This article will let you know more detail about Branch vs Subsidiary vs Representative Office in Hong Kong.
If you are someone looking forward to establishing a business in Hong Kong, then there are three options to think about. You can establish a branch office, a subsidiary company, or a representative office in Hong Kong.
Even though the three options have a lot in common, each has distinct qualities and requirements of its own.
WHAT IS A BRANCH OFFICE IN HONG KONG?
A branch office is an expansion of its parent corporation, which is based in another country.
WHAT IS A SUBSIDIARY COMPANY OR A STANDALONE ENTITY IN HONG KONG?
A subsidiary is fundamentally a private limited corporation. It may be owned by a maximum of 50 shareholders, each of which may be a person or a business.
WHAT IS A REPRESENTATIVE OFFICE IN HONG KONG?
A representative office is essentially the office of its foreign parent firm temporarily set up for administrative activities in another jurisdiction. Hong Kong is not recognised as a legal entity. A representative office in Hong Kong can only serve non-profit purposes.
DIFFERENCES BETWEEN BRANCH VS SUBSIDIARY VS REPRESENTATIVE OFFICE IN HONG KONG
| Factors to Compare | Branch Office | Subsidiary | Representative Office |
| Liability | Including the parent company | Limited liability | Including the parent company |
| Right for? | Overseas corporations are eyeing expansion opportunities. | Companies, both domestic and international, seeking growth and expansion. | International companies looking to increase visibility and knowledge of the business environment. |
| Entity Name Constraints? | Has to be the same as the parent firm. | Can differ or be like the parent firm | Has to be the same as the parent firm. |
| Separate legal entity | No | Yes | No |
| Ownership | Only a representation of the parent organization | May be wholly foreign-owned or locally owned. | Only a representation of the parent organisation |
| Tax Obligations | A branch office must meet the same legal and tax obligations as an HK-incorporated company. Non-HK companies must file annual returns with audited financial statements. | Subsidiaries qualify for the same incentives and tax breaks as HK local companies but are also require filing annual tax returns and audited accounts to the Inland Revenue Department. | This cost centre business structure has no legal identity, thus no obligation to file taxes, keep records, or register with the Companies Registry. |
| Duration of registration | It takes up to 14 working days to register | It takes 4-7 working days to register | It takes 1-2 working days to register |
| Audit requirements | Based on the parent company's audit requirements. | Audit requirement is always compulsory for a Subsidiary | Based on the parent company's audit requirements. |
| Activities allowed | Have to be identical to the parent firm. | May be identical or distinct from the parent firm. | Allowed to undertake market research or coordination activities only, and not permitted to perform any business operations that result in profit. |
| Appointment of key officer | A local Hong Kong resident should be appointed as an authorized representative. | A local Hong Kong resident should be appointed as company secretary. | A local Hong Kong resident should be appointed as a chief officer. |
| Profit taxes | Applies to profits | Applies to profits | Not applicable as it |
| Obligation | Generated in Hong Kong | Generated in Hong Kong | Cannot engage in profit-producing activities |
| Location of operations | Operation should only be in Hong Kong | Can operate in Hong Kong and other countries | Operation should only be in Hong Kong |
| Controlled by | Companies Registry (CR) & Inland Revenue Department (IRD) | Companies Registry (CR) & Inland Revenue Department (IRD) | Companies Registry (CR) & Inland Revenue Department (IRD) |
CONCLUSION
In conclusion, the choice between a subsidiary, branch, and representative office in Hong Kong will ultimately depend on the specific goals and needs of the foreign company.
Each structure has its unique advantages and disadvantages, and it is crucial for companies to carefully weigh these factors before making a decision. A subsidiary offers the greatest level of independence, but also carries the greatest regulatory and compliance burden.
A branch allows for greater control by the parent company but also has more limited operational capabilities. A representative office is ideal for companies looking to explore the market without incurring the significant cost or regulatory requirements, but cannot engage in profit-generating activities.
Ultimately, companies must consider their circumstances, goals, and requirements when choosing between these structures in Hong Kong.
