Representative Office, Branch & Limited Companies in Hong Kong
Hong Kong is a popular jurisdiction to set up a business for several reasons. Hong Kong allows 100% foreign ownership of companies, it is a strategic location in Asia Pacific, there is a highly talented workforce, attractive tax advantages and a common law legal system. When setting up a business in Hong Kong, there are several types of business vehicles or entities to consider. The most common are a limited company, a representative office (RO) and a branch.
An Overview of Representative Office, Limited Company, and Branch
The characteristics and requirements of the above mentioned three business entities are summarised as follows:
|Separate legal entity||Yes||No (usually a temporary set up of a foreign company)||No (an extension of the foreign head office company)|
|Party bearing the debts and liabilities||Limited company itself||The foreign company||The foreign head office company|
|Scope of business activities||No limitation||Limited to promotion, liaison and market research activities Prohibited from carrying out income generating activities, entering into contracts and issuing invoices||No limitation|
|Registered share capital requirement||Minimum HKD 1||Capital contribution is not required||Capital contribution is not required|
|Need to obtain a business registration certificate||Yes||Yes||Yes|
|Need to perform registration with the Hong Kong Companies Registry||Yes||No||Yes, registered as a non-Hong Kong company|
|Need to prepare annual audited financial statements||Yes, unless a dormant status has been obtained from the Hong Kong Companies Registry||No||No|
|Need to perform annual profits tax filing||Yes||Can apply for exemption from annual profits tax return filing with the Inland Revenue Department Profits tax returns, if issued, are generally filed on ‘Nil’ basis given the RO does not have income earned||Yes|
Other entities such as limited partnership, company limited by guarantee or funds have more peculiar traits that require an in-depth analysis and discussion on how they fit the specific business needs.
Tax liability of the business entities
Representative Offices are non-earning entities and are not liable for filing tax returns with the Inland Revenue Department. However, Representative Offices must file for a Business Registration Certificate with the Inland Revenue Department.
On the other hand, the tax rules governing the profits tax chargeability and tax calculation are the same for a limited company and a branch.
The profits tax liabilities of a limited company are normally calculated based on the annual audited financial statements of the limited company.
For a branch, the profits tax liabilities are generally calculated based on the unaudited financial statements of the Hong Kong branch. Despite so, the Inland Revenue Department may request audited financial statements of the foreign head office company, if considered necessary under special circumstances, for the tax assessment purpose.
In either case, a local professional tax advisor is highly recommended to ensure optimisation of the tax liability, appropriate tax compliance, and mitigation of any legal consequences of erroneous tax reporting.
The Best Business Entity for Your Needs
A limited company is the most common type of business entity in Hong Kong, probably due to its separate legal status and no restriction on the scope of business activities.
Having said that, a limited company in general has more compliance obligations comparatively, such as preparing annual audited financial statements. In addition, it normally takes more time for closing a limited company compared to a RO and a branch.
Due to the ease of set up and closure as well as less compliance requirements, a representative office can be an option if the business functions performed in Hong Kong are in the nature of promotion, liaison and/or market research only.
Establishing a branch in Hong Kong is considered an extension of the foreign parent company and is therefore dependant on the parent company. There are several advantages to setting up a branch but also some particularities.
The HKWJ Group is a one-stop holistic service provider and advisor to help your business grow. Within the Group, Triple Eight Ltd provides a wide range of professional and corporate services, such as company secretarial services and assisting in setting up the right business entity for you.
At HKWJ Tax Law, we assist with financial administration, such as payroll, bookkeeping and accounting, as well as tax and legal matters regarding the form of business setup.