A branch office is not a legal entity that stands on its own as a business entity but is an extension of the parent company. It is located away from the investor’s country of origin. As such a foreign branch office must be registered in the country in which it is operating.
Why Establish a Foreign Branch Office in Hong Kong?
Foreign entities and investors are taking advantage of the low tax rates and Hong Kong’s low tax regime, a free economy, and easy access to the markets in Mainland China to set up foreign businesses in Hong Kong. Hong Kong is a popular business destinationin Asia for foreign investors. The choice of a company structure usually depends on the company’s plan and business goals of that company.
Documents of Registration for a Foreign Branch Office
- A duly filled company registration form capturing all the necessary details like details of the local representative and details of the parent company.
- Certify a copy of your parent company’s Memorandum and Articles of Association (MAA).
- Certify a copy of your parent company’s registration is to be presented during the registration process.
Requirements to Incorporate a Foreign Branch Company in Hong Kong
The following are the requirements for incorporating a foreign branch office:
The name of your foreign Branch Office must be the same as that of its parent. Submit this name and wait for approval. In as much as the branch name is similar to that of the parent, it can still not be approved by the company registrar if he/she deems, according to the law, that the name is inappropriate or misleading or if it is already in use in Hong Kong and is appearing in the records of Index of Company Names.
The person registering for the company will be informed of the readiness of the Certificate of Registration and the date of collection via the fax details provided. In case he/she is sending a representative to do the collection of the certificate, he/she will have to provide the representative with written authorization.
Engage the services of a representative who is a resident. This representative will be responsible for accepting legal notices on behalf of the foreign branch office. This representative can be a local individual or a local corporate body.
Place of business
Secure and establish a physical place for your foreign Branch Office. This physical location is where all statutory documents will be kept.
Put in place measures towards tax compliance for your foreign branch office just as any other Hong Kong incorporated companies.
Compliance to requirements of public disclosure
Put in place measures for your foreign branch office towards compliance to requirements of annual returns filling, tax returns filling. If exempted from this, provide the reasons.
Obtain the relevant licenses for your business operation
Once you have registered your Branch Office and obtained the certificate of Business Registration, you will still need to obtain licenses for various operations in your physical business location. There may be other activities that do not require licenses or permits, however, most operations in Hong Kong require licenses and permits. To be on the right side of the law, confirm with the firm assisting in the registration of your foreign Branch Office about which licenses to go for.
Registering a Foreign Branch Office in Hong Kong
The registration of a foreign Branch Office in Hong Kong involves two steps namely: company name approval and registration of the Branch Office at the Department of Inland Revenue offices for business registration.
- Engage the services of a professional firm because it is a requirement.
- Commence your registration process within the first month of establishing your physical business place.
After you have successfully registered your Branch Office, you are entitled to a Certificate of Business Registration from the Department of Inland Revenue. The number in this certificate is the same number that will be used for filling company taxes and you are mandated to always display the certificate on your business premises.
You are also required to open a bank account for your foreign Branch Office in any major Hong Kong banks.
The Benefits of Setting up A Foreign Branch Office in Hong Kong
- The process of opening and registering a branch office in Hong Kong is easy and quick.
- The foreign branch office is entitled to tax advantages such as free taxation on income sourced outside of Hong Kong. This is especially so for investors from countries which are having Double Taxation Agreements with Hong Kong.
- Having your company incorporated as a foreign Branch Office enables your company to enjoy lesser requirements for registration and reporting.
When all has been said, no business structure can be said to be better than the other because it all depends on your plans for and with that company, and also the size of your investment. As a foreign investor, you will opt for a branch office if you are a corporation. When you have made your choice for a business structure, the choice of your location of the establishment and the associated costs is key to the success of your business investments. Hong Kong provides a conducive environment for the establishment of a foreign business and offers many benefits in terms of tax rates and exemptions. Hong Kong also offers proximity and ease of access to other markets within and around Mainland China.
Ensure your foreign branch office complies with the law and also ensure you have all the required documents so that you do not experience delayed registration.
Foreign branch incorporation in Hong Kong FAQs
What are the instances in which a foreign representative office and a foreign branch office may be the same?
- They both use the name of the parent company.
- They both do not need minimum capital before establishing.
- No requirement for the number of members in terms of minimum or the maximum number of members.
- There are no limited liabilities as the liabilities are extended to the parent company.
- They both can open a bank account in Hong Kong.
- The main difference between a representative office and a branch office is that a branch office is a setup to generate a profit while a representative office is a setup to research the market and gain an insight into what the business environment looks like, it does not make a profit.
- A branch office is a legal entity that can contract any business deals and contracts, while a representative office cannot because it is not a legal entity.
- A representative office is not required to register or remit capital while a branch office is mandated to register as a company and have minimal capital.
Between a branch office and a subsidiary office, which is more preferred by foreign investors in Hong Kong?
- A subsidiary company is more preferred by foreign investors in Hong Kong than a branch office because a subsidiary company is responsible for its liabilities and it enjoys several tax advantages. Hence it bears its own success or loss without it being extended to the parent company. It is also faster to set up than a branch office as it takes 4-7 working days as compared to 14 working days of setting up a branch office.
- A subsidiary office does not require the presence of local personnel while a Branch Office must have one local representative.
- It is easier to open a corporate bank account as a foreign subsidiary company than as a foreign branch office.
- A branch office has the parent company being responsible for its liabilities while a subsidiary company is responsible for all its liabilities. In as much as both are enjoying the same low tax rates, the main difference is that assessing the profits of a branch office is difficult than assessing the profits of a subsidiary. Hence there may be difficulties when it comes to what is to be taxed.
- There is no separate MAA (Memorandum and Articles of Association) for a branch office and is therefore not required for your foreign branch registration.
- In a branch office, the name and activities must be the same as that of the parent company.
- A subsidiary company is preferred by Small and Medium Enterprises (SMEs) while a branch office is preferred by large corporations.