Hong Kong is a popular destination for foreign companies that want to expand their business in Asia. One of the ways to establish a presence in Hong Kong is to register a branch office, which is an extension of the parent company and not a separate legal entity. In this article, we will explain what a branch office is, what are its benefits and drawbacks, and how to register one in Hong Kong.
What is a branch office from a non-Hong Kong company?
A branch office is a business entity that operates under the same name and business activities as its foreign parent company. It does not have its own share capital or board of directors, and it is not subject to the Hong Kong Companies Ordinance. However, it must comply with the registration requirements of the Companies Registry and the Inland Revenue Department, as well as any other relevant laws and regulations.
A branch office can leverage the reputation and resources of its parent company when doing business in Hong Kong, but it also exposes the parent company to unlimited liability for the debts and obligations of the branch. Therefore, it is important to assess the risks and benefits of setting up a branch office before making a decision.
Benefits of setting up a branch office in Hong Kong
Some of the advantages of registering a branch office in Hong Kong are:
• It can enjoy the same low corporate tax rate as any other Hong Kong company, which is 8.25% on the first HK$2 million of profits and 16.5% on the subsequent amounts.
• It can benefit from the extensive network of double taxation agreements that Hong Kong has with other countries and regions, which can reduce or eliminate withholding taxes on dividends, interest, royalties, etc.
• It can access the large and diverse market of Hong Kong, which is a leading financial and trade hub in Asia and a gateway to mainland China.
• It can use the same name and branding as its parent company, which can enhance its credibility and recognition among customers and partners.
Downside of registering a branch office in Hong Kong
Some of the disadvantages of registering a branch office in Hong Kong are:
• It does not have a separate legal status from its parent company, which means that the parent company is fully responsible for all the liabilities and obligations of the branch, including taxes, debts, lawsuits, etc.
• It cannot enjoy some of the incentives and schemes that are available for local companies, such as the Technology Voucher Programme , the SME Export Marketing Fund , or the SME Financing Guarantee Scheme .
• It may face some restrictions on its business activities, depending on the nature and scope of its parent company’s operations. For example, it cannot engage in banking or insurance activities unless its parent company is authorized to do so by the relevant authorities.
• It may have to submit additional documents and information to the Companies Registry and the Inland Revenue Department, such as its parent company’s constitution, certificate of registration, accounts, etc.
Key characteristics for a branch office registration in Hong Kong
To register a branch office in Hong Kong, you need to meet some basic requirements and provide some essential information. These include:
• A name that matches or resembles the name of your parent company, unless it is already in use or deemed misleading or improper by the Companies Registry.
• A local representative who is resident in Hong Kong and authorized to accept legal notices on behalf of your branch. The representative can be an individual or a corporate entity (such as a firm or practice of solicitors or accountants).
• A place of business that is a physical location where your branch operates and keeps its statutory records. You cannot use a post office box or virtual office as your place of business.
• A certificate of registration from your parent company’s jurisdiction of incorporation, along with its constitution (such as memorandum and articles of association) and latest accounts (if applicable).
Steps for the application of the business registration of a Hong Kong branch office
The process for registering a branch office in Hong Kong involves two steps: obtaining approval for your name and applying for registration with the Companies Registry and the Inland Revenue Department. You need to engage a professional service provider to assist you with these steps.
Step 1: Apply for a name
You need to submit an application form (Form NN1) to check if your proposed name is available and acceptable by the Companies Registry. You can also use their online service to conduct a preliminary name search before submitting your application. The name approval process usually takes one working day if you submit your application online or two working days if you submit it by post.
Step 2: Apply for registration
Once your name is approved, you need to submit another application form (Form NN2) along with the required documents and fees to register your branch office with the Companies Registry. The documents include:
• A certified copy of your parent company’s certificate of registration
• A certified copy of your parent company’s constitution
• A certified copy of your parent company’s latest accounts (if applicable)
• Identification documents of your local representative
• A notice of the address of your place of business in Hong Kong
You also need to apply for a business registration certificate with the Inland Revenue Department within one month of establishing your place of business in Hong Kong. You can do this by filling out an application form (Form IRBR1) and paying the prescribed fee. The business registration certificate will allow you to pay taxes and file returns to the Inland Revenue Department.
The registration process usually takes about four to six weeks, depending on the completeness and accuracy of your application and documents. Once your branch office is registered, you will receive a certificate of registration of a non-Hong Kong company and a business registration certificate. You need to display these certificates at your place of business and renew them annually.
Conclusion
Registering a branch office in Hong Kong is one of the options for foreign companies that want to enter and operate in the Hong Kong market. It has some benefits, such as low tax rates, double taxation relief, and brand recognition, but it also has some drawbacks, such as unlimited liability, limited incentives, and additional compliance requirements. Therefore, it is advisable to consult a professional service provider before deciding whether a branch office is suitable for your business needs and goals.
