A branch office and a representative office are also two ways to establish the presence on the market, albeit they differ significantly from the subsidiary.
The branch is an extension of the parent company and, like the subsidiary, it will engage in economic activities in Hong Kong. However, unlike the branch it is not a separate legal entity from the foreign company and the latter will bear all of the liability for the debts and obligations of its Hong Kong branch. Foreign companies that open a branch will need to appoint a branch representative and will need to register the branch with the Companies Registry.
The requirements for opening the branch office include obtaining the approval for the company name (which needs to be the same as that of the foreign company), providing the Articles of Association for and the business registration certificate from the foreign trade register as well as the decision to appoint the branch representative. The branch is also expected to comply with the annual filing requirements and the taxation requirements.
The representative office is suitable only for those companies that need to understand the business climate and perform a market evaluation before opening a branch or a subsidiary in Hong Kong. It can only be used for marketing or promotion purposes and it cannot enter into contracts or derive any type of profit from Hong Kong.
One of our agents who specialize in Hong Kong company formation can provide you with detailed information about these business forms, especially the subsidiary if this is the chosen type of establishment.
Out of these three options, the subsidiary is often the preferred done because it implies less liability on the part of the foreign company. The few differences in the taxation regime are often not as crucial to foreign companies like the fact that the liabilities are limited solely to the Hong Kong subsidiary.
Starting a business in 2022 in Hong Kong has the same advantages for investors, among which we wish to highlight once more the foreign investor-friendly regime, as well as the fast incorporation procedure. If you are unable to travel to Hong Kong in the near future, we can assist you with the incorporation process by drafting, preparing and submitting part of the documents. This is done under a power of attorney and an agreement with our team who will act in your best interest.
The low tax regime, the close proximity to the Chinese market as well as the excellent infrastructure are all key advantages for investors who choose to open a subsidiary or a company in Hong Kong. According to the Companies Registry, the following statistics apply to company registration in Hong Kong:
-1,193: the number of newly registered companies as having a place of business in Hong Kong;
-11,061: the total number of non-Hong Kong companies that remained registered in the Companies Register.
-181: the number of non-Hong Kong companies newly registered as having a place of business in August 2019.
Our company formation consultants in Hong Kong are ready to assist you and answer any questions. Please contact us for additional information. If you happen to be in need of professional company incorporation services in Montenegro we can put you in touch with our partners.
Roger Pay is the Managing Director of our company and an experienced company incorporation specialist. He will help you open your company in Hong Kong as fast as possible.
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