Company Formation in Hong Kong?
FEB 2021 | LAST UPDATED
CONTRIBUTOR | PWC
SNAPSHOT
Setting down the correct foundations when starting a business can yield real dividends. This definitive guide provides expert insight to the intricacies of forming a company and establishing a presence in Hong Kong. Some common questions including the below will be addressed:
How long does it take to form a company and what are the minimum requirements?
What is a representative office?
What is the difference between a branch office or local company?
Is a parent company liable for its subsidiary company?
Are there tax advantages for certain business vehicles?
Type of Business Vehicles
The most common types of business vehicles for starting a business in Hong Kong includes:
Incorporation of a private limited company;
Registration of a branch office of a foreign corporation; or
Establishment of a representative office.
1. Incorporation of a Private Limited Company
Generally a private limited company could be incorporated in 1 day via e-incorporation or around 5 working days via paper submission. It could be incorporated with either an English name or a Chinese name or both. However, it is not possible to reserve a name in advance.
The minimum requirements to establish and maintain a private limited company are:
(a) one shareholder;
(b) one director, who must be a natural person (additional director can be a body corporate);
(c) a company secretary (who must be a natural person ordinarily residing in Hong Kong or a body corporate having its registered office or place of business in Hong Kong);
(d) a Hong Kong registered office address (which cannot be a post office box number or a "care of" address, but can be different from its business address);
(e) an auditor (which must be a firm of Hong Kong accountants); and
(f) a Business Registration Certificate.
How to maintain a private limited company?
A Hong Kong company must hold an annual general meeting (“AGM”) in respect of each financial year and file an annual return with the Hong Kong Companies Registry (the “Companies Registry”) annually with a prescribed fee. Any late filing of the annual return will attract a higher registration fee. A company can dispense with the requirement for holding of AGMs by unanimous shareholders’ approval.
Furthermore, a company must notify the Companies Registry of any special resolutions passed (other than that for change of company’s name) e.g. change of share capital, change of directors and secretary or their particulars and alteration of Articles of Association etc.
2. Registration of a Branch Office of a Foreign Corporation
In order to establish a branch office in Hong Kong, it will be necessary for the company to be registered at the Companies Registry as a non‑Hong Kong company under Part 16 of the Hong Kong Companies Ordinance (the “Companies Ordinance”).
An application for registration should be made to the Registry within 1 month of establishment of the place of business in Hong Kong together with a registration fee.
Generally speaking, the foreign company has to provide the certified copy of its Certificate of Incorporation, Constitution and audited financial statements (if applicable) with the Companies Registry when making an application.
It is important that the documents are certified in the manner required by the Companies Registry in order to avoid rejection.
If all the documents are in order, registration can usually be completed within 3 to 4 weeks upon submission of the documents. The company will also be required to obtain a Business Registration Certificate by paying the prescribed fee.
Meanwhile, a non-Hong Kong company is required to appoint at least 1 person resident in Hong Kong to accept service of process and any notices required to be served on the company as required by the Companies Ordinance.
Such a person must be a Hong Kong resident or a firm of solicitors or professional accountants.
How to maintain a branch office?
Following registration, a non-Hong Kong company will have a continuing statutory obligation to notify the Companies Registry of any change which may occur in the information contained in the documents already filed (e.g. change of directors, etc.) and submit to the Companies Registry any changes to the documents filed (e.g. change of constitutional documents).
The company will be required to file an annual return with the Companies Registry every year, together with a prescribed fee. Any late filing of the annual return will attract a higher registration fee.
The annual return must also be accompanied by a certified copy of its latest published accounts if the company is required, under the laws of the place where it is incorporated, or the laws of any other jurisdictions where the company is registered, or the rules of any stock exchange or similar regulatory bodies in those jurisdictions, to publish its accounts or to make them available for inspection by members of the public.
3. Establishment of a Representative Office
The term "representative office" is not a statutory defined term and neither the status it represents is defined by Hong Kong law. It is only an expression commonly used to refer to the business presence of a foreign company in Hong Kong which activities would not oblige the foreign company to register under Part 16 of the Companies Ordinance.
A representative office must not be used to transact any business which creates legal obligations and it should avoid carrying on any direct trading or profit‑making activities nor should it enter into or sign on behalf of its head office any agreements that are profit-generating.
Legal advice should be sought as to whether, based on the nature of the business, it is necessary to register a branch under Part 16 of the Companies Ordinance in any particular case.
Generally speaking, a representative office may conduct the following activities in Hong Kong without triggering the registration requirements under the Companies Ordinance:
(a) to perform liaison and business promotion functions for the head office;
(b) to employ representative and supporting staff;
(c) to lease office premises;
(d) to enter into contracts for utilities and office support services such as secretarial, water, electricity, telephone and other communication service.
A foreign company which establishes a representative office in Hong Kong is obliged to register with the Business Registration Office.
Comparison - a Company, a Branch and a Representative Office
The business activities to be carried on in Hong Kong is not the main reason for choosing a local company or a branch of foreign corporation. The tax rate applicable to profits for both a local company and a branch is the same.
The main reason for preferring a local company (or a subsidiary) over a branch is that a subsidiary is a separate legal entity which is completely separate from its parent. In other words, the parent is not liable for the liabilities of its subsidiary. Furthermore, the processing time for incorporation of a local company is shorter than registration of a branch in Hong Kong.
On the other hand, preferring a branch over a subsidiary may be due to the tax advantages under the home jurisdiction of the parent company. A branch has to comply with less provisions of the Companies Ordinance compared to a local company. Under normal circumstances, no stamp duty is payable on the transfer of the shares of foreign company in Hong Kong. It is also not required to prepare separate audit for the branch.
Lastly, the business operation of a branch can be terminated easily by notifying the Companies Registry about the cessation of place of business in Hong Kong. For a local company, it could only be dissolved by either deregistration or liquidation, usually spending around half to 1 year respectively.
Both a branch and a representative office have no distinction from their foreign corporation. The main reason for choosing a representative office rather than a branch is always because of the scope of activities i.e. there is no need for carrying out the profit generating activities in Hong Kong. The Hong Kong Inland Revenue Department will not tax a “genuine” representative office.
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The information contained in this publication is of a general nature only. It is not meant to be comprehensive and does not constitute the rendering of legal, tax or other professional advice or service by PwC Corporate Services Limited or any other entity within the PwC network. PwC has no obligation to update the information as law and practices change. Before taking any action, please ensure that you obtain advice specific to your circumstances from your advisors.
