A foreign company is one that is registered in another country, yet it intends to operate in a different country. Let us say that an investor has a company outside of Hong Kong, and they are interested in the Hong Kong Market. In such circumstances, the foreign company would be  required to set up an office in Hong Kong.

Why Hong Kong?

Many international companies look to Hong Kong for expansion. This is due to a variety of reasons, primarily, due to its close relationship with China and the rest of East Asia. Hong Kong serves as a good Asian headquarters for businesses to use to further expand. Also, Hong Kong has favourable corporate tax rates, with 0% tax for profit earned overseas. And 16.5% tax for profits in Hong Kong. This is before various tax exemptions schemes to further aid businesses.

However, building a business in Hong Kong is not free from difficulties. While the regulation running a business is favourable, starting a company and maintaining annual compliance has its difficulties.

For example, the process to open a bank account in Hong Kong is difficult, and in view of recent stricter AML compliance requirements, it is getting harder. You can read more about opening a corporate bank account in Hong Kong here. Foreign owned companies will find it difficult to open a corporate bank account if they do not have local operations.

Paul Hype Page has professional relationships with banks in Hong Kong and ASEAN, which has helped us create a simple three-step procedure to open corporate bank accounts.

Also, all Hong Kong based companies must be audited annually. Compared to many other regions, where smaller companies do not have to be audited below a certain threshold, this can inconvenience companies. This is a fixed cost over and beyond what companies pay in other markets.

With 12 years of experience in company incorporation and annual compliance in various markets, Paul Hype Page is a trusted advisor with an office in Hong Kong.

A foreign company office is at liberty to conduct numerous activities as defined during the setup. Hong Kong is one of the Asian regions that most investors would prefer to inject their capital. Therefore, it is essential to understand the best ways to expand their company or business operations in the region. The options that exist when one considers expanding to Hong Kong include:

  • A representative office.
  • Subsidiary company
  • Branch office

These three are the most distinct for individuals who are seeking to strengthen their presence in the region. Depending on the structure of the business, an investor will have to choose on the best methods that they like their presence felt within the area. Small and medium-sized companies prefer a representative office or a subsidiary, whereas larger companies prefer branch offices.

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Branch Office

One of the ways that an investor can ensure that their foreign company has a presence in Hong Kong is via registration of a branch office business structure. A branch office will be legally registered though the business will still be considered as a foreign company. Since the branch office is not considered as a separate entity, it will imply that the international company will be held responsible and accountable for any debts or liabilities that the office might incur.

Further, a branch office will generally be subjected to the same taxation and legal consequences and other requirements as the Hong Kong companies, including the incorporation. It must be incorporated with the Companies Registry. In order to incorporate a branch office in Hong Kong, then you will have to meet the following requirements:

  • The company name must be approved
  • The representative of the branch office must be a local resident
  • You must have an established place to conduct business.

 

Subsidiary Company

The other option that investors can bring their foreign companies in Hong Kong is through the incorporation of a subsidiary company. The subsidiary company option is for the investors who would like to make their international companies 100% ownership in Hong Kong. It is the most common, and it requires that the investor registers their company with the Hong Kong Companies Registry. The incorporation of a foreign company in Hong Kong has several advantages to investors. Some of the benefits include:

  1. It is considered as a separate legal entity from the foreign parent company and thus would be considered as a resident company.
  2. The company will be eligible for all tax exemptions and incentives, just like with the case of the local Hong Kong companies.

The process of incorporating a subsidiary in Hong is simple, and the investor will have to fulfill the following conditions before the incorporation of the company:

  • The company name must first be approved
  • You must have a local registered address
  • There must be at least one director or shareholder
  • You must have a company secretary who must be a Hong Kong resident
  • You must have an auditor for the intended subsidiary company
  • You must have a share capital

 

Representative Office

It is better for investors who want to penetrate the Hong Kong market first to set up a representative office to gain insight and broad market exposure and in-depth understanding. The idea is essential to help one make an informed decision on whether they would want to get into the Hong Kong market environment fully. The representative market structure is the best for such activities.

The representative office in Hong Kong is not permitted to engage in activities that are profit-oriented or aim to make profits. Since the representative office is not considered as a legal entity, the office is thus not allowed to engage in any contracts, sign any deals, or engage in any business activities on behalf of the country. The activities that a representative office is permitted to do in Hong Kong includes;

  • Promotion and liaison activities
  • Coordinating and organizing activities on behalf of the parent company
  • Conducting Market research

The parent company will be fully responsible for any debts or liabilities that a representative office incurs since the representative office is not considered as a legal entity with legal standing.

Representative names must be the same as that of the foreign company. Since it has no legal right to engage in business, it cannot generate revenues. Further, it has zero-taxation since it is not expected to make any earnings for the company.

 

Alternatives to Hong Kong

If you are considering Hong Kong, you should also consider Singapore. Singapore has the lowest tax rates in the ASEAN region, with tax exemptions for new companies in their first 3 years of operation. Paul Hype Page has 12 years of experience as a chartered accountant in Singapore. We have been providing services such as incorporation and annual compliance.

You can also relocate to Singapore easily and obtain the necessary documentations without hassle.

At Paul Hype Page & Co., we are a registered recruitment agency with the Ministry of Manpower. We have the necessary in-sights to navigate a succesful application process.

 

Conclusion

It is essential to have a foreign company office for investors who are willing to venture into the overseas market in the future. The process of hiring staff or a representative can be from the main office headquarters, which is aware of the company goals and mission. Generally, operating in a foreign country is not easy and requires a pre-study to make a practically informed decision. Besides, Paul Hype Page & Co. will help you make decisions by offering consultative services and setting an office branch of your choice in Hong Kong.