Setting up a Business in Hong Kong
SUMMARY OF CONTENTS
PART A - INTRODUCTION
A foreign company wishing to carry on business in the Hong Kong Special
Administrative Region ("Hong Kong") may do so by either incorporating a Hong Kong
company (private company limited shares) )or registering a branch of that foreign company in Hong Kong. (The process
by which a Hong Kong company is set up is the same whether the incorporator is a
foreign company, a Hong Kong company, an individual or other legal entity.) The
relevant government authority is the Registrar of Companies (the "Registrar").
The purpose of this article is to assist our clients in setting up and maintaining a
business in Hong Kong through a Hong Kong (see Part B) or a foreign (see Part C)
Some of the issues which arise in connection with doing business in Hong Kong, such
as registration with the taxation authorities and compliance with visa requirements,
involve similar considerations whether the business is to be operated as a separate
Hong Kong company or as a branch operation. These issues have accordingly been
dealt with generally (see Part A and Part F respectively).
Other issues, such as the method of registration of the relevant entity, differ greatly
depending on whether the client wishes to incorporate a Hong Kong company or
register a branch operation and have been dealt with separately. Accordingly, those
readers who are only interested in setting up a Hong Kong company need not refer to Part C and, likewise, those who have decided to set up a branch may disregard Part B.
2 Branch or subsidiary
The differences between a Hong Kong branch and a Hong Kong subsidiary of a
foreign company stem from the fact that, unlike a branch, a subsidiary is an entity
which, under Hong Kong law, is entirely separate from its parent. The business
activities available to a company in Hong Kong are generally not dependent upon
whether the company is locally incorporated and there is generally little practical
difference between operating a branch and a subsidiary company in respect of profit
computation. The rate of tax levied on profits is the same for local and foreign
companies and dividends are not subject to separate taxation in Hong Kong.
The usual reasons for preferring a subsidiary over a branch include the following:
(1) the parent company will not be liable for the debts of its subsidiary; its legal liability
will be limited to the amount of any unpaid issued share capital and its potential loss
will therefore be limited (in the absence of a guarantee or other security) to the value
of any assets it contributes by way of capital to the company
(2) only that information which relates to the subsidiary must be filed with the Registrar
and kept up to date
(3) a subsidiary does not need to file its accounts on the public record whereas in some
cases a foreign company will need to (see Part C)
(4) the presence of a branch in Hong Kong makes it more likely that the "parent"
company would be sued in Hong Kong even in connection with matters unrelated to
its business operations there
(5) it is usually simpler and more cost effective to set up a Hong Kong company than it is
a Hong Kong branch
(6) where the constitutional documentation in relation to the "parent" company is not in
English or Chinese, this will not require translation if a local company is incorporated,
whereas in the case of a branch it will require translation
(7) it is not necessary to arrange for certified copies of any documents to incorporate a
Hong Kong company whereas in the case of a branch it is so necessary
On the other hand, the usual reasons for preferring a branch over a subsidiary include
(1) there may be tax advantages under the tax laws of the place of incorporation of the
"parent", in particular, in relation to the treatment of any losses which the Hong Kong
operations may incur in the first few years of its operation
(2) a branch can often rely on the credit of the "parent" company
(3) if business operations are terminated in Hong Kong, the lengthy liquidation process
required for a Hong Kong company can be avoided and any capital can simply be
remitted out of Hong Kong
(4) a Hong Kong company can normally only reduce its issued capital with the consent of
(5) share repurchases by Hong Kong companies in some cases will require the consent
of the Court
(6) no stamp duty (except in relation to any land or any shares in Hong Kong companies
owned by the foreign company) will be payable on any transfer of the Hong Kong
business operated by a foreign company, whereas stamp duty will generally be
payable on any transfer of shares in a Hong Kong subsidiary company (see Part E)
(7) no duty is payable in Hong Kong on the authorised (or issued) share capital of a
foreign company with a Hong Kong registered branch
(8) the ongoing maintenance expenses involved with a branch can be lower than those
involved with a subsidiary, in particular, as Hong Kong law does not require the
separate audit of a branch
3 Business registration
The Hong Kong Business Registration Ordinance requires that every business in Hong Kong
register with the Business Registration Office. This is effected by the issuance of a
business registration certificate in respect of each location from which the business is
conducted. The certificate must be displayed on the premises. A business registration
certificate is valid for one year unless an election has been made for an expiry date of three years from the date of commencement endorsed on the certificate. The fee and
levy for the issue of the principal certificate is presently fixed at HK$2,600 per annum
and for each additional certificate HK$673 per annum. Normally, a new business
registration certificate can be issued immediately upon application and payment of the
required fee and levy. There is some relief for small business.
Registration with the Business Registration Office amounts to notification to the
Commissioner of Inland Revenue (the "Commissioner") that a business, which may be
subject to the payment of profits tax (see Part E), has been established.
It does not mean that any actual profits tax liability exists or is acknowledged.
All Hong Kong companies and foreign companies which have branches registered in
Hong Kong are deemed to be carrying on business in Hong Kong and must register
under the Business Registration Ordinance within one month of incorporation, even if
business operations have not yet commenced or within one month of having a place
of business in Hong Kong.
The particulars of the business must be briefly described in the application. The date
of commencement of business and, in the case of a company, the address of the
registered office (see Part B) or, in the case of a foreign company, the
authorised representative must
also be specified. A company which has adopted a Chinese name informally only (i.e.
it is not included in the company's Certificate of Incorporation or Certificate of Change
of Name) may also include this name in its application, but it is not necessary to do so.
The particulars registered with the Business Registration Office are available for
public inspection and any change in the registered particulars must be notified to the
Business Registration Office within one month.
4 Registration of charges
Both Hong Kong companies and foreign companies with Hong Kong branches (see Part C) must file (with the Registrar) the particulars of any registerable
(1) given by the company over its assets or
(2) existing over assets acquired by the company
normally within five weeks of the creation of the charge or the acquisition of such
Generally speaking, those charges requiring registration include floating charges and
charges over land, ships, goodwill, book debts, trademarks and patents and other
tangible assets. Foreign companies are only required to register charges over relevant
assets located in Hong Kong or which come into Hong Kong.
All companies are required to keep a register of charges over their assets (whether
they are registerable charges or not) containing short particulars of the assets
charged and the amount secured. In the case of foreign companies, this is limited to
assets located in Hong Kong or which come into Hong Kong. Further, all companies
are required to keep copies of registered charges. The register of charges must be
open for inspection by anyone whereas copies of registered charges are open for
inspection by members and creditors only.
Charges requiring registration which are not registered are generally void against a
liquidator of a company in a winding-up and against other creditors. For this reason a
person taking the benefit of a charge will usually take steps to ensure that the charge
is registered if it is required to be.
5 Additional licences and consents
Certain businesses may not be carried on in Hong Kong without a specific licence or
other consent to do so from the relevant regulatory authority, in addition to the
corporate requirements set out in this brochure. These businesses include banking,
deposit-taking, money-lending, securities and commodities dealing and advising,
leveraged foreign exchange trading and insurance.
A discussion of the relevant
requirements for these businesses is beyond the scope of this article but before
commencing to operate any such business, specific professional advice should be
The Companies Ordinance and the Securities Ordinance contain extensive provisions
in relation to the issue and distribution of prospectuses in Hong Kong concerning
shares in or debentures of companies, whether the company is registered in Hong
Kong or not.
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