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How To Set Up a Subsidiary Company in Hong Kong

In an era of rapid globalization and borderless economies, businesses constantly seek opportunities to expand their operations beyond their home turf.

For companies aiming to tap into the vibrant markets of Asia, Hong Kong emerges as a compelling choice. Renowned for its robust financial systems, strategic geographic location, and business-friendly environment, Hong Kong has long been a magnet for businesses worldwide.

In this article, we will delve into the concept of a ‘company subsidiary’, exploring the benefits it can bring to your expanding business.

Among the various types of entities available in Hong Kong, we will spotlight the private limited company— a popular option for overseas businesses due to advantages such as full foreign ownership and limited liability.

Understanding the Concept of a Subsidiary Company

Before we dive into the intricacies of setting up a subsidiary in Hong Kong, it’s important to understand what a company subsidiary is.

A subsidiary is a company that is either wholly or partially owned by another company, referred to as the parent company. The parent company holds a controlling interest in the subsidiary, which means it has more than 50% of the subsidiary’s voting stock.

Having a subsidiary can offer many benefits to businesses looking to expand overseas. For starters, a subsidiary operates as a separate legal entity from the parent company. This means that the parent company is generally not liable for the subsidiary’s debts, providing an additional layer of financial protection.

Setting up a subsidiary in a foreign country allows a business to establish a local presence, which can boost its reputation and brand recognition in that market. It’s an effective way to tap into new markets, adapt to local business practices and culture, and cater to the needs of local customers more effectively.

Importantly, subsidiaries can also provide tax benefits. Depending on the jurisdiction, income earned by the subsidiary may be taxed at a lower rate than the parent company’s home country, potentially leading to significant cost savings.

In the context of Hong Kong, establishing a subsidiary in the form of a private limited company can offer even more benefits, which we will explore in the next sections. From full foreign ownership to limited liability, the advantages are numerous and far-reaching, making it an attractive option for overseas businesses seeking to establish a presence in Hong Kong.

Types of Business Entities in Hong Kong

Hong Kong offers a variety of business entity types to suit the diverse needs and goals of companies across the globe. These include:

  1. Sole Proprietorship: This is the simplest form of business entity, owned by a single person. It’s easy to set up but offers no limited liability, meaning the owner is personally responsible for all business debts.
  2. Partnership: This involves two or more individuals or companies conducting business together. Like sole proprietorships, partnerships do not offer limited liability protection.
  3. Public Limited Company: These are companies whose shares can be publicly traded. They require more complex setup and compliance procedures but offer limited liability.
  4. Private Limited Company: Owned by one or more shareholders, this type of company cannot publicly trade its shares. It offers limited liability to its shareholders and is the most common type of business entity in Hong Kong for both local and foreign businesses.

Each of these entity types has its own advantages and considerations. However, the private limited company stands out as a particularly attractive option for overseas companies looking to establish a subsidiary in Hong Kong.

Why Choosing a Private Limited Company as Your Subsidiary Company in Hong Kong

When establishing a subsidiary in Hong Kong, selecting the right type of business entity is a crucial decision. Among the options available, the private limited company emerges as a top choice for overseas companies for a variety of reasons:

Full Foreign Ownership: Hong Kong allows 100% foreign ownership of private limited companies. This means that overseas companies can wholly own their subsidiary in Hong Kong without partnering with a local entity. This level of control can be highly beneficial, providing freedom to align the subsidiary with the parent company’s strategic objectives and corporate culture.

Limited Liability: In a private limited company, the liability of shareholders is limited to the amount of share capital they have invested. This provides a layer of financial protection to the parent company, as it is not directly responsible for the debts or liabilities of the Hong Kong subsidiary.

Tax Advantages: Hong Kong boasts one of the most tax-friendly systems in the world. Profits tax is capped at 16.5% (profits up to HKD 2 million can potentially be taxed at 8.25%), and there is generally no goods and services tax, and no tax on capital gains or dividends (subject to the FSIE regime). Moreover, profits earned outside of Hong Kong are generally not taxed. This can translate into significant cost savings for a subsidiary of an overseas company.

Business Credibility: Having a Hong Kong private limited company can enhance a business’s credibility. It shows commitment to the Hong Kong market and can improve relationships with local customers, suppliers, and banks.

Ease of Doing Business: Hong Kong ranks among the top globally for ease of doing business. The process of setting up a private limited company is relatively straightforward and can be completed in approximately one to two weeks. Furthermore, the ongoing management and compliance requirements are clear and manageable.

These advantages make the private limited company an excellent choice for overseas businesses looking to establish a subsidiary in Hong Kong.

HKWJ can help

As we have seen, Hong Kong presents a multitude of opportunities for overseas businesses seeking to expand their reach.

The private limited company, with its advantages of full foreign ownership, limited liability, and potential for significant tax savings, emerges as an optimal choice for establishing a company subsidiary in this dynamic city. However, navigating the process of setting up a subsidiary in a new country can be complex. That’s why our team of experienced corporate service professionals is here to assist you.

We offer expert guidance and comprehensive services to help you establish your private limited company in Hong Kong, ensuring a smooth and successful setup.

Contact us via the form below to learn how we can help you establish your company subsidiary in Hong Kong. Together, we can turn your vision of business expansion into a reality.

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